2018 (5) TMI 806 - HC - Income Tax

Addition u/s 68 - assessee not liable to establish source of the source or the credit worthiness of the source of the source - Held that - A clear cut finding and accordingly the ground relating to addition of ₹ 28 lakhs of the assessee has been dealt with while deciding Revenue s appeal, and deletion of ₹ 12 lakhs was confirmed. In respect of unsecured loan taken by the assessee from Shree Shyam Polymers, this depositor has shown meagre income in his return, no interest is provided and appellant has failed to prove identity and creditworthiness of this depositor. This depositor, who is a director in appellant company has shown income of only ₹ 1,49,301/- in its return and capital is only ₹ 9,27,309/- and in these circumstances creditworthiness of depositor is not proved for giving a credit of ₹ 16,39,960/-. The learned Authorities also found that huge cash deposits were seen in bank account of M/s. Shree Shyam Polyers in Citi Bank account No.0-000449-547 before making cheque payments to appellant - assessee which raises serious doubts on the genuineness of these transactions. On due consideration of the aforesaid and findings recorded by the learned Appellate Authority which is based on appreciation of evidence on record and documents filed by the appellant, no case is made out to interfere with the well reasoned order passed by the ITAT. No substantial question of law

Summary

Issues Involved:
1. Addition of Share Capital of ?28 lakhs.
2. Addition of Unsecured Loan of ?16,39,960/-.

Detailed Analysis:

1. Addition of Share Capital of ?28 lakhs:

The appellant, a Private Limited Company, filed its return of income for the assessment year 2006-07, disclosing ?40 lakhs received as share application money from 10 shareholder companies and an unsecured loan of ?16,39,960/- from a proprietorship concern. The Assessing Officer (AO) completed the scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, and added ?40 lakhs as unexplained income under Section 68, which was received as share application money. The appellant challenged this addition before the Commissioner of Income Tax (Appeals) [CIT(A)], who partially allowed the appeal, deleting ?12 lakhs and maintaining the addition of ?28 lakhs.

Both the assessee and the revenue filed appeals before the Income Tax Appellate Tribunal (ITAT). The ITAT upheld the CIT(A)'s decision, confirming the addition of ?28 lakhs under Section 68. The ITAT noted that the assessee had received share application money from 10 companies based in Calcutta but failed to prove the genuineness of transactions for 7 companies. The genuineness of transactions for three companies was verified, and no cash deposits were found, leading to the deletion of ?12 lakhs.

The High Court reviewed the records and the findings of the ITAT and CIT(A). It was observed that the appellant failed to provide sufficient evidence to prove the genuineness of the share application money from the remaining 7 companies. The Court concluded that the findings were based on a proper appreciation of evidence and upheld the addition of ?28 lakhs under Section 68.

2. Addition of Unsecured Loan of ?16,39,960/-:

The AO added ?16,39,960/- under Section 68 as unexplained income, which was received as an unsecured loan from M/s Shree Shyam Polymers. The AO found that the depositor showed a meager income in his return, no interest was provided, and the appellant failed to prove the identity and creditworthiness of the depositor. The CIT(A) confirmed this addition, noting that the depositor, a director in the appellant company, had an income of only ?1,49,301/- and capital of ?9,27,309/-, making it improbable to provide a credit of ?16,39,960/-. Additionally, significant cash deposits were observed in the depositor's bank account before issuing cheques to the appellant.

The ITAT upheld the CIT(A)'s findings, emphasizing the lack of evidence to prove the creditworthiness and genuineness of the transactions. The High Court, after reviewing the records, agreed with the lower authorities' conclusions, noting that the appellant failed to provide adequate documentation to establish the genuineness of the unsecured loan.

Conclusion:

The High Court found no substantial question of law arising in the appeal and dismissed it, affirming the ITAT's decision to maintain the additions of ?28 lakhs and ?16,39,960/- under Section 68 of the Income Tax Act, 1961. The Court emphasized that the findings were based on a proper appreciation of evidence and documents presented by the appellant.