By TIOL News Service

MUMBAI, FEB 01, 2018: THE issue is - Whether when shares were allotted by assessee against which share application money was received in the preceeding year, any addition based on such credit balance is legally sustainable. NO is the answer.

Facts of the case

The Assessee-company, engaged in the business of providing solutions in the field of information technology, agriculture products and allied industries. The Assessee had filed its return declaring total income. In the course of the assessment proceeding, the AO noted that during FY 2012-13, no business activity was carried out by the Assessee. Further, the AO found that the Assessee had earned income from interest on fixed deposits only. The AO also observed that balance sheet of Assessee reflected share application money pending allotment to the tune of Rs.2,34,86,419/-. Later, the AO opined that the share application money was received by Assessee for more than 9 years back in cash. Accordingly, the AO invoked the provisions of section 41(1)(a) and treated the share application money as cessation of liability qua the Assessee. On appeal, the CIT(A) confirmed the addition made by the AO.

On appeal, the Tribunal held that,

++ it is seen that the authorities in their orders have observed that the Assessee has received share application money more than 9 years back. However, the authorities have failed to indicate as to from where they have come to such a finding. The company is a public limited company and its books of account are subject to audit. The receipt of share application money must be recorded by Assessee in its books, as and when received. Therefore, the observations of the authorities that the Assessee has received share application money 9 years ago is without any basis and factually incorrect. The Assessee has allotted shares to share applicants in FY 2013-14 and has furnished list of shareholders to whom shares have been allotted. It has also furnished a copy of statutory Return of Allotment filed with Registrar of Companies under the provisions of Companies Act. Further, a bare perusal of section 68 shows that provisions of section 68 are attracted where any sum is found credited in the books of an Assessee maintained for any "previous year" under consideration. Therefore, no addition can be made u/s 68 in the AY under appeal when the share application money has been received in FY 2009-10 and 2010-11.

(See 2018-TIOL-183-ITAT-MUM)