2014 (2) TMI 135 - HC - Income Tax

Deletion made u/s 68 of the Act Notices issued u/s 133(6) of the Act Burden to prove Held that - The investors not only did not submit any confirmation and had concededly reported far less income than the amounts invested, the assessee could not under the circumstances be said to have discharged the burden which was upon it in the first instance Relying CIT v. Lovely Exports 2006 (11) TMI 121 - DELHI HIGH COURT - It is not sufficient for the assessee to merely disclose the addresses or identities of the individuals concerned - The other way of looking at the matter is that having given the addresses, the inability of the noticees who are approached by the AO to afford any reasonable explanation as to how they got the amounts given the nature of their income which was disproportionally less than what they subscribed as share capital would also amount to the Revenue having discharged the onus if at all which fell upon it - the assessee in the case was incorporated barely few months before the commencement of the assessment year, and there is no further information, or anything to indicate why its markup of the share premium thousand folds in respect of the shares which were of the face value of ₹ 10 lakhs was justified Decided partly in favour of Revenue.

Summary

Issues:
- Whether the Tribunal erred in upholding the deletion of Rs.31.94 lakhs added under Section 68 by the Assessing Officer for AY 2006-07.

Analysis:
1. Facts and Background: The assessee, incorporated in 2005, filed its income tax return for 2006-07, reporting receipt of share capital of Rs. 11 lakhs sold at a premium. The AO added the entire amount under Section 68, alleging discrepancies in investors' income reported.

2. Revenue's Argument: The Revenue contended that the AO's investigation revealed discrepancies in investors' reported income, justifying the addition under Section 68. Citing relevant case laws, the Revenue argued that the burden of proof was not discharged by the assessee.

3. Respondent's Argument: The respondent argued that once the identity of investors was disclosed, the burden shifted to the Revenue to prove discrepancies. Citing a relevant judgment, the respondent emphasized that the assessee fulfilled its obligations by disclosing investor identities.

4. Court's Analysis: The Court examined the AO's tabular statement detailing investors' shares, payments, and reported income. Noting discrepancies and lack of responses from some investors, the Court concluded that the burden was not fully discharged by the assessee.

5. Decision: The Court partly allowed the Revenue's appeal, setting aside the deletion of Rs.31.94 lakhs under Section 68. The amount was directed to be restored and added back to the assessee's income. The impugned order was overturned to that extent.

6. Conclusion: The judgment highlights the importance of fulfilling the burden of proof in cases involving additions under Section 68. It underscores the need for thorough documentation and verification to substantiate claims, especially regarding investor identities and financial discrepancies.