2013 (1) TMI 238 - HC - Income Tax

Reopening of assessment - share capital received by the company was alleged to represent mere accommodation entries - ITAT deleted the addition made u/s. 68 - Held that - A perusal of the order of the Tribunal shows that it has gone on the basis of the documents submitted by the assessee before the AO and has held that in the light of those documents, it can be said that the assessee has established the identity of the parties. Also the report of the investigation wing cannot conclusively prove that the assessee s own monies were brought back in the form of share application money. As it is not the burden of the AO to prove that connection as u/s 68 the onus is upon the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. There has been no examination by the Tribunal of the assessment proceedings in any detail in order to demonstrate that the assessee has discharged its onus to prove not only the identity of the share applicants, but also their creditworthiness and the genuineness of the transactions. No attempt was made by the Tribunal to scratch the surface and probe the documentary evidence in some depth, in the light of the conduct of the assessee and other surrounding circumstances in order to see whether the assessee has discharged its onus under Section 68. Thus it appears that there has only been a mechanical reference to the case-law on the subject without any serious appraisal of the facts and circumstances of the case - appeal decided in favour of revenue.

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Onus of proving identity, creditworthiness, and genuineness under Section 68.
3. Non-production of principal officers of subscribing companies.
4. Use of investigation report for reassessment.
5. Burden of proof regarding source of share application money.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessment was reopened based on the investigation wing's report, which suggested that the share capital shown by the assessee represented mere accommodation entries, indicating that income chargeable to tax had escaped assessment.

2. Onus of Proving Identity, Creditworthiness, and Genuineness under Section 68:
The court emphasized that under Section 68, the onus is on the assessee to prove the identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. The assessee's submissions, including the use of account payee cheques and valid share application forms, were not accepted by the AO as satisfactory explanations. The court held that the mere furnishing of bank statements without explaining the deposits and their source does not suffice to prove creditworthiness. The assessee failed to produce the principal officers of the subscribing companies, which was necessary to establish the creditworthiness and genuineness of the transactions.

3. Non-production of Principal Officers of Subscribing Companies:
The assessee was asked to produce the principal officers of the companies that had subscribed to the shares. The assessee's failure to do so was seen as an unreasonable attitude towards discharging its onus under Section 68. The court noted that in the case of private limited companies, there is a continuing relationship with the shareholders, and it was in the assessee's interest to produce the principal officers to explain the sources of the share subscription.

4. Use of Investigation Report for Reassessment:
The assessee argued that the investigation report, which formed the basis for reopening the assessment, was not put to it for rebuttal. The court held that the investigation report was only a starting point for the enquiry and not the sole basis for making the addition. The AO's subsequent actions, including issuing summons and sending an inspector to verify the addresses, were deemed appropriate. The non-furnishing of the investigation report to the assessee was not considered fatal to the validity of the addition.

5. Burden of Proof Regarding Source of Share Application Money:
The court rejected the contention that the AO must show that the monies emanated from the assessee to sustain the addition under Section 68. It cited Supreme Court judgments to assert that where an assessee fails to satisfactorily explain the source and nature of certain amounts, the AO is entitled to infer that the receipts are of an assessable nature. The court held that the Tribunal failed to examine the assessment proceedings in detail and did not adequately appraise the facts and circumstances to see if the assessee had discharged its onus under Section 68.

Conclusion:
The substantial question of law was answered in the negative, in favor of the revenue and against the assessee. The appeal of the revenue was allowed with no order as to costs.

← Previous Next →