2011 (9) TMI 175 - HC - Income Tax

Genuineness of creditors - Assessment / examination of creditors by the AO of the assessee - Jurisdiction of AO - Held that - the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. - Decided in favor of assessee.

Summary

Issues:
Assessment of share application money as income - Failure to verify creditor's return acceptance - Burden of proof on assessing officer - Adverse view against assessee based on creditor's transaction - Appeal against CIT(A) and Tribunal orders - Section 260A of Income Tax Act - Lack of substantial question of law.

Analysis:
The appeal before the High Court concerned the assessment of share application money received by the assessee company from a creditor. The Income Tax Appellate Tribunal had dismissed the Revenue's appeal, leading to the current appeal. The assessing officer had added the amount to the assessee's income, suspecting the genuineness of the creditor's procurement of money. However, the CIT(A) found the creditor's identity, creditworthiness, and the transaction's genuineness to be established, holding that any action regarding the share's market rate should be against the creditor, not the assessee.

The High Court noted that both the CIT(A) and the Tribunal had considered crucial factors such as the payment through an account payee cheque, the creditor's appearance before the assessing officer, and disclosure of PAN and account details. The assessing officer's failure to verify the creditor's return acceptance was highlighted. The court emphasized that the burden of assessing the creditor's profit and loss account should not fall on the assessee, especially when the creditor is an income tax assessee.

The High Court upheld the lower authorities' findings, stating that the assessing officer should have inquired with the creditor's assessing officer regarding the transaction's genuineness before drawing adverse conclusions. The court emphasized the importance of following the principles under Section 68 of the Income Tax Act. Ultimately, the appeal was dismissed as lacking substance, with no interference in the concurrent factual findings. The connected application was disposed of accordingly, and parties were granted the option to obtain a certified copy of the order.