2015 (12) TMI 1462 - AT - Income Tax

Unexplained share application money - Addition u/s 68 - What is burden of proof? - Held that - CIT (A) has relied on the audited balance sheet for the FY 2007-08 i.e. AY 2008-09 and the copy of the ITR of AY 2009-10 to uphold that the share applicant / investor companies are existing companies and the audited balance sheet show that the share applicants companies had enough paid up capitals and reserves to subscribe for the shares from the assessee s company. Though we find that cheque numbers which are dated between 10.08.2006 to 25.08.2006 have been mentioned by the ld. CIT (A) to uphold the genuineness of the transaction, however, we are unable to accept the said reasoning and finding of ld. CIT (A) because the assessee failed to prove the identity of the share applicants by adducing evidences of their existence at the addresses or by cogent materials before the AO. The PAN details were wrong. The transactions from the bank which were claimed to have transacted the share application money has been found to be bogus and even during the remand proceedings, the assessee failed to produce even a single share applicant before the AO. In the said scenario, the ld. CIT (A) accepting the audited balance sheet for FY 2007-08 i.e. AY 2008- 09 which is subsequent assessment year is not acceptable. The assessee cannot say that it did not had sufficient time to discharge its burden in respect to the share capital money which has come to its account. We find that the AO had investigated the matter fairly and had given enough opportunities to the assessee to come clean with the identity, creditworthiness and genuineness of the transaction. We find that the AO had given sufficient notice and furnished the enquiry reports to the assessee at various stages to show that he was not satisfied with the documents filed by the assessee before the AO. The AO has disproved the evidences brought by the assessee to discharge its burden of proof, which show that the assessee failed to discharge its burden of proof in respect to share application money which has come into its account. The CIT (A) erred in taking the audited balance sheet of subsequent assessment year and documents to prove the creditworthiness which was filed before him to prove the existence of the said companies and individuals. The case laws relied upon by the ld. AR as aforestated pertains to cases where public issue of shares are involved and the case laws regarding share subscription of Public Limited company stands on a different footing than the share application money in the context of private limited company and, therefore, the case laws relied on by the ld. AR does not apply to the case in hand. We would like to deal with the plea of the ld. AR that in case of any doubt regarding the impugned order, the matter may be remanded, if necessary, back to the AO then the AO can satisfy himself about the identity, creditworthiness and genuineness of the transaction as found by the ld. CIT (A). This prayer cannot be granted for the simple reason that lot of water has flown the Ganges after the impugned assessment order. Lot of developments have taken place after the addition of ₹ 3.46 crores u/s 68 of the Act. We find that the defunct companies at the time of assessment, as pointed out by the AO, have resurrected back to life after statutory compliances were fulfilled; and the said documents were furnished before the ld. CIT (A) who has erred in relying upon it to delete the addition. So, therefore, we cannot allow such a prayer of the assessee for the simple reason that the AO had demolished the case of the assessee to prove the identity, creditworthiness and genuineness of the alleged shareholders. So we are not inclined to send the case back to the AO again for fresh adjudication - Decided against assessee

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961 for unexplained share application money.
2. Evaluation of the identity, creditworthiness, and genuineness of the share applicants.
3. Reliance on judicial precedents and their applicability to the case.
4. Procedural fairness and the opportunity for cross-examination.

Detailed Analysis:

1. Deletion of Addition Made Under Section 68:
The Revenue challenged the deletion of an addition of Rs. 3,46,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961, as unexplained share application money. The AO argued that the identity of the share applicants was disproved through the Inspector's report, adverse handwriting expert opinion, and invalid PANs, among other evidence. The Commissioner of Income-tax (Appeals) [CIT(A)] deleted the addition, relying on various judicial precedents, including the Lovely Exports (P) Ltd case, which the AO contended was not applicable.

2. Evaluation of Identity, Creditworthiness, and Genuineness:
The AO conducted a detailed investigation, including sending notices under Section 133(6) to the addresses provided by the assessee, engaging a handwriting expert, and verifying PAN details through the Assessee Information System (AIS). The AO found several discrepancies, including non-existent addresses, invalid PANs, and forged signatures. The AO issued multiple show-cause notices to the assessee to produce the investors, which the assessee failed to do. The AO also received adverse reports from banks confirming that no such bank accounts existed for the share applicants. The CIT(A), however, found fault with the AO's reliance on the ITI's report and the handwriting expert's opinion and held that the assessee had provided sufficient documentary evidence to prove the identity and creditworthiness of the share applicants.

3. Reliance on Judicial Precedents:
The CIT(A) relied on various judicial precedents, including the Lovely Exports (P) Ltd case, to conclude that the assessee had discharged its burden of proof by providing PAN cards, bank account details, and other documents. The CIT(A) also cited the Supreme Court's observation that if the share application money is received from alleged bogus shareholders, the Department is free to reopen their individual assessments. The AO, however, argued that these precedents were not applicable as the facts of the present case were different, with clear evidence disproving the identity and creditworthiness of the share applicants.

4. Procedural Fairness and Opportunity for Cross-Examination:
The assessee argued that the AO did not provide an opportunity for cross-examination of the handwriting expert and the bank officials, which vitiated the assessment process. The AO contended that the assessee was given ample opportunity to rebut the findings and produce the investors, which it failed to do. The Tribunal noted that the AO had conducted a fair investigation and provided sufficient opportunities to the assessee. The Tribunal also observed that the CIT(A) erred in relying on subsequent year documents to prove the existence of the companies and individuals.

Conclusion:
The Tribunal concluded that the AO had conducted a thorough investigation and provided ample opportunities to the assessee to prove the identity, creditworthiness, and genuineness of the share applicants. The Tribunal found that the CIT(A) erred in deleting the addition based on irrelevant evidence and judicial precedents that were not applicable to the facts of the case. The Tribunal upheld the AO's order and reversed the CIT(A)'s decision, allowing the Revenue's appeal.

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