2014 (8) TMI 750 - AT - Income Tax

Addition u/s 68 - justification for collection share premium - Opportunity of being heard Burden to prove Held that - There has been complete non-discharge by the assessee of the burden of proof on it - The shares are subscribed to in private placement, and therefore not in response to a public offering - even with regard to the creditor-subscribers other than the six companies qua which representation was sought by the Revenue from the assessee, as it becomes clear, that they were subject to investigation consequent to a search action by the Revenue, no materials except, as it appears, confirmations and share certificates, have been furnished by the assessee, which rather confirm the factum of the credit and not of it being genuine - It is, given the prescription of s. 68, which is a rule of evidence, statutorily mandated, the truth of those documents or of the same as representing genuine transactions, that is to be established - But for s. 68, the principle that what is apparent is real would obtain, so that the onus to disprove it with evidences - would be on the person alleging it as not so, i.e., the Revenue - The onus on the assessee it of course cannot be required to prove a negative, would depend on the facts and circumstances of the case the material is considered to be part of the record relying upon Hukumchand Mills Limited Versus Commissioner Of Income-Tax, Central, Bombay 1966 (9) TMI 38 - SUPREME Court thus, the matter is to be remitted back to the CIT(A) for fresh adjudication.

Issues Involved:
1. Genuineness of share capital and share premium.
2. Burden of proof under Section 68 of the Income Tax Act.
3. Denial of natural justice.
4. Reliance on statements recorded behind the assessee's back.
5. Opportunity to the Assessing Officer (AO) regarding deletion of additions.

Issue-wise Detailed Analysis:

1. Genuineness of Share Capital and Share Premium:
The assessee, a manufacturer and dealer in metals, raised capital of Rs. 616.925 lacs during the assessment year 2008-09, including a significant share premium. The AO observed that the capital raised was unexplained, as responses to notices under Section 133(6) were inadequate. The AO deemed the entire capital as unexplained credit under Section 68 due to lack of proof regarding the genuineness, capacity, and identity of the investing companies. The CIT(A) confirmed the addition but allowed partial relief for old credits.

2. Burden of Proof under Section 68:
The assessee failed to discharge the burden of proof under Section 68. The AO's dissatisfaction was based on the lack of credible evidence regarding the source and genuineness of the investments. The appellate authority's role was to validate the AO's non-satisfaction. The assessee did not provide sufficient explanations or evidence to counter the AO's findings, which were based on field enquiries and inconsistencies in the addresses and details of the investing companies.

3. Denial of Natural Justice:
The assessee argued that the CIT(A) relied on statements recorded behind its back without confrontation, violating natural justice principles. The Revenue countered that the AO's findings were clear and unambiguous, and the assessee did not challenge the AO's non-satisfaction. The appellate authority must ensure that any reliance on external statements is subject to the assessee's opportunity to respond.

4. Reliance on Statements Recorded Behind the Assessee's Back:
The CIT(A) relied on statements from individuals involved in bogus billing and share applications. The tribunal noted that these statements are relevant but must be considered with the assessee's opportunity to explain its case. The reliance on such statements should be balanced with the assessee's right to rebut the evidence.

5. Opportunity to the AO Regarding Deletion of Additions:
The Revenue contended that the CIT(A) deleted certain additions without giving the AO an opportunity to respond. The tribunal emphasized the need for a thorough review where both parties can present their case with all relevant materials. The matter was remanded to the CIT(A) for a fresh adjudication, ensuring due process and consideration of all evidence.

Decision:
The tribunal restored the matter to the CIT(A) for a fresh adjudication, ensuring both parties can present their case with all relevant materials. The CIT(A) must issue a speaking order addressing each credit and consider the observations made by the tribunal. Both the assessee's and the Revenue's appeals were allowed for statistical purposes. The order was pronounced in the open court on August 13, 2014.

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