2016 (4) TMI 474 - AT - Income Tax

Additions of share capital & unsecured loans - Held that - We are of the opinion that the assessee has failed to discharge its onus to establish identity of the shareholders, genuineness of the transactions and creditworthiness of the shareholders in relation to the addition of ₹ 13 lakh made by the assessing officer. Thus we hold that there is no infirmity in the findings of the Commissioner of income tax (Appeals) on the issue in dispute. Also AR could not brought any evidence so as to establish the creditworthiness of the creditors and therefore in our opinion, the assessee has failed to discharge its primary onus of satisfying the requirements of provisions of section 68 of the Act. Once the assessee failed in explaining the share capital and unsecured loans received, there was no option before the Assessing Officer except making addition in the hands of the assessee until and unless, the assessee would have come forward with the name of the person to whom the unexplained cash credit belonged. - Decided against assessee

Issues Involved:
1. Sustaining additions of share capital and unsecured loans during the year of incorporation before the commencement of business.
2. Requirement for the assessee to mention the source of the source for unsecured loans.
3. Failure of the Assessing Officer to examine the creditworthiness, identity, or genuineness of shareholders and unsecured loan providers.
4. Doubts on the authenticity of identity proofs like PAN or Voter ID cards.
5. Sustaining loans returned through banking channels after the company incurred losses.
6. Cumulative handling of loans and share capitals without discussing individual cases.
7. Sustaining additions despite binding precedents of superior courts.
8. Validity of the assessment orders and orders under section 250.

Issue-wise Detailed Analysis:

1. Sustaining Additions of Share Capital and Unsecured Loans:
The assessee challenged the addition of Rs. 13,00,000/- as share capital and Rs. 58,54,200/- as unsecured loans, arguing that these were received during the year of incorporation and before commencing business. The tribunal referenced the Supreme Court judgment in the case of Bharat Engineering And Construction Company, noting that it was a question of fact whether such credits could be considered income. The tribunal upheld the addition, citing the Delhi High Court's ruling in Indus Valley Promoters Ltd., which stated that unexplained cash credits could be treated as income of the assessee.

2. Requirement to Mention the Source of the Source:
The assessee argued that it was not required to provide the source of the source for unsecured loans. The tribunal dismissed this contention, stating that the burden was on the assessee to prove the identity, creditworthiness, and genuineness of the transactions. The tribunal upheld the addition due to the assessee's failure to discharge this burden.

3. Failure to Examine Creditworthiness, Identity, or Genuineness:
The assessee contended that it had provided the addresses of shareholders and loan providers, but the Assessing Officer did not examine their creditworthiness, identity, or genuineness. The tribunal noted that the assessee failed to provide sufficient evidence to establish these elements, thereby justifying the addition.

4. Doubts on Authenticity of Identity Proofs:
The assessee argued that PAN and Voter ID cards are valid identity proofs, but the CIT(A) doubted their authenticity. The tribunal found that the assessee did not provide adequate evidence to prove the creditworthiness and genuineness of the transactions, thus upholding the addition.

5. Sustaining Loans Returned Through Banking Channels:
The assessee claimed that the loans were genuine as they were returned through banking channels. The tribunal held that the assessee failed to provide evidence of the creditworthiness of the loan providers, thereby sustaining the addition.

6. Cumulative Handling of Loans and Share Capitals:
The tribunal noted that the Assessing Officer and CIT(A) handled the loans and share capitals cumulatively without individual case discussions. However, it upheld the addition due to the assessee's failure to provide sufficient evidence for each transaction.

7. Sustaining Additions Despite Binding Precedents:
The assessee argued that the additions were sustained in violation of binding precedents. The tribunal referenced relevant judgments and found that the assessee did not meet the burden of proof, thereby justifying the additions.

8. Validity of Assessment Orders and Orders Under Section 250:
The assessee claimed that the assessment orders and orders under section 250 were invalid. The tribunal dismissed this ground, finding no infirmity in the orders.

Conclusion:
The tribunal upheld the additions of Rs. 13,00,000/- as share capital and Rs. 58,54,200/- as unsecured loans, dismissing the appeal of the assessee. The decision was pronounced in the open court on 11th March 2016.

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