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SHARE APPLICATION MONEY RECEIEVED FROM A BOGUS COMPANY

ASHISH KUMAR PATRO (AUDIT ASSISTANT) (112 Points)

18 March 2010

ONE OF OUR CLIENT HAS RECEIEVED SHARE APPLICATION MONEY FROM ANOTHER COMPANY, WHICH IS ALLOWED BY ITS MEMORANDUM TO MAKE INVESTMENT IN SHARES OF OTHER COMPANIES. FURTHER THAT COMPANY HAS BEEN DECLARED AS A BOUGS COMPANY. DUE TO THAT OUR ASSESSING OFFICER HAS DECLARED THAT APPLICATION MONEY AS IF AN UNDISCLOSED INCOME,

SO PLZ HELP ME TO KNOW ABT THE CONSEQUENSES AND PROVIDE IF THERE IS ANY RELEATED CASE LAWS

THANKS IN ADVANCE..

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3 Replies

Piyush Jain (CA) (283 Points)
Replied 18 March 2010

Ashish, in this case the claim of AO is not tenable in law.

You have to just provide the name of the applicant and prove his existence. beyond that the onus of proof does not

lie in the hand of assessee that from where he has arranged the funds.

regards

Piyush

Amir (Learner) (4016 Points)
Replied 18 March 2010

Dear Ashish,

Piyush Sir is bang on............

Further, I m able to find that case law -

Where the matter concerns money receipts by way of share application from investors through banking channel, the assessee has to prove the existence of the person in whose name the share application is received. Once the existence of the investor is proved, it is not further the burden of the assessee to prove whether that person itself has invested the said money or some other person has made investment in the name of that person. The burden then shifts on to the revenue to establish that such investment has come from the assessee-company itself. Once the receipt of the confirmation letter from the creditor is proved and the identity and the existence of the investor has not been disputed, no addition on account of share application money in the name of such investor can be made in the assessee’s hands - Shree Barkha Synthetics Ltd. v. Asstt. CIT [2006] 155 Taxman 289 (Raj.).

CA Shiv (Business Controller) (2987 Points)
Replied 18 March 2010

Hello,

Case given by Amir is perfect. But there are certain things to be taken from the company like:

1. the registration letter.

2. Or the confirmation letter.

I think it will be difficult to get that papers as already that compnay is declared Bogus company. If you get that, than its fine. Or else have to find other solution.