2018 (10) TMI 1651 - AT - Income Tax

Addition u/s 68 - unexplained deposits of money from unknown sources - identity and creditworthiness of the share applicant as well as the genuineness of the transaction - as per assessee payments made to parties covered u/s 40A(2) - HELD THAT - We find that the assessee has made a disclosure in its Notes to Accounts and Form No. 3CD, the details of payments made to parties covered u/s 40A(2) of the Act. Therefore, the observation of the AO that from the details brought on record in respect of BCPL, it is seen that it is apparently associate/group concern of the assessee company is misplaced. In the instant case the AO failed to examine the reply filed by the assessee whcih explains the identity, capacity of the investor and genuineness of the transaction. The share application money was received by the assessee by account payee cheques through regular banking channels. it is well-settled that in order to discharge the onus, the assessee must prove (i) the identity of the creditor,(ii) the capacity of the creditor to advance money; and (iii) the genuineness of the transaction. After the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the department but we find that the AO has failed in the instant case to find fault with the submissions made by the assessee. The AO could have made investigations to find out the truth of the case. On the other hand, the AO has resorted to general propositions. AO has failed to draw any adverse conclusion on the basis of material evidence that the receipt of cash credit of ₹ 2,44,50,000/- from BCPL is not a genuine one. - Decided in favour of assessee.

Summary

Issues:
Appeal against deletion of addition under section 68 of the Income Tax Act - Share application money received from Bhawana Computers Pvt. Ltd. - Identity and creditworthiness of the share applicant - Genuineness of the transaction - Utilization of own funds - Accumulated profit of the company - Failure to explain the source of deposits - Addition of unexplained cash credit - Burden of proof on the assessee - AO's failure to investigate - Dismissal of the appeal.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai involved the deletion of an addition under section 68 of the Income Tax Act related to share application money of ?2,44,50,000 received from Bhawana Computers Pvt. Ltd. (BCPL). The Assessing Officer (AO) raised concerns regarding the identity and creditworthiness of BCPL and the genuineness of the transaction. BCPL's financial statements revealed no accumulated profits, leading the AO to question its capacity to command a significant security premium. BCPL's bank statements showed deposits from unknown sources preceding the share application money payments, raising further suspicions.

The AO, unconvinced by the assessee's explanation, added the amount as unexplained cash credit under section 68. The assessee then appealed to the Commissioner of Income Tax (Appeals) who found that the assessee had discharged its burden of proof regarding BCPL's identity, creditworthiness, and the genuineness of the transaction. The CIT(A) noted that BCPL had its own funds and had made the payment through account payee cheques, demonstrating creditworthiness.

The Appellate Tribunal upheld the CIT(A)'s decision, emphasizing that the burden of proof shifts to the department once the assessee establishes the necessary elements. The AO's failure to investigate and draw adverse conclusions based on evidence led to the dismissal of the appeal. The Tribunal concluded that the cash credit from BCPL was genuine, and therefore, the addition was unwarranted.

In summary, the Tribunal dismissed the appeal, affirming the CIT(A)'s decision to delete the addition of ?2,44,50,000 as the share application money was deemed genuine based on the evidence provided by the assessee and BCPL's financial standing.