2018 (1) TMI 607 - HC - Income Tax

Addition u/s 68 - AO took note of the statement made by the individual styled as Director, disowning the investment made in the assessee company by M/s. Creative Financial Services Pvt. Ltd. - Held that - This Court is of the opinion that the lone circumstance of a Director disowning the document per se could not have constituted a fresh material to reject the documentary evidence. In this case, the existence of the company as an income tax assessee, and that it had furnished audited accounts is not in dispute. Furthermore, its bank details too were furnished to the AO. If the AO were to conduct his task diligently, he ought to have at least sought the material by way of bank statements etc. to discern whether in fact the amounts were infused into the share holder s account in cash at any point of time or that the amount of ₹ 1.3 crores in the case of M/s. Creative Financial Services Pvt. Ltd and ₹ 3.7 crores in the case of other share applicants were such as to be beyond their means. In the absence of any such enquiry, the Court is of the opinion that the findings holding that the assessee had not discharged the onus placed upon it by law cannot be considered unreasonable. No question of law arises.

Issues:
1. Addition made under Section 68 of the Income Tax Act, 1961.
2. Burden of proving genuineness of transactions and creditworthiness of investors.
3. Examination of materials by Assessing Officer (AO).
4. Discharge of onus by the assessee.
5. Cross-examination of witnesses.
6. Rejection of documentary evidence by AO.
7. Diligence required in conducting assessments.

Analysis:

Issue 1: Addition made under Section 68 of the Income Tax Act, 1961
The Revenue challenged the ITAT's decision confirming the CIT(A)'s order setting aside an addition of ?5 crores made under Section 68 of the Income Tax Act. The appellant claimed that the amounts were received as share application money from various parties. The AO required the assessee to furnish particulars, which were provided, including confirmation letters, board resolutions, PAN card details, financial statements, and affidavits of directors and investors.

Issue 2: Burden of proving genuineness of transactions and creditworthiness of investors
The AO was not satisfied with the materials furnished and held that the assessee had not proven the genuineness of the identity of the applicants, transactions, or creditworthiness of the investors. The CIT(A) examined the materials and held that no addition could be made in the appellant's hands based on various judicial pronouncements unless adverse evidence was present.

Issue 3: Examination of materials by Assessing Officer (AO)
The CIT(A) found that the AO did not examine all materials provided, giving undue importance to certain statements. The ITAT re-examined the materials and affirmed the CIT(A)'s findings, stating that the assessee had discharged the onus to prove the identity of share applicants. The AO's reliance on statements without allowing cross-examination was deemed incorrect.

Issue 4: Discharge of onus by the assessee
The CIT(A) held that the assessee had provided all documents showing the genuineness, creditworthiness, and identity of the share subscribers. The AO failed to show how the share application money was tainted, leading to the deletion of addition with respect to certain share subscribers.

Issue 5: Cross-examination of witnesses
The Court emphasized the importance of cross-examination and held that a Director's denial alone could not constitute fresh material to reject documentary evidence. The AO's failure to conduct further enquiries, such as examining bank statements, led to the dismissal of the appeal.

Issue 6: Rejection of documentary evidence by AO
The Court noted that the AO rejected the affidavit furnished without conducting thorough enquiries into the source of funds. The Court found that the findings on the assessee not discharging its onus were not unreasonable due to the lack of diligent investigation by the AO.

Issue 7: Diligence required in conducting assessments
The Court highlighted the importance of diligent assessment by the AO, including verifying the source of funds and conducting necessary enquiries to determine the legitimacy of transactions. The absence of such enquiries could lead to findings against the assessee.

In conclusion, the Court dismissed the appeal, emphasizing the need for thorough investigations and the onus on the AO to conduct diligent assessments before making additions under the Income Tax Act.

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