| The Tax Publishers2025 TaxPub(DT) 6346 (Mum-Trib) INCOME TAX ACT, 1961
Section 68
Forfeited share application money was a capital receipt, and not taxable as income. Further, for an addition under section 68 to be sustained, the revenue must prove the shareholder is bogus or non-genuine; the mere doubt about the nature of transactions is insufficient if assessee has provided the necessary evidence.
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Income from undisclosed sources - Addition under section 68 - Forfeited share application money -
Assessee-company had issued shares to two investors, receiving share application money comprising both share capital and a premium. The business project for which the funds were raised did not materialize. Consequently, the investors did not pay the final call money, and assessee forfeited the amounts already received. AO treated the entire forfeited amount of Rs. 3,00,00,000 as income from unexplained credits under section 68. The AO doubted genuineness of the transaction, citing a lack of business activity and perceived inconsistencies. Held: Assessee had discharged its onus by providing all necessary details, including the identity of the shareholders, bank statements, and proof that the shareholders had substantial sources of income. It was not the AO's case that the shareholders were bogus. Furthermore, forfeiture of share application money was a capital receipt, not a revenue receipt, and therefore, could not be taxed as income under section 68. If AO doubted the source of investors' funds, the remedy was to reopen the assessments of shareholders, and not to tax the recipient company.
REFERRED :
FAVOUR : In assessee's favour.
A.Y. : 2014-15
INCOME TAX ACT, 1961
Section 14
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