2014 (8) TMI 905 - HC - Income Tax

Addition u/s 68 - Onus of proving the identity and credit-worthiness of the share subscriber - Genuineness of subscription - Whether the Tribunal fell into error in upholding the deletion which was directed to be added back by virtue of section 68 of the Act Held that - In COMMISSIONER OF INCOME TAX Versus NOVA PROMOTERS & FINLEASE (P) LTD 2012 (2) TMI 194 - DELHI HIGH COURT the legal effect of section 68 of the Act is mentioned - the money was received through banking channels, but did not reflect actual genuine business activity - The share subscribers did not have their own profit making apparatus and were not involved in business activity - They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques - The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction - The beneficiaries, including the assessee, did not give any share-dividend or interest to the entry operators/subscribers - The profit motive normal in case of investment, was entirely absent - no profit or dividend was declared on the shares - Any person, who would invest money or give loan would certainly seek return or income as consideration. The court or tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction - The onus to prove the three factum is on the assessee as the facts are within the assessee s knowledge - Mere production of incorporation details, PAN Nos. or the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up - These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive - Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. The Tribunal has merely reproduced the order of the CIT(A) and upheld the deletion of the addition - the assessee was unable to produce directors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the AO from the concerned bank, the AO has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions - the matter is required to be remitted back to the tribunal for fresh adjudication Decided in favour of Revenue.

Summary

Issues Involved:
1. Validity of the deletion of Rs. 54 lakh under Section 68 of the Income Tax Act.
2. Onus of proving the identity, creditworthiness of the share subscriber, and genuineness of the subscription.
3. Legality of the reopening of assessment under Section 147/148 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Deletion of Rs. 54 Lakh under Section 68 of the Income Tax Act:
The primary issue in this case is whether the ITAT erred in upholding the deletion of Rs. 54 lakh, which was added back by the Assessing Officer under Section 68 of the Income Tax Act. The Assessing Officer had made this addition on the grounds that the assessee failed to prove the identity, creditworthiness of the share subscribers, and the genuineness of the subscription. The Commissioner of Income Tax (Appeals) deleted the addition, stating that the assessee had submitted various documents such as share application forms, bank statements, confirmation letters, and other relevant documents to prove the genuineness of the transactions. The ITAT upheld this deletion, leading to the Revenue's appeal.

2. Onus of Proving the Identity, Creditworthiness of the Share Subscriber, and Genuineness of the Subscription:
The court emphasized that the primary requirements under Section 68 are the identification of the creditors/shareholders, their creditworthiness, and the genuineness of the transaction. The court noted that mere submission of documents like PAN numbers and bank statements is not sufficient if there is evidence suggesting that the subscriber is a paper company. The court cited various precedents, including the Supreme Court's observation in CIT Vs. Durga Prasad More, which highlighted that the apparent must be considered real until there are reasons to believe otherwise. The court also referred to the judgment in Nova Promoters and Finlease (P) Ltd., which stated that the Assessing Officer is not required to prove that the money emanated from the assessee's coffers. Instead, the assessee must satisfactorily explain the nature and source of the credit.

3. Legality of the Reopening of Assessment under Section 147/148 of the Income Tax Act:
The reopening of the assessment was based on a report from the Investigation Wing, which suggested that the assessee received accommodation entries in the form of share application money. The Commissioner of Income Tax (Appeals) upheld the issuance of the notice under Section 147/148, and the ITAT dismissed the cross-objections filed by the assessee regarding the reopening. The court noted that the cross-objections would need to be revived and adjudicated if the issue on merits was decided in favor of the Revenue.

Conclusion:
The court concluded that the matter required a remand to the tribunal for fresh adjudication, considering the legal precedents and the facts of the case. The question of law was answered in favor of the Revenue, but the case was remitted to the tribunal to decide the whole issue afresh. The appeal was disposed of with an order of remit to the tribunal, highlighting the need for a comprehensive examination of the identity, creditworthiness, and genuineness of the transactions in question.