2012 (12) TMI 845 - HC - Income Tax

Unexplained credit - share application money from 9 applicants - CIT (A) opined that the assessee had discharged the basic onus cast upon it after considering the ruling in Lovely Exports 2008 (1) TMI 575 - SUPREME COURT OF INDIA - Held that - While there can be no doubt that in Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA) the Court indicated the rule of shifting onus i.e. the responsibility of the Revenue to prove that Section 68 could be invoked once the basic burden stood discharged by furnishing relevant and material particulars, at the same time, that judgment cannot be said to limit the inferences that can be logically and legitimately drawn by the Revenue in the natural course of assessment proceedings. The information that assessee furnishes would have to be credible and at the same time verifiable. In this case, 5 share applicants could not be served as the notices were returned unserved. In the backdrop of this circumstance, the assessee s ability to secure documents such as income tax returns of the share applicants as well as bank account particulars would itself give rise to a circumstance which the AO in this case proceeded to draw inferences from. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. Having regard to the totality of the facts, i.e., that the assessee commenced its business and immediately sought to infuse share capital at a premium ranging between Rs.90-190 per share and was able to garner a colossal amount of Rs.4.34 Crores, this Court is of the opinion that the CIT (Appeals) and the ITAT fell into error in holding that AO could not have added back the said amount under Section 68 - The question of law consequently is answered in favour of the Revenue.

Summary

Issues Involved:
1. Whether the ITAT was correct in deleting the entire addition of Rs.4,34,00,000/- made by the AO under Section 68 of the Income Tax Act.
2. Whether the AO was justified in adding back the share application money as unexplained cash credit.

Issue-wise Detailed Analysis:

1. Deletion of Addition by ITAT:
The Revenue challenged the ITAT's order, which deleted the addition of Rs.4,34,00,000/- made by the AO. The ITAT relied on the decision of the Supreme Court in the case of M/s Lovely Exports Pvt. Ltd., which held that if the identity of the share applicants is established, the onus shifts to the Revenue to disprove the genuineness of the transaction. The ITAT found that the assessee had furnished necessary documents such as PAN numbers, addresses, audited accounts, and bank statements of the share applicants. The ITAT concluded that the identity of the share applicants was established, and hence, the addition was deleted.

2. Justification of AO's Addition:
The AO held that the assessee received Rs.4,34,00,000/- as unexplained credit in the form of share application money from 9 applicants. The AO added back the amount under Section 68, reasoning that the assessee had not adequately explained the source of the funds. Notices issued to 5 out of 9 share applicants under Section 133(6) were returned unserved. The AO noted that the share applicants had declared very meager income in their returns, and large amounts were transferred into their accounts before issuing cheques to the assessee. The AO concluded that the creditworthiness of the share applicants was not proved.

The CIT (A) and ITAT, however, held that the assessee had discharged its onus by providing necessary documents, and the AO could not make the addition based on suspicion. The CIT (A) relied on several judicial precedents, including CIT v. Dwarkadhish Investment (P) Ltd., which emphasized that once the identity of the share applicants is established, the onus shifts to the Revenue.

Conclusion:
The High Court held that while the assessee had provided documents to establish the identity of the share applicants, the AO was justified in drawing inferences based on the returned notices and the financial status of the share applicants. The Court emphasized that the information provided by the assessee must be credible and verifiable. Given the circumstances, including the immediate infusion of a large share capital at a premium, the Court concluded that the CIT (A) and ITAT erred in deleting the addition. The question of law was answered in favor of the Revenue, and the appeal was allowed.