Income Tax Act - Section 68 – addition on account of share application money – the claim of the assessee is that the CIT (A) erred is sustaining adding u/s 68 out of share application money without considering evidences, which is unjustified and liable to be quashed - HELD - In this case assessee has failed to file sufficient details to prove satisfactorily the source of cash received the AO is entitled to draw the inference that the receipts are of an income nature and it is not necessary for him to locate their exact source - the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee’s account or in the account of a third party - The question of burden of proof cannot be made to depend exclusively upon the fact of a credit entry in the name of the assessee or in the name of a third party - In either case, the burden lies upon the assessee to explain the credit entry, through the onus might shift to the AO under certain circumstances - Where the assessee shows that entries regarding cash credit in a third party’s account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus - it is for the third party to explain the source of the moneys, and they cannot be charged as the assessee’s income in the absence of any material to indicate that they belong to the assessee - Here in this case assessee has established the identity, capacity and genuineness of the transaction so far as it relates to all the share applicant - the contention of the AO is accepted and hence the addition so made by the AO is not sustainable and therefore, vacating the addition so made based on the evidences placed, the addition is unwarranted and requires to be deleted – the ground raised is allowed

IN THE INCOME TAX APPELLATE TRIBUNAL

JAIPUR BENCHES,’A’ JAIPUR

ITA NO. 434/JP/2018

ASSESSMENT YEAR: 2011-12

DATE OF HEARING: 14.06.2022

DATE OF PRONOUNCEMENT: 02.08.2022

MORANI MOTORS PRIVATE LIMITED

ACIT

ASSESSEE BY: SH. SUHANI MAHARWAL (CA)

REVENUE BY: SH. A. S. NEHARA (ADDL.CIT)

BEFORE

SHRI SANDEEP GOSAIN, JM

SHRI RATHOD KAMLESH JAYANTBHAI, AM

ORDER

PER: RATHOD KAMLESH JAYANTBHAI, A.M.

This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeal), Ajmer [hereinafter referred to as Ld. CIT(A)] for the assessment year 2011-12 dated 22.01.2018 wherein the assessee has taken the following grounds:-

“1. In the circumstances of case ld. CIT (A) erred in rejecting additional evidence under Rule 46A, which is unjustified and to be accepted.

2. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained, disallowing Rs. 46,875/- of prior period expenses without considering facts, which is unjustified and liable to be quashed.

3. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained, disallowing the payment of travelling expenses Rs. 55,040/- without considering facts, which is unjustified and liable to be quashed.

4. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained disallowing the payment of rent of Rs. 3,00,000/- without considering the submission of assessee, which is unjustified and liable to be quashed.

5. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained, in adding Rs. 8,64,000/- by disallowing interest wrongly alleging that interest was not charged on some advances without considering the submission of assessee, which is illegal, grossly unjustified and liable to be deleted.

6. On the facts and in the circumstances of case ld. ACTT erred and ld. CIT (A) sustained, in adding Rs. 6,00,000/- by disallowing interest wrongly alleging that capital expenses were incurred out of interest bearing funds, which is illegal, grossly unjustified and liable to be deleted.

7. On the facts and in the circumstances of case ld. CIT (A) erred in partly disallowance of salary of Rs. 4,56,583/- out of total disallowance of Rs. 9,21,527/- made by AO, which is unjustified and liable to be deleted.

8. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained, in adding Rs. 18,25,000/- u/s 68 ITA No. 434/JP/2018 Morani Motors Private Ltd, Jaipur vs. ACIT, Circle-06, Jaipur 3 out of share application money without considering evidences, which is unjustified and liable to be quashed.

9. On the facts and in the circumstances of case ld. ACIT erred and ld. CIT (A) sustained in disallowing Rs. 10,83,521/- out of various expenses based on assumptions and presumptions, which is illegal, grossly unjustified and liable to be deleted.

10. On the facts and in the circumstances of case Id. ACIT erred and ld. CIT (A) sustained in disallowing Rs. 21,378/- for want of TDS in spite of expenses below threshold limit, which is unjustified and liable to be deleted.”

