M/S.STANDARD FIREWORKS P LTD ,SIVAKASI vs. ACIT,CENTRAL CIRCLE-2, MADURAI

The proceeds of the shares have been sourced by the subscribers from various bank accounts which have been classified into 5 groups. During the course of remand proceedings, the assessee has furnished addresses, PAN as well as copies of Income Tax Returns of all the allottees for AYs 2016-17 and 2017- 18 along with their respective bank statements. The details of immediate source as well as two preceding sources (in most of the cases) has been provided / explained by the assessee. The copies of bank statements from where the funds have been transferred have been placed on record. For each of the subscriber, the assessee placed on record chart showing the source of investment for the contributor along with their Income Tax Returns for AYs 2016-17 & 2017-18, computation of income, respective financial statements, relevant ledgers and application forms etc. The same has also been placed on page nos.2 to 690 of the paper-book. The perusal of all these documents would lead us to inevitable conclusion that the assessee had, beyond doubt, established the creditworthiness of all the investor entities. It could be seen that all the entities had sufficient net-worth to make the investment in the assessee company. All these entities were filing their Income Tax Returns since past several years and the investments were duly supported by financial documents. The funds were transferred by share allottees from their associated concerns, the source as well as source thereof was duly established by the assessee. The allegation of Ld. AO is not supported by any fact-based finding. No material has been brought on record by Ld. AO to conclude the share money so received by the assessee was its own money in the garb of share application money.

On the basis of all these documentary evidences, it could be concluded that the assessee had duly discharged the onus of proving the identity of the investor entities, their respective creditworthiness and the genuineness of the transactions. Therefore, the onus had shifted on Ld. AO to dislodge the assessee’s documentary evidences and bring on record cogent material to establish that the assessee generated unaccounted money and routed the same through banking channels in the garb of share-application money. Unless such an investigation is shown to have been carried out, the additions would not be sustainable in law since it is trite law that no addition could be made on the basis of mere suspicion, conjectures and surmises.

We find that as per the provisions of Section 68 of the Income Tax Act, 1961, where any sum is found credited in the assessee’s books and assessee offers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 01/04/2013 to provide that where the assessee is a company and the sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about nature and source of sum so credited and such explanation is found to be satisfactory. In the instant case, the assessee has not only established the immediate source but also two preceding sources in most of the cases. Therefore, on the facts and circumstances, we hold that the impugned additions as made u/s 68 and confirmed in the impugned order is not sustainable in law. By deleting the same, we allow corresponding grounds raised

13. So far as the addition of cash deposit is concerned, we find that the addition was made by Ld. AO on the ground that the assessee did not furnish the cash book. However, during remand proceedings, the assessee furnished the cash book of Mumbai Depot. Upon perusal of the same, Ld. AO rendered a finding that Mumbai Depot had opening cash balance of Rs.228.88 Lacs which was a source of cash deposit. Another finding was that the cash deposits as per cash book submitted by the assessee were in agreement with the above-mentioned bank statement. The only allegation was the fact that there was abnormal trend of cash inflow. The same stood explained by the fact that that the assessee was dealing in seasonal item i.e., crackers which would certainly have such abnormal trend during peak season. Be that as the case may be, the cash deposit is duly substantiated by assessee’s cash book as furnished by the assessee during remand proceedings and the Ld. AO also accepted this position. Therefore, there is no valid reason to sustain this addition. By deleting the same, we allow the corresponding grounds raised by the assessee.

In the result, the appeal stand allowed. Order pronounced on 21st December, 2022.