2017 (12) TMI 368 - HC - Income Tax

Addition u/s 68 - ingenuity of transaction - Held that - Assessee is a private limited company and it being further admitted to it that the alleged investors were close friends and business associates of its directors and/or share holders, as the case may be, the burden rested squarely on the assessee to disclose true and correct details of the persons it claimed had made the substantial investments of ₹ 3.46 crores. That burden was not discharged. The identity of the alleged investors was never established and the assessee did not discharge its burden to lead evidence on that issue. The finding of the Tribunal is a finding of fact recorded on the basis of evidence and application of the correct principle/rule of evidence. The same calls for no interference by this Court and it is hereby sustained. Once, the identity of the investors was not established the assessee could not in any case claim to establish either the genuineness of the transaction or the creditworthiness of those persons. Therefore, the objection raised by learned counsel for the assessee as to lack of opportunity to cross-examine the Bank Manager or other witnesses, is largely inconsequential. Even if such opportunity has been granted to the assessee by the Assessing Officer, it would have led to no different result inasmuch as since the assessee failed to establish the identity of the investors, the genuineness of the transaction itself gets disapproved for the reason that for a genuine transaction there must first exist genuine person to perform that transaction. Also, for that reason, the creditworthiness of the investors could never be established once it was found that there was no person existing who may have entered into such a transaction. - Decided against the assessee and in favour of the revenue.

Summary

Issues:
- Addition under Section 68 of the Income Tax Act
- Burden of proof on the assessee to establish identity and genuineness of transactions
- Tribunal's findings on the case of a private limited company and its investors
- Assessment of evidence and application of correct principles by the Tribunal

Analysis:

The case involved an appeal by the assessee against the order of the Income Tax Appellate Tribunal regarding the addition under Section 68 of the Income Tax Act. The assessee, a private limited company engaged in the manufacture and sale of Iron and Steel products, filed its return of income for the Assessment Year 2007-08. The Assessing Officer doubted the genuineness of cash credit entries amounting to ?3.46 crores recorded against share capital subscribed by 37 persons. The Assessing Officer conducted inquiries under Section 133(6) of the Act and obtained a handwriting expert's opinion. However, the Assessing Officer disbelieved the explanation provided by the assessee and made an addition to the income of the assessee.

The CIT (Appeals) accepted the explanation furnished by the assessee, but the revenue appealed to the Tribunal. The Tribunal found that the genuineness of the transactions was not established by the assessee, as inquiries resulted in negative confirmation of details and the identity of alleged investors. The Tribunal held that the burden to establish identity and genuineness rested on the assessee, which was not discharged. Therefore, the Tribunal set aside the order of the CIT (Appeals) and confirmed the assessment order.

The Tribunal reasoned that being a private limited company, the burden to establish the identity and genuineness of the transactions rested on the assessee. The Tribunal found that the investors as disclosed by the assessee did not exist at the provided addresses and that the PAN details did not establish their identity. The Tribunal concluded that the identity of the investors was not established, and the addition under Section 68 of the Act was justified. The Tribunal's findings were based on evidence and application of correct principles, warranting no interference by the Court.

The Court upheld the Tribunal's findings, emphasizing that the burden was on the assessee to disclose true details of investors, which was not done. The Court affirmed that without establishing the identity of investors, the genuineness of transactions and creditworthiness could not be proven. The Court dismissed the appeal, ruling in favor of the revenue and sustaining the Tribunal's decision based on factual findings and correct application of principles.