2018 (1) TMI 389 - AT - Income Tax

Unexplained share application money - sufficient documentary evidence to prove the genuineness - Held that - Assessee-company produced sufficient documentary evidence before A.O. to prove the ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee-company. The A.O. thus, failed to conduct any enquiry and scrutiny of the documents at assessment stage and merely suspected the transaction between the Investor Company and assessee-company because the Investor Company was from Kolkata. The A.O. thus, did not perform his duties at the assessment stage so as to make addition against the assessee-company. No cash was found deposited in the account of the Investor. Therefore, the totality of the facts and circumstances clearly prove that assessee-company discharged initial onus to prove identity of the Investor Company, its creditworthiness and genuineness of the transaction in the matter. The Ld. CIT(A) on proper appreciation of the evidence before him correctly deleted the addition. No interference is called for in the matter - Decided in favour of assessee

Issues Involved:

1. Validity of addition of share application money under Section 68 of the Income Tax Act.
2. Burden of proof regarding identity, creditworthiness, and genuineness of the investor.
3. Applicability of amendment to Section 68 for the assessment year in question.
4. Adequacy of evidence provided by the assessee to discharge the initial burden of proof.
5. Conduct of the Assessing Officer (A.O.) in verifying the evidence provided by the assessee.

Issue-wise Detailed Analysis:

1. Validity of Addition of Share Application Money under Section 68 of the Income Tax Act:

The A.O. treated the share application money of ?10,63,50,000 received by the assessee-company as unexplained under Section 68 of the Income Tax Act, due to the absence of audited accounts of the investor and perceived inadequacies in proving the investor's financial capacity. The Ld. CIT(A) deleted the addition, stating that the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the transaction. The Tribunal upheld the CIT(A)'s decision, noting that the A.O. did not conduct further inquiries or investigations into the evidence provided by the assessee.

2. Burden of Proof Regarding Identity, Creditworthiness, and Genuineness of the Investor:

The Tribunal emphasized that the initial burden of proving the identity, creditworthiness, and genuineness of the transaction rests with the assessee. The assessee-company had discharged this burden by providing the investor's name, address, PAN, bank statements, balance confirmations, and ITR acknowledgments. The onus then shifted to the A.O. to examine the transaction further. The Tribunal noted that the A.O. failed to conduct any meaningful investigation into the documents provided by the assessee.

3. Applicability of Amendment to Section 68 for the Assessment Year in Question:

The CIT(A) observed that the amendment to Section 68, which requires the assessee to explain the "source of the source," came into effect from the assessment year 2013-14 and could not be applied retrospectively to the assessment year 2012-13. The Tribunal agreed with this view, noting that the A.O.'s reliance on this amendment was misplaced.

4. Adequacy of Evidence Provided by the Assessee to Discharge the Initial Burden of Proof:

The Tribunal found that the assessee had provided adequate evidence to discharge the initial burden of proof. This included the investor's bank statements showing high-value transactions, the investor's balance sheet indicating substantial capital, and other relevant documents. The Tribunal noted that the A.O. did not dispute the identity of the investor but questioned its creditworthiness based on low income declared in the ITR. However, the Tribunal held that the high-value transactions in the bank account should have been sufficient to establish creditworthiness.

5. Conduct of the Assessing Officer in Verifying the Evidence Provided by the Assessee:

The Tribunal criticized the A.O. for not conducting a thorough investigation into the evidence provided by the assessee. The A.O. did not ask for the production of the investor for examination under Section 131 of the I.T. Act and did not make any direct or indirect inquiries into the documents filed by the assessee. The Tribunal cited several judicial precedents, including decisions from the Hon'ble Supreme Court and various High Courts, to support its view that the A.O. failed to perform his duties adequately.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition of ?10,63,50,000, concluding that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transaction. The A.O.'s failure to conduct further inquiries or investigations into the evidence provided by the assessee was a significant factor in the Tribunal's decision. The appeal by the Department and the cross-objection by the assessee were both dismissed.

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