2007 (10) TMI 412 - HC - Income Tax

Share application money genuineness of transactions Held that Section 68 of the enjoined the assessee to offer an explanation about the nature and source of the sum found credited in his books and if the explanation was not satisfactory, the amount can be credited and charged to income-tax as income of the assessee. - Since the assessee, though tried to explain the genuineness of the credit on the basis of letters of confirmation, it could not be explained as to how the transaction was materialised when the companies were not in existence and the amount was paid by cheque only on the date on which the amount was credited to the account of the company. - merely by filing a confirmation letter the burden could not be discharged when the enquiries revealed that the company was not existent nor any books of accounts or directors were traceable. ITAT order quashed Decided in favor of revenue

Summary

Issues:
1. Addition of Rs. 15,00,000 made by the AO and affirmed by the CIT(A) under s. 68 of the IT Act.
2. Burden of proof on the assessee to establish the genuineness of the transaction, identity of the creditors, and creditworthiness under s. 68 of the IT Act.

Analysis:

Issue 1:
The Revenue appealed against the Tribunal's order deleting the addition of Rs. 15,00,000 made by the AO and upheld by the CIT(A). The assessee had received Rs. 5,00,000 each from three parties, but the genuineness of these transactions was questioned due to lack of evidence regarding the identity, genuineness, and creditworthiness of the creditors. The AO made the addition under s. 68 of the IT Act, resulting in a taxable income of Rs. 11,43,675 for the assessee.

Issue 2:
The burden was on the assessee to prove the genuineness of the transactions and the credibility of the creditors. The Revenue contended that the assessee failed to discharge this burden as required under s. 68 of the Act. The AO's assessment highlighted discrepancies in the information provided by the assessee, including the non-existence of the creditors and suspicious deposit patterns. The CIT(A) upheld the addition, emphasizing the lack of cooperation from the assessee in proving the genuineness of the transactions.

The Tribunal, however, overturned the addition based on the Delhi High Court's decision, emphasizing the examination of the bank accounts of the companies issuing the cheques. The Tribunal's decision was challenged, arguing that the assessee did not adequately explain the transactions, especially considering the non-existence of the creditors and the suspicious deposit-cheque patterns. Ultimately, the High Court found that the assessee failed to discharge the burden of proving the genuineness of the transactions and the existence of the creditors, leading to the allowance of the appeal and setting aside of the Tribunal's order.

In conclusion, the High Court allowed the appeal, emphasizing the assessee's failure to prove the genuineness of the transactions and the existence of the creditors, as required under s. 68 of the IT Act.