2017 (9) TMI 1613 - AT - Income Tax

Addition u/s 68 - discharge of primary burden - Held that - Under the provisions of sec. 68 of the Act, the assessee is required to discharge initial burden of proof placed upon his shoulders, i.e., the assessee has to prove the identity of the creditor, the credit worthiness of the creditor and the genuineness of transactions. A perusal of documents filed before the tax authorities and also the observations made by Ld CIT(A) would show that the assessee has discharged the burden placed upon its shoulders. Once the assessee discharges its primary burden, then the burden to disprove the assessee s version would shift to the shoulders of the assessing officer. In the instant case, the assessing officer has simply relied upon the general statement given by Shri Praveen Kumar Jain. The assessee has furnished confirmation letters obtained from the share applicant companies before the Ld CIT(A), after the sworn statement was given by Shri Praveen Kumar Jain. In considered view, the AO has failed to discharge the burden shifted to his shoulders. Once the assessee has discharged the initial burden of proof placed upon him u/s 68 of the Act, no addition could be made. It was further held that if the revenue s case was that the share applicants are bogus shareholders, then it was for the revenue to proceed by reopening of assessments of such shareholders and assessing them to tax in accordance with the law and it would not entitle the revenue to add same in assessee s hand. - Decided in favour of assessee

Issues Involved:
1. Addition of ?45 lakhs under Section 68 of the Income Tax Act.
2. Validity of reopening the assessment under Section 148 of the Act.
3. Genuineness of share application money received from companies.
4. Burden of proof regarding the identity, creditworthiness, and genuineness of transactions.
5. Reliance on general statements made by third parties.

Issue-wise Detailed Analysis:

1. Addition of ?45 lakhs under Section 68 of the Income Tax Act:
The Revenue contested the deletion of an addition of ?45 lakhs made under Section 68 by the CIT(A). The Assessing Officer (AO) had added this amount to the assessee's income based on information received during a search action on Shri Praveen Kumar Jain’s group, which suggested that the share application money was merely an accommodation entry. However, the assessee argued that only ?40 lakhs were received from the companies linked to Shri Praveen Kumar Jain, and the CIT(A) found that the AO had erroneously included ?5 lakhs twice, thus the correct amount was ?40 lakhs.

2. Validity of reopening the assessment under Section 148 of the Act:
The AO reopened the assessment by issuing a notice under Section 148, based on the information obtained during the search action. The assessee contended that the reopening was unjustified as they had already provided sufficient evidence to prove the genuineness of the transactions.

3. Genuineness of share application money received from companies:
The assessee provided confirmations from the share applicant companies, copies of income tax returns, audited balance sheets, and bank statements to prove the genuineness of the transactions. The CIT(A) observed that the share applicants had substantial net worth and had declared income in their returns, thus establishing the genuineness of the transactions.

4. Burden of proof regarding the identity, creditworthiness, and genuineness of transactions:
The CIT(A) noted that the assessee had discharged the initial burden of proof by providing adequate documentation to establish the identity, creditworthiness, and genuineness of the share applicants. The AO failed to bring any direct evidence to contradict the assessee's claims and relied solely on the general statement of Shri Praveen Kumar Jain.

5. Reliance on general statements made by third parties:
The AO's reliance on the general statement of Shri Praveen Kumar Jain, without any specific evidence linking the assessee to the alleged accommodation entries, was found to be insufficient. The CIT(A) emphasized that no direct evidence was provided to show that the transactions were not genuine.

Conclusion:
The CIT(A) concluded that the AO had erred in making the addition under Section 68, as the assessee had established the genuineness of the transactions. The CIT(A) followed the decisions of the Hon'ble Bombay High Court in similar cases, which held that once the assessee has discharged the initial burden of proof, the burden shifts to the Revenue to disprove the assessee's claims. Since the AO failed to do so, the addition was deleted. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

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