2. The appeal was numbered as ITA No. 434/JP/2018 and this appeal was decided by the Coordinate Bench vide order dated 28.02.2020.

3. Against that order the assessee moved Misc. Application (MA) which was numbered as MA No. 53/JP/2020 dated 20.07.2020. In this MA assessee contended that there is mistake apparent on record in the order passed by the Coordinate Bench on 28.02.2020. The ld. AR contended in the MA that while dealing with the various grounds raised bench thorough over sight not dealt with the ground No. 8 and has left attention of the bench while deciding that the appeal in ITA No. 434/JP/2018. In light of that fact the MA of the assessee was allowed where in the bench has observed as under:

“2. After hearing both the parties and pursuing the order passed by the Co-ordinate Bench dated 28.02.2020, we find that the following Ground No. 8 which reads as under:-

“8. On the facts and in the circumstances of the case ld. ACIT erred and ld. CIT(A) sustained, in adding Rs. 18,25,000/- u/s 68 out of share application money without considering evidences, which is unjustified and liable to be quashed.”

Has not been adjudicated upon while passing the order dated 28.02.2020. Therefore, the order dated 28.02.2020 is recalled for the limited purposes of adjudication of Ground No. 8. The Registry is directed to fix the matter to hear the arguments on merits in due course.”

4. In the light of stated facts this appeal was recalled for limited purpose of deciding the ground No. 8 which was not earlier disposed off. The ground No. 8 taken by the assessee in that appeal reads as under :

5. The fact related to this appeal is that the assessee company is an authorized dealer of Hero Brand of two wheelers and engaged in the sale and service of two wheelers. It filed its return of income on 29.09.2011 declaring total income of Rs 48,33,130 and the assessment was completed u/s 143(3) at assessed income of Rs 1,20,48,981/-. Against various disallowances made by the Assessing officer which have been sustained by the ld CIT(A). The assessee has filed an appeal before us. In the assessment proceeding the ld. AO noted that the assessee has received share application money from various persons in cash details of which is as under:-

S. No.	Name	No. of Share Allotted	Issue Price of the shares	Fresh Share Capital introduction during FY 2010-11	Cheque	Cash
1	Master Love Morani	7500	10	75000	0	75000
2	Smt. Vinita Morani	10000	10	100000	0	100000
3	Mr. Lakshya Morani	7500	10	75000	0	75000
4	Ms. Khushi Morani	5000	10	50000	0	50000
5	Mr. N.R. Morani	92500	10	925000	0	925000
6	Smt. Durga Devi Morani	17500	10	175000	0	175000
7	Smt. Laxman Das Morani	2500	10	25000	0	25000
8	Shri T.M. Morani	50000	10	50000	0	50000
	Total			19,25,000		19,25,000

6. The ld. AO further observed in the assessment order that out of the above share capital introduction of Rs. 19,25,000/- the entire share capital introduction was in cash. Further, all the share applicants are directors or family members or close relatives of the directors. However, all of them made investments in cash. As a result, entire situation looked suspicious. The director was summoned u/s. 131 of the act so as to know why the share capital was introduced in cash and were there any compelling circumstances to do so? The director Shri L. C. Morani appeared on 25.02.2014 and submitted that there were no compelling circumstances. The company wanted to increase its net worth; hence the shares were introduced. The ld. AO to examine the identity, genuineness and creditworthiness of the above loans, summons u/s. 131 of the Act were issued to all the 8 share applicants asking them to produce their ITR, Computation and source of share capital introduction in the assessee company. Thereafter, the ld. AO recorded the comments on each share applicant of the company and finally he stated that the assessee has failed to give proper explanation about the share application received of Rs. 19.25 lakhs. Thus, relying on various decision he holds a view that a sum of Rs. 19,25,000/- to be added as income of the assessee company u/s. 68 of the Act.

