In case of share application money received the relation and the source of the money of applicant need to be disclose

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Brief facts of the issue are that while during the scrutiny assessment, the Assessing Officer observed that out of Rs.40,68,500/- received by the assessee towards share capital account, an amount of Rs.39,00,000/- relating to the share application money in respect of M/s. Shree Enterprises and M/s Anuj Traders has doubted the transactions and after issuing summons under section 131 and after recording statement of assessee as recorded at pages 2 & 3 of the assessment order finally concluded at pages 4 & 5 as under :- “This case is totally covered by the decision of the Hon’ble Supreme Court in the case of McDowel & Co. Ltd. –vs.- CTO (1985) 154 ITR 148. The assessee relied on the decision of the Hon’ble Apex Court in the case of CIT –vs.- Orissa Corporation Pvt. Ltd. 159 ITR 78. But here, summons under section 131 was issued, copies were given to the assessee for cross examination and it is seen that Sri Ashok Kr. Sharma is not traceable at the address given. All the Bank accounts are closed now. Sri Ashok Kr. Sharma did not file any return for the AY 2006-07 showing any hint of the huge cash deposit in it’s a/c. with Kotak Mahindra Bank in the name of M/s. Anuj Traders and Shree Enterprises. Shri Ashok Kr. Sharma is not traceable, so whose money is this? Here, the assessee is the beneficiary because at last, the money has been transferred to it’s a/c. and the assessee has withdrawn the money from it’s a/c. From the chart as given above, it is clear that the cash were deposited to the bank and withdrawn from the same branch simultaneously. This can only happen when there is a direct relation between the cash depositor and the cash withdrawer. All the above deposit and withdrawn have been done after 4-00 p.m. i.e., after the normal banking hours of working. Moreover, it is seen that the A/c. of M/s. Anuj Traders and Shree Enterprises are opened with ‘zero’ balance. It is very uncommon where bank A/c. is opened without any deposit. This can only happen when there is other A/c. in the same bank of the same group and there is some influence over the bank to open those A/cs. From the copies of the A/c. opening forms of the above two A/cs., it is seen that there is clearly written about some third party funding. But the branch authority, now stated that as the A/cs. are opened with ‘zero’ balance, there was no third party funding and if there be any third party, being such an old case there is noting written regarding who is the third party. It can only happen when there are some group companies maintaining their A/c. with the same bank. So, it is clear that Sri Ashok Kr. Sharma, somehow got a PAN and his identity was used to open bank A/c in different names with the help of its trade license and as huge cash was deposited in that bank in those A/cs. which ultimately transferred to the assessee’s bank A/c as share application money. So the assessee’s case is totally covered by the decision of the Hon’ble Calcutta High Court in the case of Hindusthan Tea Trading Co. Ltd Vs. CIT (2003) 263 ITR 289. In view of the above, the claim of share applidation received Rs.39,00,000/- and of cash withdrawn by the assessee company through it’s a/c. through the A/c. of M/s. Anuj Traders & Shree Enterprises are added to the total income of the assessee, being income from undisclosed sources, which has been transacted through a colourful transaction with the sole intention to avoid taxes. In view of the above, Rs.39,00,000 is added to the total income of the assessee u/s.68 of the IT Act, 1961”.

Citation :
Income Tax Officer, Ward-8(3), Kolkata (Appellant) Vs. M/s. Pacific Apparels Limited, Kolkata (PAN: AACCP 2280 N) (Respondent)