2013 (12) TMI 306 - AT - Income Tax

Addition u/s 68 The assessment was completed u/s 144 adding income on account of introduction of share capital The assessee failed to submit the confirmation in respect of share capital introduced and other information Held that - Following CIT v. Stellar Investment Ltd. 2000 (7) TMI 76 - SUPREME Court - The burden of proving the existence of shareholders is still upon the assessee and in the instant case, the assessee failed to discharge its burden The assessee failed to prove the genuineness and creditworthiness of the parties - Decided against assessee. Re-examining of records of the share applicants The lower authorities has not examined the documents carefully - Held that - Following CIT v. Sophia Finance Ltd. 1993 (8) TMI 62 - DELHI High Court - The assessee is required to prove not only the identity of the parties, genuineness of the transaction has to be proved Decided in favour of Revenue The matter was restored for fresh decision.

Summary

Issues Involved:
1. Deletion of addition made under section 68 of the Income-tax Act towards share application money received by the assessee.
2. Whether the assessee discharged its onus of proving the identity, creditworthiness, and genuineness of the transactions.

Detailed Analysis:

Issue 1: Deletion of Addition Made Under Section 68

The primary grievance of the Revenue was the deletion of an addition made under section 68 of the Income-tax Act concerning share application money received by the assessee. The assessee, a cement manufacturer, did not file a return of income for the assessment year 2006-07, prompting the issuance of a notice under section 148. The assessee responded by filing a return admitting nil income. The Assessing Officer (AO) noted a capital introduction of Rs. 4,86,18,709, with confirmations only for Rs. 1,26,00,000. Due to the lack of confirmation for the remaining Rs. 3,60,18,709, the AO treated this amount as unexplained credit under section 68.

On appeal, the Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, observing that the assessee had not commenced business and thus could not have earned such a huge amount outside the books to introduce it as share capital. The CIT(A) concluded that the assessee had discharged its burden regarding the identity, creditworthiness, and genuineness of the transactions.

Issue 2: Discharge of Onus by the Assessee

During the appeal proceedings, the assessee contended that it had provided all relevant details to the AO, including copies of bank accounts, permanent account numbers, and complete names and addresses of the promoters. The assessee argued that due to disputes among the promoters, it was not possible to collect all confirmation letters. The CIT(A) found the explanation satisfactory and deleted the addition.

The Revenue, however, argued that the genuineness of the transaction was not proven and relied on the judgment of the Rajasthan High Court in CIT v. Kishorilal Santoshilal, which emphasized the burden on the firm to prove the identity, capacity, and genuineness of cash credits. The assessee's authorized representative cited various judgments, including CIT v. Bharat Engineering and Construction Co., CIT v. Kapur Brothers, and CIT v. Lovely Exports P. Ltd., to argue that the assessee had discharged its onus and that the addition was not justified.

Tribunal's Findings:

The Tribunal noted that the CIT(A) deleted the addition on the grounds that the company was in its inception stage and could not have earned such an amount from unexplained sources. However, the Tribunal found this reasoning incorrect, stating that under section 68 of the Income-tax Act, even if an amount is credited on the first day of the accounting year, it can be assessed as income if the explanation is not accepted by the AO.

The Tribunal referred to the judgment of the Delhi High Court in CIT v. Sophia Finance Ltd., which clarified that if the shareholders are identified and it is established that they invested money in the purchase of shares, the amount received would be regarded as a capital receipt. However, if the explanation is not satisfactory, section 68 can be invoked.

The Tribunal concluded that the assessee failed to prove the genuineness and creditworthiness of the transactions. Despite opportunities given, the assessee did not provide adequate proof. Therefore, the Tribunal remitted the issue back to the CIT(A) for fresh consideration, emphasizing that the assessee must prove not only the identity of the parties but also the genuineness of the transaction.

Conclusion:

The appeal of the Revenue was allowed for statistical purposes, and the matter was remitted back to the CIT(A) for fresh consideration in light of the Tribunal's observations. The order was pronounced in open court on January 18, 2013.