7. Aggrieved from the above addition assessee preferred an appeal before the ld. CIT(A) and addition was reduced by Rs. 1 lac by the ld. CIT(A) and he has sustained the addition of Rs. 18,25,000/- by confirming the view of the AO. His finding is recorded at para no. 12.3 and the same is reiterated here in below:-

“12.3 I have gone through the assessment order, grounds of appeal and written submission carefully. It is seen that the addition has been made by the AO in respect of the share capital of Rs. 19,25,000/- received by the appellant in cash from following 8 persons:

1. Master Love Morani	Rs. 75,000/-
2. Smt. Vinita Morani	Rs. 1,00,000/-
3. Mr. Lakshya Morani	Rs. 75,000/-
4. Ms. Khushi Morani	Rs. 50,000/-
5. Mr. N.R. Morani	Rs. 9,25,000/-
6. Smt. Durga Devi Morani	Rs. 1,75,000/-
7. Smt. Laxman Das Morani	Rs. 25,000/-
8. Shri T.M. Morani	Rs. 5,00,000/-

During the course of appellate proceedings, the appellant insisted that it should be provided copy of the statements of the share applicants recorded by the AO. The copies of the statements were provided to the appellant but no further submission has been made on this issue by the appellant but no further submission has been made on this issue by the appellant after receipt of the copies of the statements. As far as the credit of Rs. 1 lac received from Smt. Vinita morani is concerned, I am of the considered view that the no addition was required to made by the AO in respect of the amount of Rs. 1 lac received from Smt. Vinita as she had invested total sum of Rs. 8,70,000/- in the share capital of the appellant company. Out of which, sum of Rs. 2,70,000/- was invested in cash and the remaining amount was paid through cheque. When the AO has accepted the nature and source of credit of Rs. 7,70,000/- received from Smt. Vinita Morani as explained satisfactory then there was no justification for not accepting the nature and source of remaining credit of Rs. 1 lac as satisfactorily explained. Hence, the addition of Rs. 1 lac made by the AO in respect of credit received from Smt. Vinita Morani is hereby deleted.

As far as the remaining credit of Rs. 18,25,000/- is concerned, in view of the facts discussed by the AO in the assessment order in detail, I am convinced that the appellant had failed to explain satisfactorily, the nature and source of the credit of Rs. 18,25,000/-. Accordingly, the addition of Rs. 18,25,000/- is confirmed and the addition of Rs. 1 lac is deleted.”

8. During the course of hearing the ld. AR appearing on behalf of the assessee submitted his arguments on this ground and the same is also reiterated here in below :

“Addition u/s 68 of Rs. 18,25,000/-

AO noted that assessee has received share application money from various persons in cash and by way of cheque details is placed on page no 14 of AO Order he called to prove the source of such share application money. Assessee provides confirmation, bank statement and return of income etc and also brought all the share application for verification. Ld AO added entire amount of Rs. 1925000/- u/s 68 which was reduced to Rs. 18,25,000/- by Ld.CIT(A).

Love Morani Rs. 75000.00

Confirmation and statement of father are there to prove the identity, genuineness and creditworthiness.

Lakshya Morani Rs. 75000.00

Confirmation and statement of father are there to prove the identity, genuineness and creditworthiness.

Khushi Morani Rs. 50000.00

Confirmation and statement of father are there to prove the identity, genuineness and creditworthiness.

Nanak Ram Morani Rs. 925000.00

Nanak Ram Morani has been passed away. On his behalf, son appeared and stated on oath. He submitted that the father was businessman and income tax payer since 2005-06. Thereafter, being ill health, he gradually closed the business and off loaded all the stock and debts. Out of such realization, he invested the share capital.

Smt. Durga Dei Morani Rs. 175000.00

Being expired, her son stated on oath before Ld. AO and accepted the subscription of share capital.

Laxman Das Morani Rs. 25000.00

Confirmation was filed. He is regular income tax payer and man of high means. He appeared and stated on oath, explained the subscription of share capital. Ld. AO accepted the creditworthiness. Only genuineness was in doubt due to cash transaction. Ld. AO in no circumstances accepts the genuineness if deposits were in cash.

T.M. Morani Rs. 500000.00

Your honour, in most of the case identification and creditworthiness were proved as held by assessing officer himself page no 21 and 22 of AO order. Ld AO did not accepted genuineness, being the receipts were from cash. He added all the amount treating cash deposit as unlawful, without having held where were it is unlawful. I fully accept and endorse the version of AO that assessee is required to prove the identity of payer, genuineness of transactions and creditworthiness of lender. Assessee by producing almost all the payers and in turn they have accepted the transaction taken place with assessee was able to establish the genuineness. Had only bank transaction is sacrosanct for genuineness then law makers categorically prohibit the cash receipts like section 40A(3), 269SS & 269T.

