2018 (2) TMI 1149 - AT - Income Tax

Addition u/s 68 - unexplained advances - assessee company has received share application money of ₹ 6.64 crores from Ms. Rashna Fali Press, UAE based NRI - Held that - No evidence of creditworthiness of Ms. Rachna Fall Press to grant an advance of ₹ 6.64 crores given. No balance sheet or capital account of the said person has been submitted. The said certificate only shows that based on the information available, her net worth is US Dollar 50 million. What is the said information has not at all been specified. It is well known that Dubai/UAE has no financial regulatory network. Hence, the credence to such a vague certificate devoid of any detail cannot be given. How maintenance of account with a bank confirms the creditworthiness of the said person to grant share application of ₹ 6.64 crores is beyond our comprehension. None prevented the assessee from obtaining the statement of financial accounts/balance sheet which could have given undeniable evidence of her creditworthiness. The assessee has also not furnished the bank statement of said person. Reluctance on the part of the assessee and the said person to give proper evidence of the creditworthiness and also the failure to submit the copy of the bank statement clearly proves that the assessee has not discharged the onus of proving the creditworthiness. It is clear that the said Ms. Rashna Fali Press has not given proper details to justify the creditworthiness to grant the said advance of ₹ 6.64 crores. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act, 1961 towards share application money.
2. Identification and creditworthiness of the source of funds.
3. Burden of proof on the assessee to establish the investor's capacity.
4. Reliance on judicial precedents and their applicability.
5. Assessment of the nature and source of the share application money.
6. Verification of additional evidence submitted by the assessee.
7. Evaluation of the creditworthiness of the investor.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68:
The Revenue contested the deletion of ?6,64,32,810/- added under Section 68 of the Income Tax Act, 1961, arguing that the Commissioner of Income Tax (Appeals) erred in deleting the addition made towards share application money received by the assessee from an NRI, Ms. Rashna Fali Press.

2. Identification and Creditworthiness of the Source of Funds:
The Revenue argued that the mere identification of the source and movement of funds through banking channels was insufficient to prove the creditworthiness of the investor, as per the Supreme Court's ratio in CIT v/s P. Mohankala (291 ITR 278). The Assessing Officer found that Ms. Rashna Fali Press had declared a meager income of ?5,03,220/-, which did not justify her capacity to invest ?6,64,32,910/-.

3. Burden of Proof on the Assessee:
The Revenue emphasized that the burden of proof to establish the investor's means and capacity to make such a significant investment was not discharged by the assessee. The Assessing Officer noted that the assessee failed to provide details of Ms. Rashna Fali Press's business activities, bank statements, and other financial documents to substantiate her financial capacity.

4. Reliance on Judicial Precedents:
The Revenue contended that the Commissioner of Income Tax (Appeals) wrongly relied on the Supreme Court judgment in Lovely Exports Pvt. Ltd. (216 ITR 195) without appreciating that the facts of that case were distinguishable from the present case. The Assessing Officer also referred to several other case laws, including CIT vs. P. Mohankala and Kale Khan Mohammad Hanif vs. CIT, to support the addition.

5. Assessment of the Nature and Source of Share Application Money:
The Assessing Officer concluded that the assessee had not satisfactorily explained the nature and source of the share application money. The assessee's explanation was deemed unsatisfactory, and the Assessing Officer invoked Section 68, which requires the assessee to prove the identity of the shareholder, the nature and genuineness of the transaction, and the creditworthiness of the share applicant.

6. Verification of Additional Evidence:
The Commissioner of Income Tax (Appeals) admitted additional evidence submitted by the assessee, including a CA certificate from UAE stating that Ms. Rashna Fali Press had a net worth of 50 US Million Dollars. The Commissioner of Income Tax (Appeals) considered this sufficient to discharge the onus of proving her creditworthiness and deleted the addition made by the Assessing Officer.

7. Evaluation of the Creditworthiness of the Investor:
The Tribunal found that the certificate from the UAE CA firm and the account confirmation from Abu Dhabi Commercial Bank were insufficient to prove the creditworthiness of Ms. Rashna Fali Press. The Tribunal noted the lack of balance sheets, capital accounts, and bank statements, and emphasized that the burden of proving the creditworthiness was on the assessee. The Tribunal concluded that the assessee failed to discharge this burden and restored the Assessing Officer's order, adding the sum of ?6,64,32,910/- to the assessee's total income under Section 68.

Conclusion:
The Tribunal allowed the Revenue's appeal, setting aside the order of the Commissioner of Income Tax (Appeals) and restoring the Assessing Officer's addition of ?6,64,32,910/- under Section 68 of the Income Tax Act, 1961, due to the assessee's failure to prove the creditworthiness of the investor.