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 us 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 assessees 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 partys 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 assessees 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 nbsp 2022VIL1097ITATJAI nbsp IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCHESA JAIPUR nbsp ITA NO 434JP2018 ASSESSMENT YEAR 201112 nbsp DATE OF HEARING 14062022 DATE OF PRONOUNCEMENT 02082022 nbsp MORANI MOTORS PRIVATE LIMITED nbsp Vs nbsp ACIT nbsp ASSESSEE BY SH SUHANI MAHARWAL CA REVENUE BY SH A S NEHARA ADDLCIT nbsp BEFORE SHRI SANDEEP GOSAIN JM SHRI RATHOD KAMLESH JAYANTBHAI AM nbsp ORDER nbsp PER RATHOD KAMLESH JAYANTBHAI AM nbsp This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax Appeal Ajmer hereinafter referred to as Ld CITA for the assessment year 201112 dated 22012018 wherein the assessee has taken the following grounds nbsp 1 In the circumstances of case ld CIT A erred in rejecting additional evidence under Rule 46A which is unjustified and to be accepted nbsp 2 On the facts and in the circumstances of case ld ACIT erred and ld CIT A sustained disallowing Rs 46875 of prior period expenses without considering facts which is unjustified and liable to be quashed nbsp 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 55040 without considering facts which is unjustified and liable to be quashed nbsp 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 300000 without considering the submission of assessee which is unjustified and liable to be quashed nbsp 5 On the facts and in the circumstances of case ld ACIT erred and ld CIT A sustained in adding Rs 864000 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 nbsp 6 On the facts and in the circumstances of case ld ACTT erred and ld CIT A sustained in adding Rs 600000 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 nbsp 7 On the facts and in the circumstances of case ld CIT A erred in partly disallowance of salary of Rs 456583 out of total disallowance of Rs 921527 made by AO which is unjustified and liable to be deleted nbsp 8 On the facts and in the circumstances of case ld ACIT erred and ld CIT A sustained in adding Rs 1825000 us 68 ITA No 434JP2018 Morani Motors Private Ltd Jaipur vs ACIT Circle06 Jaipur 3 out of share application money without considering evidences which is unjustified and liable to be quashed nbsp 9 On the facts and in the circumstances of case ld ACIT erred and ld CIT A sustained in disallowing Rs 1083521 out of various expenses based on assumptions and presumptions which is illegal grossly unjustified and liable to be deleted nbsp 10 On the facts and in the circumstances of case Id ACIT erred and ld CIT A sustained in disallowing Rs 21378 for want of TDS in spite of expenses below threshold limit which is unjustified and liable to be deleted nbsp 2 The appeal was numbered as ITA No 434JP2018 and this appeal was decided by the Coordinate Bench vide order dated 28022020 nbsp 3 Against that order the assessee moved Misc Application MA which was numbered as MA No 53JP2020 dated 20072020 In this MA assessee contended that there is mistake apparent on record in the order passed by the Coordinate Bench on 28022020 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 434JP2018 In light of that fact the MA of the assessee was allowed where in the bench has observed as under nbsp 2 After hearing both the parties and pursuing the order passed by the Coordinate Bench dated 28022020 we find that the following Ground No 8 which reads as under nbsp 8 On the facts and in the circumstances of the case ld ACIT erred and ld CITA sustained in adding Rs 1825000 us 68 out of share application money without considering evidences which is unjustified and liable to be quashed nbsp Has not been adjudicated upon while passing the order dated 28022020 Therefore the order dated 28022020 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 nbsp 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 nbsp 8 On the facts and in the circumstances of the case ld ACIT erred and ld CITA sustained in adding Rs 1825000 us 68 out of share application money without considering evidences which is unjustified and liable to be quashed nbsp 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 29092011 declaring total income of Rs 4833130 and the assessment was completed us 1433 at assessed income of Rs 12048981 Against various disallowances made by the Assessing officer which have been sustained by the ld CITA 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 nbsp S No Name No of Share Allotted Issue Price of the shares Fresh Share Capital introduction during FY 201011 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 NR 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 TM Morani 50000 10 50000 0 50000 nbsp Total nbsp nbsp 1925000 nbsp 1925000 nbsp 6 The ld AO further observed in the assessment order that out of the above share capital introduction of Rs 1925000 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 us 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 25022014 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 us 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 1925 lakhs Thus relying on various decision he holds a view that a sum