2013 (5) TMI 476 - HC - Income Tax

Additions u/s 68 - unexplained investment and cash credits shown as share application money received by the assessee - CIT(A) deleted the addition -Held that - The identity of the two companies which are sister companies stood established. Furthermore, this is not a case of mere furnishing of copies of bank accounts of the subscribers. But, in the present case, as noted by the CIT (A) the assessee had filed the income-tax returns of the subscriber companies as also their bank statements and balance sheets in addition to the confirmation letters from the said two companies. A copy of the Form No. 2 filed by the assessee with the Registrar of Companies regarding the allotment of shares to the said two companies had also been furnished. It is in this backdrop CIT (A) concluded that the assessee had been able to prove its case and that the AO could not shift the burden back onto the Assessee Company without producing any tangible material to doubt the veracity of the documents furnished by the assessee.ITAT concurred with the views taken by the Commissioner of Income-tax (Appeals). Case law of Nipun Builders and Developers Pvt. Ltd. 2013 (1) TMI 238 - DELHI HIGH COURT as relied upon by revenue in making the addition is different and is distinguishable from the present case as assessee in the present case been able to discharge the initial burden to establish the identity, creditworthiness and genuineness as regards the transactions concerning the allotment of shares. In favour of assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961 for unexplained investment.
2. Addition under Section 68 for unexplained cash credits shown as share application money.
3. Burden of proof regarding the identity, creditworthiness, and genuineness of transactions.
4. Remand report and verification of loan transactions.
5. Initiation of penalty proceedings under Sections 271D and 271E for violation of Sections 269SS and 269TT.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961 for unexplained investment:
The Assessing Officer (AO) made an addition of Rs. 37,75,465/- as unexplained investment. The Commissioner of Income-tax (Appeals) [CIT(A)] deleted the addition to the extent of Rs. 35,85,465/-, which was an unsecured loan from Mr. Alok Aggarwal, but upheld the addition of Rs. 1,90,000/- received from Smt. Sadhna Aggarwal due to lack of explanation. The ITAT concurred with the CIT(A)'s decision, and the High Court found no substantial question of law in this regard.

2. Addition under Section 68 for unexplained cash credits shown as share application money:
The AO added Rs. 30,41,000/- as unexplained cash credits shown as share application money. The CIT(A) deleted this addition, holding that the assessee had discharged its burden to establish the identity and creditworthiness of the share applicants and the genuineness of the transactions. The ITAT agreed with the CIT(A), and the High Court found no reason to differ, noting that the assessee provided sufficient documentation, including income-tax returns, bank statements, balance sheets, and confirmation letters from the subscriber companies.

3. Burden of proof regarding the identity, creditworthiness, and genuineness of transactions:
The High Court emphasized that the assessee must prove the identity, creditworthiness, and genuineness of the transactions. In the present case, the assessee provided comprehensive documentation, which was deemed sufficient by the CIT(A) and ITAT. The High Court distinguished this case from CIT Vs. Nipun Builders and Developers Pvt. Ltd., where the assessee failed to produce the principal officers of the subscribing companies and the summons were returned with remarks "no such company."

4. Remand report and verification of loan transactions:
The CIT(A) directed the AO to submit a remand report to verify the genuineness of the loan transactions. The AO's report indicated that Mr. Alok Aggarwal and Smt. Sadhna Aggarwal initially did not respond but later provided necessary details, including their income-tax returns. The CIT(A) concluded that Mr. Alok Aggarwal had sufficient funds to advance the loan, leading to the deletion of the addition related to his loan. However, the amount from Smt. Sadhna Aggarwal remained unexplained, and the addition was upheld to that extent.

5. Initiation of penalty proceedings under Sections 271D and 271E for violation of Sections 269SS and 269TT:
The AO was directed to initiate penalty proceedings under Sections 271D and 271E for the alleged violation of Sections 269SS and 269TT, as the amounts received from Mr. Alok Aggarwal were in cash and not through account payee cheques/drafts.

Conclusion:
The High Court dismissed the appeal, finding no substantial question of law. The CIT(A) and ITAT's decisions were upheld, confirming that the assessee had adequately discharged its burden of proof regarding the identity, creditworthiness, and genuineness of the transactions. The penalty proceedings under Sections 271D and 271E were also upheld.

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