2018 (11) TMI 952 - HC - Income Tax

Addition u/s 68 - burden of proof - proof of credit worthiness - Held that - Where the assessee has discharged the initial burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction, the burden of proof shifts on the Assessing officer. In such a case, the AO cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. If the Assessing Officer harbours any doubts of the legitimacy of any subscription, he is empowered, nay dutybound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings or has no material in his possession, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. No substantial question of law arises in this appeal

Summary

Issues Involved:
1. Justification of ITAT's order without applying its mind and by merely reproducing contents of an earlier order.
2. Justification of ITAT's confirmation of findings despite the assessee furnishing detailed particulars.
3. Justification of ITAT's confirmation of treating the investment by a British NRI as unproven.
4. Justification of ITAT's sustaining additions under Section 68 of the IT Act, 1961.

Detailed Analysis:

1. Justification of ITAT's Order Without Applying Its Mind:
The appellant contended that the ITAT merely reproduced the contents of an earlier judgment without applying its mind. The Tribunal referred to various legal authorities, including the case of Navodaya Castle (P) Ltd., where the Supreme Court rejected the SLP against the Delhi High Court's order. The High Court emphasized that the primary requirements in such cases are the identification of the creditors/shareholders, their creditworthiness, and the genuineness of the transaction. The Tribunal's reliance on its earlier judgment was deemed appropriate as it had already analyzed the relevant legal principles in detail.

2. Justification of ITAT's Confirmation of Findings Despite Detailed Particulars:
The appellant argued that the ITAT ignored the detailed particulars furnished by the assessee, including bank accounts, passport, PAN card, addresses, and earnings of the shareholder-cum-Director. The Tribunal referred to several legal precedents, including CIT v. Nova Promoters & Finlease (P.) Ltd., which highlighted the need for a thorough investigation into the creditworthiness and genuineness of transactions. The Tribunal concluded that mere submission of documents is not sufficient; the evidence must be credible and verifiable.

3. Justification of ITAT's Confirmation of Treating the Investment as Unproven:
The appellant challenged the ITAT's confirmation of the findings of the CIT(A) and AO, treating the investment by a British NRI as unproven. The Tribunal referred to the case of CIT v. N.R. Portfolio (P.) Ltd., which emphasized that PAN numbers and bank transactions alone do not establish creditworthiness. The Tribunal noted that the assessee failed to produce directors and principal officers of the shareholder companies, raising genuine concerns about the identity, creditworthiness, and genuineness of the transactions.

4. Justification of ITAT's Sustaining Additions Under Section 68:
The appellant contended that the ITAT sustained the additions under Section 68 by merely recording that the burden of proof is higher for private limited companies. The Tribunal referred to the case of Lovely Exports (P.) Ltd., where the Supreme Court held that if the share application money is received from alleged bogus shareholders, the Department can reopen their individual assessments. The Tribunal emphasized that the primary requirements of identification, creditworthiness, and genuineness must be tested in depth, considering human probabilities and normal course of human conduct.

Conclusion:
The High Court dismissed the appeal, stating that no substantial question of law arises and it is merely a reappreciation of evidence. The Tribunal's reliance on its earlier judgment and the legal principles established in various precedents were deemed appropriate. The burden of proof on the assessee, especially in the case of private limited companies, was emphasized, and the Tribunal's findings were upheld.