2015 (1) TMI 880 - HC - Income Tax

Reopening of assessment - unaccounted share capital - ITAT and CIT(A) held that Section 148 did not apply in the facts and circumstances of the case - Held that - Whilst the revenue could have legitimately relied upon the statement of Mahesh Garg, which sought to implicate the assessee to reopen the assessment proceedings under Section 148, to elevate that into a finding, the A.O. should have carried out some form of independent exercise as to the veracity and genuineness of the transaction furnished by the assessee. In this context, the assessee had furnished sufficient material in the form of identity documents, confirmation by the investors, copies of their return of income and bank statements and copy of the minutes of meeting of the Board of Directors of the investors wherever they happened to be companies. The least that the A.O. was expected to do, in the circumstances, was to seek recourse to his powers and verify the material by calling statement from the banks and also calling the investors by issuing summons under Section 131. Concededly, he did not adopt that course and instead rested content in relying only upon the statement of Sh. Mahesh Garg and found that in the absence of his cross-examination, the assessee did not discharge the onus of proof which lay upon it. As noted by the ITAT in its impugned order, the onus of proof is not a static one and necessarily shifts depending upon the materials placed on record. Lovely Exports (2008 (1) TMI 575 - SUPREME COURT OF INDIA) is authority for the proposition that the initial onus to show the genuineness of the transaction and creditworthiness of the investors is upon the assessee. Once some material is produced, is upto the A.O. to use his powers in the course of judicial proceedings, which he had undoubtedly to undertake. Plainly, in this case, he did not do so. His failure cannot be a ground for this Court to upheld the order of ITAT substantially in law, or even otherwise, on the facts. - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 148 regarding applicability in the case.
2. Addition of fresh share capital under Section 68 and burden of proof on the assessee.
3. Consideration of material and evidence by the Assessing Officer (A.O.) and the Commissioner of Income Tax (CIT).
4. Cross-examination of witness Mahesh Garg and its impact on the case.
5. Comparison with previous court judgments regarding burden of proof and genuineness of transactions.
6. Failure of the A.O. to independently verify material provided by the assessee.

Analysis:
1. The main issue in this case was the interpretation of Section 148 regarding its applicability. The revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) and the CIT (Appeals) which led to the deletion of a sum added by the A.O. The substantial question of law raised was whether Section 148 applied in the circumstances.

2. The case involved the addition of fresh share capital under Section 68 by the A.O. The A.O. held that the assessee did not provide a satisfactory explanation and failed to discharge the initial burden under Section 68. The CIT (Appeals) later favored the assessee, stating that all relevant particulars were furnished during assessment proceedings.

3. The CIT (Appeals) found that the A.O. did not make further inquiries from investors and relied on insufficient information. The ITAT confirmed the findings, stating that the assessee had discharged its burden and the A.O. did not collect concrete material for doubting the share application money.

4. The revenue contended that the failure to cross-examine Mahesh Garg meant his statements were uncontroverted. Previous court judgments were cited to support this argument, emphasizing the importance of cross-examination in discharging the burden of proof under Section 68.

5. The Court emphasized that the A.O. should have independently verified the material provided by the assessee. The assessee had submitted identity documents, confirmations, bank statements, and other relevant documents. The A.O. was expected to use his powers to verify the material, but he failed to do so.

6. The Court dismissed the appeal, noting that the A.O.'s failure to independently verify the material cannot be a basis for upholding the ITAT's order. The burden of proof is not static and shifts based on the evidence presented. The A.O. should have taken necessary steps to verify the genuineness of the transactions, which he failed to do in this case.