2017 (4) TMI 1191 - AT - Income Tax

Additions towards unexplained investment in share capital u/s 68 - as per AO assessee has not proved the genuineness of the transactions on account of investment in share capital by Smt. M. Rama Devi and Smt. S. Anuradha - Held that - The assessee has confirmed the investment by submitting the confirmation letters from the investors along with their bank statement. The AO is not happy with the sources of the investors but direct source of investment is clearly established by the assessee. In our considered view, the assessee has clearly discharged its part of obligation to establish the genuineness of the transaction. Now, AO is not happy with the source of the source. The revenue is free to go behind the investors and reopen their cases as they have voluntarily and willingly confirmed the investment. In our considered view, the assessee need not have to prove the source of the source and hence, assessee has established the genuineness of the transaction and addition u/s 68 cannot be invoked.- Decided in favour of assessee.

Summary

Issues:
Appeal against addition of unexplained investment in share capital under section 68 of the Income Tax Act, 1961 for AY 2011-12.

Analysis:
1. The Assessing Officer (AO) observed unexplained cash credits in the balance sheet related to share capital and share application money. The AO added the amounts as unexplained cash credits under section 68 due to the failure of the assessee to prove the creditworthiness of the investors.

2. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's addition, stating that the investors lacked creditworthiness to subscribe to the share capital. CIT(A) relied on precedents and confirmed the addition following the decisions of the Hon'ble AP High Court.

3. The assessee appealed the CIT(A)'s decision, arguing that confirmation letters with PAN and bank statements were submitted to establish the genuineness of the transactions and creditworthiness of the investors. The assessee contended that transactions were through proper banking channels and cited relevant case laws to support their position.

4. The Appellate Tribunal considered the submissions and evidence on record. The Tribunal noted that the assessee had submitted confirmation letters and bank statements of the investors, fulfilling the onus of proving the genuineness of the transactions and creditworthiness of the investors.

5. The Tribunal distinguished the present case from precedents where irregularities were noticed in bank statements. In this case, the bank statements were proper, and the genuineness of the transactions was established by the assessee. The Tribunal emphasized that the assessee need not prove the source of the source and allowed the appeal, concluding that the addition under section 68 cannot be invoked.

6. The Tribunal's decision highlighted that the assessee had met its obligation to prove the genuineness of the transactions, and the revenue authorities were free to investigate the investors if needed. The Tribunal emphasized that as long as the direct source of investment was established, the addition under section 68 was not applicable.

7. Therefore, the Appellate Tribunal allowed the appeal of the assessee, holding that the genuineness of the transactions was established, and the addition under section 68 was not warranted.