2009 (12) TMI 713 - AT - Income Tax

Unexplained share capital u/s 68 - bogus share transactions - To find out the identity, creditworthiness and genuineness of the amount received, letters were issued u/s 133(6) calling for requisite information but Most of the letters were not served and were received back with the postal remark no such party and for some the reply was not received. HELD THAT - In the present case in spite of all the efforts where the Assessing Officer could not even locate the respective so-called applicants, the assessee could file undated confirmations and affidavits. Therefore, it is a case where all the papers are manufactured at the instance of the assessee and not the real transaction. We, therefore, merely on the basis of such papers cannot hold that the amount received by way of share capital is explained within the meaning of section 68 of the Act. The Full Bench of the Delhi High Court in the case of Sophia Finance Ltd. 1993 (8) TMI 62 - DELHI HIGH COURT have held that the provision of section 68 shall equally apply even in the case of amount stated to be received towards share capital. Since the assessee failed to prove even the basic identity as also the creditworthiness and the genuineness of the transaction in the form of share premium, the addition was rightly made by the Assessing Officer. In the result, the appeal is dismissed.

Issues:
1. Assessment of unexplained cash credit under section 68 of the Income-tax Act, 1961.
2. Failure to establish the identity, creditworthiness, and genuineness of share applicants.
3. Dismissal of appeal by the Commissioner (Appeals) based on lack of evidence.
4. Discrepancies in confirmation letters and lack of supporting documents.
5. Legal precedents and interpretations regarding the burden of proof on the assessee.

Issue 1: Assessment of Unexplained Cash Credit under Section 68:
The appellant, dealing in unlisted securities, declared income with a significant addition in share capital and share premium. The Assessing Officer raised concerns about the genuineness of the amount received, leading to an investigation under section 133(6) of the Act. Despite multiple notices and incomplete confirmations, the identity and creditworthiness of the share applicants remained unverified. Citing legal precedents, the Assessing Officer held the burden of proof on the assessee, which was not met, resulting in the classification of the amount as unexplained cash credit under section 68.

Issue 2: Failure to Establish Identity, Creditworthiness, and Genuineness of Share Applicants:
The Commissioner (Appeals) upheld the Assessing Officer's findings, noting the appellant's inability to provide concrete details on the share applicants' identity and genuineness of the transactions. Despite opportunities and submissions, the appellant failed to substantiate the source of the funds received. The Commissioner highlighted concerns over the non-existence of the share applicants, indicating potential financial manipulation and lack of credibility on the appellant's part.

Issue 3: Dismissal of Appeal by the Commissioner (Appeals):
The Commissioner (Appeals) dismissed the appeal based on the lack of evidence and failure to establish the legitimacy of the transactions. Despite multiple opportunities and hearings, the appellant could not provide satisfactory documentation or arguments to support the source of the funds received through share capital and share premium.

Issue 4: Discrepancies in Confirmation Letters and Lack of Supporting Documents:
The appellant's submissions, including confirmation letters and affidavits, were deemed insufficient by the Assessing Officer and the Commissioner (Appeals). The absence of bank statements and incomplete confirmations raised doubts about the authenticity of the transactions. Legal arguments citing precedents where similar additions were deleted were countered by the Departmental representative, emphasizing the lack of verifiable existence of the share applicants.

Issue 5: Legal Precedents and Interpretations on Burden of Proof:
The Tribunal analyzed legal precedents and interpretations regarding the burden of proof on the assessee in establishing the genuineness of transactions. References were made to court decisions emphasizing the importance of proving identity, creditworthiness, and genuineness of transactions, especially in cases involving unexplained cash credits. The Tribunal concluded that the appellant's failure to provide concrete evidence led to the dismissal of the appeal and the affirmation of the Assessing Officer's decision.

This detailed analysis of the judgment highlights the key issues, legal interpretations, and the sequence of events leading to the dismissal of the appeal against the assessment of unexplained cash credit under section 68 of the Income-tax Act, 1961.

← Previous Next →