2013 (12) TMI 554 - HC - Income Tax

Additions u/s 68 - discharging the onus in establishing the identity of the shareholders, their creditworthiness and genuineness of the transactions - Held that - It is important, to segregate cases of bonafide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paper work though important may not be always conclusive or determinative of the final outcome or finding whether the transaction was genuine. When and under what circumstances onus is discharged, as held in N.R. Portfolio (supra), cannot be put in a strait jacket universal formula. It will depend upon several relevant factors. Cumulative effect has to be ascertained and understood before forming any objective opinion whether or not onus has been discharged by the assessee. Of course suspicion or doubts may not be sufficient and care and caution has to be taken that the assessee has limitations but this cannot be a ground to ignore contrary incriminating evidence or material which when confronted, meets silence or no answer. Assessing Officer had conducted enquiries and made a reference to the surrounding facts i.e. deposits/credit of the amounts in the bank account of the share applicants; substantial amount of Rs.41,88,000/- paid as premium and referred to the fact that only one Shri R.C. Verma, CA and Power of Attorney holder of M/s Ritika Finance & Investment Pvt. Ltd. had appeared alongwith Shri Dinesh Kumar, the AR of the assessee company during the assessment proceedings and filed the bank statement and copy of the balance sheet but, failed to file schedule of investments made by the said company. Others had failed to appear. While deciding the question of law against the assessee, matter remanded back to ITAT for fresh decision.

Summary

Issues Involved:
1. Whether the Income Tax Tribunal (ITAT) erred in approving the deletion of the amount included by the assessing officer under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Discharge of Onus under Section 68 of the Income Tax Act:
The Commissioner of Income Tax (Appeals) and the ITAT held that the respondent assessee discharged the onus under Section 68 by providing names and addresses of share applicants, PAN details, confirmation letters, income tax returns, bank statements, share application forms, and audited balance sheets. This established the identity, creditworthiness, and genuineness of the transactions. The Tribunal referenced judgments from CIT vs. Stellar Investment Ltd., Monnet Ispat and Energy Ltd. vs. DCIT, CIT vs. Divine Leasing and Finance Ltd., and CIT vs. Lovely Exports Pvt. Ltd.

2. Tribunal's Observations:
The Tribunal observed that the assessee filed sufficient evidence, including names, addresses, PAN details, confirmations, income tax returns, bank statements, share application forms, and balance sheets. The assessing officer relied on information from the investigation wing, listing four contributors as accommodation entry providers but did not conduct further detailed inquiries. The Tribunal concluded that the identity of contributors was established, and following the decision in Lovely Exports (P) Ltd., the assessee was not required to provide further evidence once identity was established. Any further doubts should be addressed by investigating the contributors.

3. Assessment Year and Transactions:
The respondent assessee received Rs. 51,10,000 from six companies, with Rs. 9,22,000 towards face value and Rs. 41,88,000 as share premium. The Tribunal noted matching credit entries in the bank accounts of some contributors before investments were made, but the assessing officer did not further investigate these entries.

4. Tribunal's Reasoning and Legal Precedents:
The Tribunal relied on the judgment in Lovely Exports Pvt. Ltd., stating that once identity is established, further action should be against the contributors. However, the Tribunal did not account for the substantial share premium, lack of premium in previous years, and non-filing of relevant balance sheet schedules by shareholder companies.

5. Recent Decision and Legal Position:
The Court referred to its recent decision in CIT vs. N.R. Portfolio Pvt. Ltd., emphasizing that identity, creditworthiness, and genuineness must be established. Merely providing PAN numbers and banking details is insufficient; actual business activity and financial strength must be demonstrated. The Court highlighted that the doctrine of "source of source" should not universally apply without considering the factual matrix of each case.

6. Distinguishing Factors and Remand:
The Court distinguished this case from others like CIT vs. Fair Finvest Ltd. and CIT vs. Gangeshwari Metal (P) Ltd., where the assessing officer failed to conduct inquiries. Here, the assessing officer did conduct inquiries but did not find conclusive evidence. The Tribunal did not address whether the assessee requested summoning shareholders or their directors.

Conclusion and Remand Order:
The Court concluded that the Tribunal's decision was flawed as it did not consider all relevant factors. The Court remanded the case to the Tribunal for a fresh decision, directing that the Tribunal consider all facts and circumstances without being influenced by its previous order. The parties were instructed to appear before the Tribunal on 15th January 2014 for further proceedings.