2016 (10) TMI 974 - HC - Income Tax

Addition u/s 68 - assessee could not prove the identity and creditworthiness of the alleged share subscribers and the genuineness of the share subscriptions - ITAT delted the addition - Held that - In the case before us, there were 40 shareholders. 38 of them could not be found. Two of them stated that they had no connection with the company. They never applied for any share. They were drivers by profession. They did not give any money. Can the transaction resulting in contribution of a sum of ₹ 1,06,90,000/-, allegedly contributed by 40 applicants be said to have been proved genuine just because K.P.Kedia is said to have provided the funds ? The answer is no. That would on the contrary lead to a negative answer to all the three questions indicated above. As a result, addition under section 68 of the I.T.Act shall be perfectly justified. If K.P.Kedia has, in fact, provided any fund which is not accounted for in his Books of Accounts then it would attract addition to his income under section 69 of the I.T.Act. The addition to the income of Sri K.P.Kedia does not, in the least, diminish the liability of the assessee company under section 68. These are two different causes of action leading to addition against the income of two different persons. There is as such no question of any double taxation. We are sorry to say that the learned Tribunal has mixed up the matters. The addition in this case under Section 68 has nothing to do with any investment claimed or admitted to have been made by K. P. Kedia outside his books of accounts. In case that is found to have been done, that would attract addition under Section 69 against Shri K. P. Kedia. The addition in the case of the assessee is on account of the sum found credited in its books of accounts maintained for the previous year in respect whereof the assessee failed to offer any explanation and the Assessing Officer for justified reasons added the amount of ₹ 1,06,90,000/- to the income of the assessee. We may add that the right to offer explanation under Section 68 is that of the assessee. No third party has any right to offer such explanation. - Decided against assessee

Summary

Issues:
Challenge to judgment by Income Tax Appellate Tribunal regarding deletion of addition under section 68 of the Income Tax Act, 1961 for assessment year 1995-96 based on share capital authenticity.

Detailed Analysis:
The judgment challenged was related to the deletion of an addition under section 68 of the Income Tax Act, 1961, for the assessment year 1995-96. The main question was whether the Tribunal was correct in deleting the addition of a specific amount under section 68, considering the authenticity of share subscribers and share subscriptions. The original assessment added a sum of a certain amount, and the Tribunal remanded the matter to the assessing officer for further inquiry regarding the identity and details of shareholders. The assessing officer found discrepancies, including non-availability of most shareholders and statements denying any connection with the company by some individuals.

The assessing officer concluded that the share applicants did not exist, leading to the addition of the sum under section 68. The CIT(Appeal) upheld this decision. In the subsequent appeal, the Tribunal justified the order by establishing a link between the company and a certain individual, K.P. Kedia. However, the Tribunal held that the addition in the hands of the assessee companies would amount to double additions and was not sustainable. The Tribunal emphasized the need to prove the identity, creditworthiness, and genuineness of the shareholders.

The Tribunal's decision highlighted that even if funds from K.P. Kedia reached the beneficiary companies, including the assessee, it did not establish the authenticity of the transaction. The Tribunal stressed that the burden of proof lay with the assessee to demonstrate these aspects. The Tribunal also differentiated between the addition under section 68 for the assessee and potential additions to K.P. Kedia's income under section 69.

The Tribunal rejected arguments regarding the assessment of K.P. Kedia's income and emphasized that the right to offer an explanation under section 68 belonged to the assessee alone. The Tribunal also referred to a judgment supporting its decision. Ultimately, the Tribunal allowed the appeal, indicating that the addition under section 68 was not deleted for justifiable reasons. The parties were directed to bear their own costs.

In conclusion, the judgment delved into the complexities of proving the authenticity of share capital transactions under section 68 of the Income Tax Act, emphasizing the burden on the assessee to establish the identity, creditworthiness, and genuineness of shareholders. The Tribunal's decision focused on preventing double taxation and maintaining clarity regarding additions to different entities' incomes under relevant sections of the Act.