Your honour, Ld. AO was very much biased about the cash transactions. When a person personally appeared and stated on oath and explained his creditworthiness then how the genuineness comes in doubt simply saying that the transaction was made in cash. If the evidences are there, payer of cash and payee as well, affirmed and other relevant material support then the cash transaction has same value as bank transaction. In this case also the heavy sales were made in cash but Ld AO himself accepted the book results.

Your honour Apex Court in case of Shreelekha Bener ee v. CIT 49 ITR 112 SC) held that before the department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. It is within the rant of these principles that such cases have to be decided. In another case hon'ble Supreme Court held in case of CIT v. K.S. Kannan Kunhi 87 ITR 395 (SC) that A.O must examine the merits of assessee's explanation for Cash Credit in the books. No addition can be made by merely observing that the explanation is not satisfactory. In case of CIT v. Daulat Ram Rawatmull 87 ITR 349 (SC) held that the onus to prove that the apparent is not the real is on the party who claims it to be so.

Further, the cash credits above are not the unsecured loan. These are share capital. And in case of share capital the onus to prove is lighter than unsecured loan. It was held that Once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds. It was held that Tribunal was justified in deleting addition in the hands of assessee company. CIT vs. Nishan Indo Commerce Ltd. (2014)101 DTR 413 (Calcutta High Court). It was held in another case that when two conditions had to be satisfied. First the transaction should be genuine, true and not a camouflaged, and secondly the transaction should be duly recorded in the books of the share applicants. In case any of the two conditions were not satisfied, it would be open to the A.O to act in accordance with the law and make appropriate additions if justified and mandated by Statute (AY. 200 1-02). CIT vs. Kansal Fin cap Ltd. (2014)221 Taxman 151 (Mag.) (Delhi High Court).

Your honour, in all the above cash credit against share application money, assessee produces, confirmations, Name & Addresses of depositors, PAN and bank accounts of them and the most important all have been produced and stated on oath and confirm the transaction. In view of above the addition based on preponderance of human probability is unjustified and' liable to be quashed.”

9. In respect of this ground the ld. AR of the assessee relied upon the written submission filed by him as extracted here in above. He also submitted that against the share application money, assessee produces the depositor, confirmations of each share applicant placed on record, PAN of depositors filed, bank account details placed on record and also statement on oath were recorded for all the share applicant. All share applicant has confirmed to have made the investment in the assessee company. Thus, the ld. AR of the assessee submitted that the primary burden as per the provisions of section 68 is established as affirmation of the all the share applicant is made. The primary onus cased upon the assessee to prove the identity, genuineness of the transaction and creditworthiness of the applicants are clearly established. Merely the investment of the amount is made in cash the AO disbelieved the transaction and added under section 68 of the Act. Considering the credit worthiness of the applicants, the amount realized by the assessee is quite reasonable and the addition made is required to be deleted.

10. Per contra for this ground no. 8 the ld. DR heavily relied upon the finding of the orders of the lower authorities on this issue and supported that the addition should sustained based on the detailed finding of the AO. The ld. DR has taken us through the findings of the lower authorities which have been taken note of it and not been repeated for the sake of reiteration. The ld. DR further submitted that when all the person having the bank account there is no reason as to why they have invested the money in the cash as share application money. The AO has clearly established that the capacity of the investor is not established fully and the director of the company failed to establish as to what is the need to have the share application money to be accepted in cash. Out of 7 share applicant 3 were minor and their father have furnished the affidavits and rest of the 4 case the investor himself submitted. The source of the money so invested is the amount of the gift that they have shown as received and the there is no clarity on the gift received by them. In case of minors the affidavits are not in stamp paper. In case of N. R. Morani the father of the director filed the return of income u/s. 44AD. He has due to his health not good wound up the business he has given the cash to the assessee company. There I no evidence that he has wound up the business. His last return of income was only for 1.82 lac. so his capacity to invest remain unexplained. In case of Durga Devi 1.75 lac invested and stated to be of past savings. In case of T. M. Morani he has sold the TVS dealership. All these parties have also invested in Morani Cars and in that case also the amount is invested in cash. So, the capacity of investors is not clearly established.

