Characterization Of Share Application Money By AO As Unexplained Cash Credit Is Devoid Of Necessary Verifications: ITAT

The Raipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that the characterization of the share application money of Rs. 25 lac by the AO as an unexplained cash credit under Section 68 of the Income Tax Act is clearly devoid and bereft of necessary verifications.

The bench of Ravish Sood (Judicial Member) has observed that the matter, in all fairness, requires to be restored to the file of the AO, with a specific direction that he shall, in the course of set-aside proceedings, call for the requisite details and make necessary verifications as regards the identity, creditworthiness, and genuineness of the transaction.

On the basis of information gathered by the AO from the office of the Addl. Director of IT (Inv.), Bilaspur, the assessee-company as a beneficiary had received share capital/premium of Rs. 25 lakhs from M/s. Debraj Vincom (P) Ltd., a Kolkata-based company. Its case was reopened. A notice was issued to the assessee company.

In compliance, the assessee-company filed its return of income on September 16, 2018, declaring an income of Rs. Nil. Copies of the "reasons to believe" at the request of the assessee were made available by the AO Objections raised by the assessee as regards the jurisdiction assumed for reopening its case were disposed of by the AO.

During the assessment proceedings, the AO discovered that the assessee-company had received Rs. 25 lakhs in share application money from M/s Debraj Vincom (P) Ltd.Because the assessee had failed to substantiate the receipt of the share application money from the share subscriber company. As a result, the AO classified it as unexplained cash credit and determined the assessee company's income to be Rs. 25,00,000.

The CIT (A) upheld the view taken by the AO and dismissed the appeal.

The ITAT determined that the CIT(A) had simply endorsed the AO's observation because the assessee company, despite being given ample opportunity, had failed to provide any explanation during the proceedings before him.

The ITAT noted that the assessee company had not placed on record any clinching documentary evidence before the AO or before the CIT(A) that would substantiate the authenticity of the transaction in question.

Case Title: Bhatia Energy and Minerals Pvt. Ltd. Versus ITO

Citation: ITA No. 259/RPR/2022

Date: 16.03.2023

Counsel For Appellant: None

Counsel For Respondent: Piyush Tripathi

Click Here To Read The Order