THE COMMISSIONER OF INCOME TAX-I CHANDIGARH. vs. M/S VRM PORTFOLIOS PVT LTD. CHD

Facts

The Assessing Officer (AO) reopened the assessment of M/s. V.R.M. Portfolios Pvt. Ltd. (the assessee) under Section 148 of the Income Tax Act, 1961, based on information from the Investigation Wing suggesting that share application money received was accommodation entries. The assessee received Rs. 55 lacs as share application/capital from three private limited companies: M/s Merta Finance Pvt. Ltd. (Rs. 20 lacs), M/s Tejasvi Investment Pvt. Ltd. (Rs. 15 lacs), and M/s Volga Cresec Pvt. Ltd. (Rs. 20 lacs). The AO issued summons under Section 131 to these entities, but none appeared. Despite the assessee furnishing details like IT returns of the three entities, their bank statements showing money flow, and share application forms, the AO was not satisfied and added Rs. 55 lacs to the assessee's income under Section 68, treating it as unexplained. The CIT (Appeals) deleted the addition, finding the identity of the shareholders established and the money received through banking channels. The ITAT upheld the CIT (Appeals)'s order.

Held

The High Court held that the appeal filed by the revenue deserved to be dismissed. The Tribunal had rightly dismissed the revenue's appeal by relying on the Supreme Court's judgment in CIT vs. Lovely Exports (P) Ltd. The Supreme Court in that case observed that if share application money is received from alleged bogus shareholders whose names are provided to the AO, the Department is free to proceed to re-open their individual assessments. The High Court found no infirmity in the Tribunal's order. The revenue's counsel was unable to show any evidence that was misread or that the first finding of fact by the Tribunal was erroneous. Therefore, the appeal was dismissed as devoid of merit. The operative direction was the dismissal of the revenue's appeal.

Key Issues

1. Whether the Tribunal erred in dismissing the revenue's appeal against the deletion of an addition of Rs. 55 lacs made under Section 68 of the Income Tax Act, 1961, treating share application money as unexplained income. The revenue contended that the AO had made the addition because the three entities from whom share application money was received failed to appear in response to summons, indicating they were likely bogus entities and the money was the assessee's own undisclosed income introduced through accommodation entries. The revenue argued that the assessee failed to discharge its onus to prove the genuineness of the transactions. The assessee, supported by the CIT (Appeals) and the ITAT, argued that it had discharged its onus by providing sufficient evidence regarding the identity of the three shareholder companies, including their bank statements, share certificates, director details, income tax particulars, and acknowledgements of their income tax returns. The assessee contended that since these companies were income tax assessees and the money was received through banking channels, the addition under Section 68 was unjustified.