2016 (6) TMI 1184 - HC - Income Tax

Government subsidy received - capital receipt or revenue receipt - Held that - Revenue did not seriously dispute that the subsidy received by the assessee was a capital receipt. Therefore, the same could not have been subject to taxation. Bogus share capital addition - assessee failed to furnish evidences of identity and creditworthiness of the persons from whom share capital was claimed to have been received and also genuineness of the said transaction - Held that - When any sum is found credited in the books of accounts of the assessee, either on account of a capital receipt or a revenue receipt, the assessee is liable to prove that the money was actually received. The assessee is also liable to prove the nature of receipt. Therefore, the Assessing Officer was well within his right to make enquiry. Upon enquiry, it transpired that the so called shareholders were non-existent. The Assessing Officer, in the circumstances, was entitled to take the view which he did by his order dated March 31, 2006. The submission advanced by assessee that if the Assessing Officer was in a hurry to complete the assessment and he, therefore, had no time to scrutinise the evidence adduced by the assessee, it cannot be said that the assessee failed to discharge his burden is not without substance. Therefore, the appropriate course will be to remand the matter to the Assessing Officer who shall consider issue.

Summary

Issues:
1. Treatment of government subsidy as capital receipt.
2. Deletion of addition on account of bogus share capital.

Analysis:

Issue 1: Treatment of Government Subsidy
The appeal challenged a judgment regarding the treatment of a government subsidy as a capital receipt for the assessment years 2000-01 and 2001-02. The Tribunal dismissed both the revenue's appeal and the assessee's cross-objections. The Court noted that the subsidy received was indeed a capital receipt, not subject to taxation, and ruled in favor of the assessee. The question of law was answered in the negative and in favor of the assessee.

Issue 2: Deletion of Addition for Bogus Share Capital
Regarding the deletion of an addition of ?2,03,40,000 on account of bogus share capital, the Court found that the views expressed by the CIT(Appeals) and upheld by the Tribunal were not in accordance with the law. The Court emphasized that when any sum is credited in the books of accounts, the assessee must prove the actual receipt and nature of the receipt. The Assessing Officer had the right to make inquiries, and upon finding non-existent shareholders, was justified in adding back the share application money as unexplained credits. However, the Court acknowledged the contention that the Assessing Officer did not thoroughly scrutinize the evidence due to time constraints. Consequently, the matter was remanded to the Assessing Officer for proper consideration in line with legal precedents. The question was answered in the affirmative and in favor of the revenue, partially allowing the appeal.

In conclusion, the judgment addressed the issues of government subsidy treatment and bogus share capital addition, providing detailed analysis and legal reasoning for each. The decision clarified the legal principles governing capital receipts, taxation, burden of proof, and the Assessing Officer's responsibilities, ensuring a fair and thorough examination of the case.