2016 (8) TMI 1463 - HC - Income Tax

Addition u/s 68 - initial burden to prove identity of the applicant/investor as well as the genuineness of the transaction - ITAT deleted the addition - HELD THAT - AO shall undoubtedly be justified as to the identity of the share applicants. This Court is however unpersuaded by the revenue submission that the genuineness of the transaction or the creditworthiness of the assessee had to be established in the given facts of this case. The factual narration by the CIT(A) which was affirmed by the ITAT unequivocally point to the assessee disclosing materials such as the bank accounts, the share particulars, income tax details and other materials which would have enabled further enquiry by the AO. CIT (A) further also records that on a scrutiny of the bank accounts of the share applicants, the source of deposit of ₹ 3.5 crores, except a small amount of ₹ 84,858/-, are by way of account payee cheques, there was no cash inclusion. In case AO so wished, it was open for him to make further enquiries. That he did not do so, in our opinion, would not mean that the assessee failed to discharge the initial burden in establishing the genuineness of the transaction or the creditworthiness of the share applicants. - Decided against revenue

Summary

Issues:
1. Addition of ?3.85 crores under Section 68 of the Income Tax Act.
2. Reassessment procedures under Section 147/143 initiated based on search and survey.
3. CIT (A)'s order setting aside the addition affirmed by ITAT.
4. Burden of proof on the assessee to establish identity and genuineness under Section 68.

Analysis:

1. The case involved the aggrieved revenue appealing against the ITAT's decision affirming the CIT (A)'s order setting aside the addition of ?3.85 crores under Section 68 of the Income Tax Act. The assessee, an incorporated company, had increased its share capital by almost ?8 crores for AY 2000-2001 and was subjected to assessment. The AO initiated reassessment procedures under Section 147/143 based on search and survey findings, leading to the addition of ?3.85 crores.

2. The CIT (A) considered all circumstances, noting discrepancies in the statements of individuals questioned during the seizure procedures and lack of nexus between the addition and survey materials. The ITAT upheld the CIT (A)'s decision, emphasizing the absence of evidence to justify the addition and the genuineness of the share capital.

3. The ITAT highlighted that the share capital source of ?3.85 crores was through cheques credited in shareholders' bank accounts, supported by documents verifying identity, creditworthiness, and genuineness of the transactions. The CIT (A) directed the AO to delete the addition based on the established facts by the assessee.

4. The court acknowledged the initial burden on the assessee to disclose the identity and genuineness of the transaction under Section 68. It found that the assessee had provided substantial evidence, including bank accounts, share particulars, and income tax details, to support the transactions. The court dismissed the revenue's argument that further proof was required, stating that the assessee had discharged the initial burden satisfactorily.

In conclusion, the court dismissed the appeal, emphasizing that the assessee had sufficiently proven the identity and genuineness of the transactions, thereby rejecting the revenue's claim of inadequacy in establishing the creditworthiness of the share applicants.