2013 (11) TMI 1381 - HC - Income Tax

Share application money - additions u/s 68 - Held that - As per the decision in CIT vs. Nova Promoters and Finlease (P) Ltd. 2012 (2) TMI 194 - DELHI HIGH COURT - Where the complete particulars of the share applicants such as their names and addresses income tax file numbers their creditworthiness share application forms and share holders register share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon then no addition can be made in the hands of the company under sec.68 and the remedy open to the revenue is to go after the share applicants in accordance with law. The assessing officer had the knowledge on the basis of information received from the Investigation Wing that the assessee was one of the beneficiaries who had procured share application money from entry providers - Where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed accommodation entry providers whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription and the assessee - Mere filing of PAN number acknowledgement of income tax returns of the entry provider bank account statements etc. was not sufficient to discharge the onus. In this case - Other than the share application forms no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the assessee company The assessee adopted non- cooperation attitude before the Assessing Officer - Identity creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument - Whether or not onus is discharged depends upon facts of each case - It depends on whether the two parties are related or known to each - The manner or mode by which the parties approached each other - Whether the transaction was entered into through written documentation to protect the investment - Whether the investor professes and was an angel investor - Decided in favour of Revenue.

Summary

Issues Involved:
1. Validity of reopening under Section 147/148 of the Income Tax Act.
2. Validity of service of notice.
3. Deletion of additions under Section 68 of the Income Tax Act.
4. Assessment of identity, creditworthiness, and genuineness of share applicants.
5. Role and duties of the Assessing Officer in verifying facts and evidence.
6. Application of legal principles from precedents.

Issue-wise Detailed Analysis:

1. Validity of Reopening under Section 147/148 of the Income Tax Act:
The reassessment proceedings were initiated under Section 147/148 based on information from the Investigation Wing that the assessee had procured share application money from entry providers. Notices were issued on 28th November 2006 but were initially unserved and later served by affixture. The assessee did not respond to the notices, leading to ex-parte assessment orders. The tribunal dismissed the assessee's challenge to the reopening under Section 147/148, affirming the validity of the reassessment proceedings.

2. Validity of Service of Notice:
The Assessing Officer attempted to serve notices at the last known address and through affixture. The Chartered Accountants representing the assessee claimed the company did not receive the notices but did not provide a new address. The Commissioner (Appeals) and the tribunal upheld the service of notice, stating the Assessing Officer took reasonable steps to serve the notices, including contacting the Chartered Accountants.

3. Deletion of Additions under Section 68 of the Income Tax Act:
The main issue was whether the tribunal was right in deleting the additions of Rs.63,80,100/- and Rs.75,60,200/- under Section 68. The tribunal relied on the assessee providing PAN details and other documents to establish the identity of the share applicants. However, the High Court found that the tribunal had not adequately considered the Assessing Officer's findings and the assessee's non-cooperation in the proceedings.

4. Assessment of Identity, Creditworthiness, and Genuineness of Share Applicants:
The High Court emphasized that mere production of PAN numbers and banking details does not suffice to establish the identity, creditworthiness, and genuineness of the transactions. The Assessing Officer's findings indicated that the share applicants were entry operators with no genuine business activities. The High Court held that the tribunal and Commissioner (Appeals) failed to consider these findings adequately.

5. Role and Duties of the Assessing Officer in Verifying Facts and Evidence:
The High Court outlined the responsibilities of the Assessing Officer as both an investigator and adjudicator. The Assessing Officer must verify and investigate the facts when in doubt and ensure the decision is based on relevant material. The High Court criticized the tribunal for not considering the Assessing Officer's detailed investigation and the assessee's non-cooperative behavior.

6. Application of Legal Principles from Precedents:
The High Court referred to several precedents, including CIT Vs. Lovely Exports Ltd., CIT vs. Nova Promoters and Finlease (P) Ltd., and others, to highlight the principles regarding the burden of proof under Section 68. The court reiterated that the assessee must prove the identity, creditworthiness, and genuineness of the transactions. The tribunal's reliance on Lovely Exports was deemed misplaced as it ignored the specific facts and findings of the case.

Conclusion:
The High Court answered the substantial question of law in favor of the Revenue, holding that the tribunal erred in deleting the additions under Section 68. The court emphasized the need for a thorough investigation and verification of facts by the Assessing Officer and criticized the tribunal for not adequately considering the detailed findings and the assessee's non-cooperation. The appeal was allowed, and costs were awarded to the Revenue.