2015 (4) TMI 338 - HC - Income Tax

Unaccounted share capital received from six applicants - Held that - It is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of Section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee s reliance upon the CIT (Appeals) order to contend that the sources of the funds were in essence as Directors, is in this context of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. It is not sufficient for the assessee to just raise such contentions on the basis of certain observations of the CIT (Appeals) in this regard. The creditworthiness of the share applicants had to be seen in the context of the assertion made by them or the materials presented before the AO at the relevant time. The materials on record disclosed that some information from at least two individuals indicated that the money had not been given by them. In view of the fact that concurrently the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. - Decided against assessee.

Issues:
1. Addition of Rs. 24 lakhs on account of share capital received from six applicants.
2. Rejection of the assessee's appeal by the Income Tax Appellate Tribunal (ITAT).
3. Reopening of assessment under Sections 147 and 148 of the Income Tax Act.
4. Failure to explain the identity, genuineness, and creditworthiness of share capital applicants.
5. Interpretation and application of Section 68 of the Income Tax Act.
6. The reliance on previous court decisions to support the appeal.
7. Requirement to establish the genuineness of transactions and creditworthiness of applicants.
8. Dismissal of the appeal based on factual evidence and lower authorities' decisions.

Analysis:

1. The High Court addressed the appeal challenging the addition of Rs. 24 lakhs as share capital received from six applicants. The Income Tax Appellate Tribunal (ITAT) had rejected the appeal, emphasizing the failure to discharge the onus under Section 68 of the Income Tax Act to explain the identity and creditworthiness of the share applicants.

2. The assessment was reopened under Sections 147 and 148 of the Income Tax Act, leading to the addition of Rs. 24 lakhs by the Assessing Officer (AO). The appellant contended that the share applicants were friends and relatives of the company's directors, highlighting the lack of business activity due to the recent incorporation of the entity.

3. The CIT (Appeals) rejected the appellant's arguments, stating that the explanation provided was unsatisfactory, and the burden to prove creditworthiness was not met. The court emphasized the need to establish the genuineness of transactions and creditworthiness of applicants under Section 68, which was not adequately fulfilled by the appellant.

4. The court considered previous court decisions, including the Supreme Court's ruling in CIT vs. Bharat Engineering and Construction, to support the appeal. However, the reliance on these decisions did not alter the outcome, as the evidence presented did not sufficiently prove the legitimacy of the transactions and the creditworthiness of the applicants.

5. The Supreme Court's interpretation in Lovely Exports regarding Section 68 was referenced, emphasizing the need to establish the genuineness of transactions beyond merely identifying the share applicants. The court highlighted that the appellant's contentions based on the CIT (Appeals) observations were insufficient to meet the statutory requirements.

6. Ultimately, the court dismissed the appeal based on the factual evidence and the lower authorities' decisions against the appellant. The failure to provide concrete evidence regarding the sources of funds and the creditworthiness of the applicants led to the rejection of the appeal, with no substantial question of law arising from the case.

← Previous Next →