11. We have heard the rival contentions, perused the submission made before us, orders of the lower authorities and also the decision relied upon on the issue on hand. It is not disputed in this case that all the 8 share applicants’ compliance to confirm the credit worthiness were made. The same is tabulated here in below:

Sr. No.	Name of share applicant	Amount Rs.	Documents submitted
1	Master Love Morani	75,000/-	Confirmation and statement of father to prove genuineness and creditworthiness.
2	Smt. Vinita Morani	1,00,000/-	Ld. CIT(A) has already accepted her investment and the same is not disputed.
3	Mr. Lakshya Morani	75,000/-	Confirmation and statement of father to prove genuineness and creditworthiness.
4	Ms. Khushi Morani	50,000/-	Confirmation and statement of father to prove genuineness and creditworthiness.
5	Mr. N.R. Morani	9,25,000/-	The applicant passed away, his son appeared and stated on oath. He submitted that his father was assessed to tax and due to his illhealth he closed the business and off loaded the business and invested the sum in the assessee company.
6	Smt. Durga Devi Morani	1,75,000/-	The share applicant expired and her son stated on oath before ld. AO and accepted the investment made.
7	Smt. Laxman Das Morani	25,000/-	Confirmation was filed. He is regular tax payer. He appeared in person and stated on oath and accepted of the facts of having invested in the assessee company.
8	Shri T.M. Morani	5,00,000/-	His confirmation was filed. He appeared and stated on oath saying that he has invested the amount in the assessee company.

12. The ld. AR of the assessee submitted before us drawing out attention to the facts narrated and list as above that assessee company has already discharged that onus casted upon. The ld. AO has not accepted these investment as they have been made in cash. The ld. AR submitted that the law does not prohibit in the year to accept the money in cash as share application money. The ld. CIT(A) has accepted only one investor and for rest of the investor confirmed the view of the ld. AO. The share investor appearing in response to summons their statement were recorded before the assessing officer, so their identity is already proved. Regarding the genuineness of transaction details of their PAN, bank statement and details of their source were furnished so as to established the capacity of each share applicant. The same is incorporated in the assessment order and in the order of the CIT(A) and therefore, the same is not repeated. The only grievance of the revenue that the assessee has accepted the amount in cash and the director of the company did not submit the clear reason as to why the share application money has been received in cash when the bank account transaction is possible in all most all the share application subscribers.

13. In this case assessee has filed to sufficient details to prove satisfactorily the source of cash received the assessing Officer is entitled to draw the inference that the receipts are of an income nature and it is not necessary for him to locate their exact source. As the Supreme Court laid down in Kalekhan Mohammed Hanif v CIT, the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee’s account or in the account of a third party. The question of burden of proof cannot be made to depend exclusively upon the fact of a credit entry in the name of the assessee or in the name of a third party. In either case, the burden lies upon the assessee to explain the credit entry, through the onus might shift to the Assessing Officer under certain circumstances. Where the assessee shows that entries regarding cash credit in a third party’s account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus. In that case it is for the third party to explain the source of the moneys, and they cannot be charged as the assessee’s income in the absence of any material to indicate that they belong to the assessee. Here in this case assessee has established the identity, capacity and genuineness of the transaction so far as it relates to all the share applicant. Based on the above facts and precedents applicable to these facts, as narrated above, we are of the considered view that the primary onus is discharged by the assessee so far as the share application money received in the year under consideration. Therefore, we are not inclined to accept the contention of the Assessing Officer in any manner and hence the addition so made by the assessing officer is not sustainable and therefore, we vacate the addition so made based on the evidences placed before us and we hold that the addition of Rs. 18,25,000/- is unwarranted and requires to be deleted. Thus, the Ground No. 8 raised by the assessee is hereby allowed.

In the result the ground no. 8 raised by the assessee is allowed.

Order pronounced in the open Court on 02/08/2022.

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