UMANG HOUSING P. LTD,MUMBAI vs. ITO 4(3)(3), MUMBAI

The present appeal has been preferred by the assessee against the order dated 08.10.2010 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2001-02.

The sole issue raised by the assessee in this appeal is against the addition of Rs.25,94,800/- into the income of the assessee as unexplained cash credit under section 68 of the Income Tax Act. The assessee has claimed to have received a sum of Rs.24.93 lakhs as share application money. The original assessment under section 143(3) was completed on 22.08.03 by the Assessing Officer (hereinafter referred to as the AO) assessing the total income of the assessee at ‘Nil’. However, subsequently at the orders of the Commissioner of Income Tax (hereinafter referred to as the CIT) passed under section 263, assessment was set aside and the AO was directed to verify the new reserves 2 M/s. Umang Housing Pvt. Ltd. and surplus of Rs.24,95,000/-. The AO accordingly called for the necessary details. The assessee submitted the required details such as names of shareholders, address and PAN of the parties to whom the shares were allotted at premium. It was also claimed that the share application money was received through proper banking channels and further that all the parties had confirmed the transactions in question. However, the AO after analyzing the individual transactions held that the assessee had failed to establish the genuineness of the transaction. He, therefore, held that the addition of reserve and surplus of Rs.25,94,800/- was to be considered as unexplained cash credit under section 68 of the Act. He, however, observed that since most of the deposits had been carried over from the earlier year, the additions were required to be made on protective basis. He accordingly made the addition of the impugned amount of Rs.25,94,800/-under section 68 of the Act on protective basis for the year under consideration. Being aggrieved by the order of the AO, the assessee preferred appeal before the Ld. CIT(A).

In appeal, the Ld. CIT(A) called for remand report from the AO regarding the transactions in question. In the remand report, the AO observed that the assessee had failed to furnish the bank statements for financial year 2000-01. The Ld. CIT(A), therefore, doubted that it was not clear whether the share application money was carried forward from the earlier year or the fresh amounts were received during the year. He observed that although the amounts have been shown as opening balance in the confirmation furnished by the shareholders but the assessee had failed to prove the genuineness of the transactions in question. He, further, observed that from the audited balance sheet of the assessee in the period ending on 31.03.2000 and 31.03.2001, the amount of addition to share premium account has been shown at Rs.24,95,000/- as on 31.03.01 which was ‘Nil’ on 31.03.2000. He observed that this clearly established that the amount of Rs.24,95,000/- had been received by the assessee during the period ending on 31.03.2001. He further 3 M/s. Umang Housing Pvt. Ltd. observed that even the assessee had failed to prove the capacity and creditworthiness of the persons from whom the assessee had received the impugned amount. He, therefore, confirmed the impugned addition on substantive basis as against done on protective basis by the AO. Being aggrieved by the order of the Ld. CIT(A), the assessee has come in appeal before us.

We have heard the rival contentions and have also gone through the records. The Ld. A.R. of the assessee has invited our attention to page 2 of the paper book which is a chart of share application money as on 31.03.2001 wherein the opening balance has been shown at Rs.25,57,400/-. The only addition during the year is of Rs.37,400/- in relation to share application money received from Empire Advisor Services Pvt. Ltd. The total allotments, thus, have been shown at Rs.25,94,800/- and the closing balance has been shown at ‘Nil’. The Ld. A.R. has further invited our attention to the balance sheet for the year ending on 31.03.2001 wherein at page 101 of the paper book, share application money received as on 31.03.2000 has been mentioned at Rs.25,57,400/- which was transferred to the share premium account during the year under consideration as shown at page 103 of the paper book. He, therefore, has stressed that the observation of the Ld. CIT(A) that the opening balance in the share premium account was ‘Nil’ as on 31.03.2000 and it was Rs.24,95,000/- as on 31.03.2001 and therefore it showed that the money was received during the year, was not correct. He has explained that share application money was received during the earlier years, which was duly shown in the balance sheet and which thereafter was transferred to share premium account and the shares were allotted at premium during the year under consideration. Even the AO has also observed that the deposits were made during the earlier assessment years and hence the addition for the year under consideration was made on protective basis. The Ld. A.R. has further 4 M/s. Umang Housing Pvt. Ltd. submitted that for the immediate earlier assessment year i.e. 2000-01, the assessment was reopened by the AO under section 147 of the Act and inquiries were made regarding the receipt of the share application money. However, after examination of the records, the AO found that the share application money in question was also not received by the assessee in the previous financial year relating to assessment year 2000-01. The Ld. A.R. has further invited our attention to page 132 of the paper book which is the balance sheet as on 31.03.98 to show that the share application money was shown at Rs.15,57,400/- as on 31.03.97 which was at Rs.25,57,400/- as on 31.03.98. He, therefore, has submitted that the share application money in question has neither been received during the year under consideration nor during the previous assessment year but it pertained to the financial year ending on 31.03.98. The AO, after enquiries had accepted the returns of the income for the earlier assessment year 2000-01. There is nothing brought on record by the AO or the Ld. CIT(A) that the impugned share application money was received by the assessee during the year under consideration. The Ld. CIT(A) has confirmed the additions on substantive basis holding that the assessee has failed to prove that the money in question was not received during the year. However, from the record, it revealed that the AO has given a finding that most of the amounts were carried over from the earlier assessment year and the assessee has also proved before the AO in reopened assessment proceedings for the earlier year A.Y. 2000-01 that the share application money was carried over from earlier assessment years. The assessee was not supposed to prove the negative as has been discussed by the Ld. CIT(A). The Ld. CIT(A) has failed to bring on file any document to negate the claim of the assessee that no share application money has been received during the year, except Rs.37,400/-, hence, no additions under section 68 are warranted so far as the assessment year 2001-02 is concerned. The impugned additions made by the Ld. CIT(A) are therefore ordered to be deleted. 5 M/s. Umang Housing Pvt. Ltd.

In the result, the appeal of the assessee is hereby allowed.