2016 (11) TMI 651 - AT - Income Tax

Unexplained cash credit u/s 68 - creditor/subscribers fails to respond to notices - Held that - Assessing Officer has disbelieved the genuineness of the subscription received by the assessee as share application money, more specifically when the assessee provided the list of share subscribers, their PAN, source of the funds, therefore, mere suspicion is not enough to sustain the addition u/s 68 of the Act. Summons were issued to shares subscribers by the Assessing Officer and the same were not returned back, meaning thereby, the same were served upon them. The ld. Assessing Officer if was still apprehensive nothing prevented him to take the legal recourse available with him. The assessee also filed confirmation from share subscribers. The bank accounts of share subscribers were produced which establishes their identity. The existence of share holders is not in doubt, their identity is established and they invested the money in purchase of shares. The onus cast upon the assessee has been established, therefore, addition cannot be sustained. AO has not unearthed any wrong or illegal dealing, therefore, he cannot obdurately adhere to his suspicion and treat the subscribed capital as undisclosed income of the assessee. The Department would not be justified in drawing and adverse inference only because the creditor/subscribers fails or neglect to respond to its notices - Decided in favour of assessee

Issues Involved:
1. Addition of ?78 lakh as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Burden of proof and the identity, genuineness, and creditworthiness of share applicants.
3. Legal precedents and their applicability to the case.

Detailed Analysis:

1. Addition of ?78 lakh as Unexplained Cash Credit under Section 68 of the Income Tax Act, 1961:
The assessee was aggrieved by the order confirming the addition of ?78 lakh on account of share application money treated as unexplained cash credit under Section 68. The Assessing Officer (AO) had asked the assessee to furnish details of the share application money received, including names, addresses, PAN, and bank statements of the applicants. Despite the assessee providing these details, the AO noted that the money for the share application was received from five parties who had received funds from M/s Swan Securities immediately prior to issuing cheques to the assessee. Summons issued to the share applicants were not responded to, leading the AO to treat the amount as unexplained cash credit.

2. Burden of Proof and the Identity, Genuineness, and Creditworthiness of Share Applicants:
The Tribunal analyzed the facts and observed that the assessee had provided sufficient evidence to establish the identity of the share applicants, including their PAN and bank statements. The Tribunal referenced the decision in CIT vs. Devine Leasing and Finance Ltd., which held that if the assessee provides relevant details of the address and identity of subscribers, it constitutes proof or explanation, and the Department cannot draw adverse inferences solely because the subscribers fail to respond to notices. The Tribunal emphasized that the AO did not pursue further investigation despite having the necessary details, thus failing to discharge the burden of proof that had shifted to the Department.

3. Legal Precedents and Their Applicability:
The Tribunal cited several legal precedents, including:
- CIT vs. Devine Leasing and Finance Ltd.: This case established that the burden of proof lies with the AO to investigate the legitimacy of subscriptions if doubts arise.
- CIT vs. Lovely Exports Pvt. Ltd.: The Supreme Court held that if share application money is received from alleged bogus shareholders, the Department is free to reopen their individual assessments.
- CIT vs. Kamdhenu Steel & Alloys Ltd.: This case reiterated that once adequate evidence is provided by the assessee, the onus shifts to the AO to conduct a thorough investigation.

The Tribunal concluded that the AO's suspicion alone was insufficient to sustain the addition under Section 68. The assessee had provided all necessary details, and the AO failed to unearth any wrong or illegal dealings. Therefore, the addition of ?78 lakh as unexplained cash credit was directed to be deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing that the AO did not adequately pursue further investigation despite having sufficient details to do so. The decision was pronounced in the open court on 28/07/2016.

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