2018 (4) TMI 1350 - AT - Income Tax

Addition u/s 68 - unexplained share application received - Held that - The ratio laid down by the Hon ble Apex Court in the case of Lovely Export 2006 (11) TMI 121 - DELHI HIGH COURT is applicable in the present case as in this case only when the opportunity is given to the assessee in respect of proving the identity, genuineness and creditworthiness of the share applicant. CIT(A) has not taken cognizance of these three components while dismissing the appeal of the assessee. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer. We further direct the assessee to produce these parties before the Assessing Officer along with the relevant details for verification and thereafter if no party was found the Assessing Officer with proper reasons make addition on this issue.

Summary

Issues:
Identification of share application money source, addition u/s 68 of the Income Tax Act, 1961, proving identity, creditworthiness, and genuineness of parties, amalgamation of companies, failure to provide confirmation from share applicants, applicability of legal precedents, remand of issue to Assessing Officer.

Analysis:
The appeal was filed against an order treating share application money as income from undisclosed sources and adding it u/s 68 of the Income Tax Act, 1961. The CIT(A) initially deleted the addition, but the ITAT remitted the matter to the Assessing Officer for fresh consideration. The identity of parties was questioned, leading to notices u/s 133(6) being sent to the companies, with no satisfactory responses received. The appellant claimed amalgamation and provided new addresses, but the Assessing Officer found discrepancies and added the amount to the income.

The appellant contended that all shareholders were identifiable and creditworthy, having subscribed through legitimate means. However, the Assessing Officer and CIT(A) found the evidence insufficient, emphasizing the need to prove identity, genuineness, and creditworthiness. Legal precedents were cited by both parties, with the ITAT stressing the importance of these factors. The ITAT directed the appellant to produce parties for verification, failing which the Assessing Officer could make additions with proper justification and adherence to natural justice principles.

Ultimately, the appeal was allowed for statistical purposes, with the issue remanded back to the Assessing Officer for further examination. The judgment highlighted the necessity of satisfying the criteria of identity, creditworthiness, and genuineness in such cases, emphasizing the burden of proof on the assessee. The decision underscored the importance of thorough verification and adherence to legal principles in income tax assessments.