2018 (3) TMI 1592 - HC - Income Tax

Addition u/s 68 - proof of identity, genuineness and creditworthiness of the shareholders - failure to establish the source of source - Held that - The requirement to explain the source of source of funds in respect of amounts credited in the books of a company in which the public are not substantially interested as share application money was brought in the statute with the introduction of proviso to Section 68 of the Act by Finance Act, 2012. This proviso was introduced w.e.f. 1st April, 2013. Thus, it would have no application in respect of receipt of share application money received prior thereto. In this case, we are dealing with the issue of share application money in the previous year relevant to Assessment Year 2008-09. Therefore, the proviso to Section 68 of the Act would have no application. - Decided in favour of assessee

Summary

Issues:
Challenge to the order of the Income Tax Appellate Tribunal regarding the establishment of identity, genuineness, and creditworthiness of shareholders for share subscription amounts received by the assessee company.

Analysis:
The High Court was presented with an appeal challenging the Income Tax Appellate Tribunal's order dated 15th April, 2015, concerning Assessment Year 2008-09 under Section 260A of the Income Tax Act, 1961. The main question raised by the Revenue was whether the Tribunal correctly held that the assessee had proven the identity, genuineness, and creditworthiness of its shareholders solely by submitting their profit and loss accounts and balance sheets without establishing the source of funds used by the shareholders for investing in the company.

The Tribunal's decision favored the Respondent-Assessee, stating that they had indeed established the required identity, genuineness, and creditworthiness of their shareholders. The Revenue's contention was that the assessee failed to explain the source of funds invested by the shareholders in the company. The High Court noted that the requirement to explain the source of funds was introduced with the proviso to Section 68 of the Act by the Finance Act, 2012, effective from 1st April, 2013, and would not apply to share application money received before that date, such as in the present case for Assessment Year 2008-09.

Both parties agreed that the issue of the application of the amended Section 68 of the Act had been addressed in a previous decision of the High Court in CIT v/s. Gagandeep Infrastructure Pvt. Ltd. The Court had ruled that the proviso to Section 68 was not retrospective and did not indicate it was introduced for removal of doubts. As the issue was settled by the prior decision, the High Court concluded that no substantial question of law arose for consideration and dismissed the appeal without costs.

In summary, the High Court dismissed the appeal, upholding the Tribunal's decision that the assessee had established the identity, genuineness, and creditworthiness of its shareholders, and that the proviso to Section 68 of the Act did not apply to the share application money received in the relevant assessment year.