2010 (3) TMI 724 - HC - Income Tax

Cash credits - If the company has received share amount from the intending shareholders, is it required for the respondent assessee to identify and establish the creditworthiness of the depositors - As per the judgment of the court passed in the case of CIT v. Steller Investment Ltd. 2000 -TMI - 40317 - SUPREME Court , held that it is not for the assessee to place material before the Assessing Officer in regard to the creditworthiness of the shareholders - If the company has given the addresses of the shareholders and their identity is not in dispute, whether they were capable of investing, the Assessing Officer shall investigate - It is not for the assessee-company to establish but it is for the Department to enquire with the investors about their capacity to invest the amount in the shares. - Decided in favor of assessee.

Summary

Issues:
1. Creditworthiness of shareholders based on consenting statements.
2. Finding on genuineness of shareholders without evidence.
3. Validity of assessment order and opportunity given to Revenue.

Analysis:
1. The case involved an appeal by the Revenue against an order passed by the Commissioner of Income-tax, affirmed by the Income-tax Appellate Tribunal, regarding the creditworthiness of shareholders. The Revenue questioned the correctness of holding shareholders' creditworthiness as proved based solely on identifying them and recording their consenting statements without additional proof. The court examined the issue and referenced relevant judgments to establish that the onus of proving shareholders' creditworthiness does not lie with the assessee but with the Department to investigate the investors' capacity to invest. The court ruled in favor of the assessee, dismissing the appeal.

2. Another issue raised in the appeal was the finding by the appellate authorities that the shareholders were genuine without substantial evidence to support this claim. The court considered previous judgments, including CIT v. ASK Brothers Ltd., to conclude that if the company provides shareholders' identities and addresses, it is the Department's responsibility to verify their capacity to invest rather than the assessee proving creditworthiness. The court held that the substantial questions of law framed in the appeal should be answered against the Revenue and in favor of the assessee, leading to the dismissal of the appeal.

3. The third issue pertained to the correctness of the Tribunal's decision in upholding the first appellate authority's order despite procedural discrepancies and lack of proper opportunity for the Revenue to substantiate their case. The court, after thorough analysis and referencing relevant case laws, found in line with established principles that the Department should verify shareholders' capacity to invest rather than placing the burden on the assessee. Consequently, the court dismissed the appeal, emphasizing the Department's duty to investigate shareholders' creditworthiness rather than requiring the assessee to provide such proof.