of Rs 1925000 to be added as income of the assessee company us 68 of the Act nbsp 7 Aggrieved from the above addition assessee preferred an appeal before the ld CITA and addition was reduced by Rs 1 lac by the ld CITA and he has sustained the addition of Rs 1825000 by confirming the view of the AO His finding is recorded at para no 123 and the same is reiterated here in below nbsp 123 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 1925000 received by the appellant in cash from following 8 persons nbsp 1 Master Love Morani Rs 75000 2 Smt Vinita Morani Rs 100000 3 Mr Lakshya Morani Rs 75000 4 Ms Khushi Morani Rs 50000 5 Mr NR Morani Rs 925000 6 Smt Durga Devi Morani Rs 175000 7 Smt Laxman Das Morani Rs 25000 8 Shri TM Morani Rs 500000 nbsp nbsp 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 870000 in the share capital of the appellant company Out of which sum of Rs 270000 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 770000 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 nbsp As far as the remaining credit of Rs 1825000 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 1825000 Accordingly the addition of Rs 1825000 is confirmed and the addition of Rs 1 lac is deleted nbsp 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 nbsp Addition us 68 of Rs 1825000 nbsp 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 us 68 which was reduced to Rs 1825000 by LdCITA nbsp Love Morani Rs 7500000 nbsp Confirmation and statement of father are there to prove the identity genuineness and creditworthiness nbsp Lakshya Morani Rs 7500000 nbsp Confirmation and statement of father are there to prove the identity genuineness and creditworthiness nbsp Khushi Morani Rs 5000000 nbsp Confirmation and statement of father are there to prove the identity genuineness and creditworthiness nbsp Nanak Ram Morani Rs 92500000 nbsp 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 200506 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 nbsp Smt Durga Dei Morani Rs 17500000 nbsp Being expired her son stated on oath before Ld AO and accepted the subscription of share capital nbsp Laxman Das Morani Rs 2500000 nbsp 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 nbsp TM Morani Rs 50000000 nbsp 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 nbsp 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 40A3 269SS amp 269T nbsp 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 nbsp 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 honble Supreme Court held in case of CIT v KS Kannan Kunhi 87 ITR 395 SC that AO must examine the merits of assessees 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 nbsp 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 2014101 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 AO to act in accordance with the law and make appropriate additions if justified and mandated by Statute AY 200 102 CIT vs Kansal Fin cap Ltd 2014221 Taxman 151 Mag Delhi High Court nbsp Your honour in all the above cash credit against share application money assessee produces confirmations Name amp 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 nbsp 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 nbsp 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 us 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 182 lac so his capacity to invest remain unexplained In case of Durga Devi 175 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 nbsp 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 nbsp Sr No Name of share applicant Amount Rs Documents submitted 1 Master Love Morani 75000 Confirmation and statement of father to prove genuineness and creditworthiness 2 Smt Vinita Morani 100000 Ld CITA has already accepted her investment and the same is not disputed 3 Mr Lakshya Morani 75000 Confirmation and statement of father to prove genuineness and creditworthiness 4 Ms Khushi Morani 50000 Confirmation and statement of father to prove genuineness and creditworthiness 5 Mr NR Morani 925000 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 175000 The share applicant expired and her son stated on oath before ld AO and accepted the investment made 7 Smt Laxman Das Morani 25000 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 TM Morani 500000 His confirmation was filed He appeared and stated on oath saying that he has invested the amount in the assessee company nbsp 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 CITA 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 CITA 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 nbsp 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 assessees 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 partys 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 assessees 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 1825000 is unwarranted and requires to be deleted Thus the Ground No 8 raised by the assessee is hereby allowed nbsp In the result the ground no 8 raised by the assessee is allowed nbsp Order pronounced in the open Court on 02082022 nbsp DISCLAIMER Though all efforts have been made to reproduce the order accurately and correctly however the access usage and circulation is subject to the condition that publisher is not responsibleliable for any loss or damage caused to anyone due to any mistakeerroromissions