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2018 (12) TMI 197 - AT - Income TaxAddition u/s 68 - explained cash credit - proof of identity, creditworthiness and genuineness of the transaction - assessee fails to explain the nature and source - Held that - Section 68 provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its income of the previous year in which the same was received. In the facts of the present case, both the nature & source of the share capital received with premium were fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. This is a case of a company which has genuine business of which is in the manufacturing of granite slabs and has huge turnover running into crores of rupees. All the share application companies have filed all necessary documents in support of their claim that the transactions are genuine. No adverse material is brought on record by the revenue. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed before the AO. Accordingly, all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction were placed before the AO and the onus shifted to the AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified - no addition was warranted under Section 68 . See ITO, WARD-12 (3) , KOLKATA VERSUS M/S SPLENDOUR VILLA MAKERS PVT. LTD. 2018 (9) TMI 414 - ITAT KOLKATA - decided in favour of assessee.
Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961. 2. Identity, creditworthiness, and genuineness of share applicants. 3. Justification of share premium charged by the assessee company. 4. Onus of proof and shifting of burden between the assessee and the Assessing Officer (AO). Detailed Analysis: 1. Addition under Section 68 of the Income Tax Act, 1961: The main issue revolves around the addition of ?1,80,00,000/- under Section 68 of the Income Tax Act, 1961, by the Assessing Officer (AO). The AO was not convinced about the identity, capacity, and genuineness of the transactions involving the alleged receipts of share application money from certain companies, considering them as bogus. The AO concluded that the scheme of fund transfer was a façade and added the entire amount to the assessee's total income, initiating penalty proceedings under Section 271(1)(c). 2. Identity, Creditworthiness, and Genuineness of Share Applicants: The first appellate authority upheld the AO's decision, stating that the three requirements of identity, creditworthiness, and genuineness of the shareholders were not established. It was noted that the share applicant companies were formed during the financial year 2011-12, had no business activity, and existed only on paper. The directors were involved in multiple similar companies, and the funds received were from other paper companies. The appellate authority relied on the principles of human probability and preponderance of probability as laid down by the Supreme Court in CIT vs. Durga Prasad More and Sumati Dayal vs. CIT. 3. Justification of Share Premium Charged by the Assessee Company: The assessee argued that the company was engaged in the genuine business of manufacturing granite slabs, with substantial turnover and Earnings Per Share (EPS) of ?36. The justification for charging a share premium of ?190 per share was provided, highlighting the company's net asset value and plans for investment in a solar plant. The assessee also furnished documents from the share applicant companies, including income tax returns, balance sheets, and profit and loss accounts. 4. Onus of Proof and Shifting of Burden: The tribunal noted that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants. All share applicant companies were registered with the Registrar of Companies and had filed confirmation letters and other documents with the AO. The tribunal emphasized that once the initial burden of proof is discharged by the assessee, the onus shifts to the AO to disprove the claims. The tribunal cited several case laws, including the decision in ITO vs. Splendour Villa Pvt. Ltd., to support the assessee's position. Conclusion: The tribunal concluded that the assessee had demonstrated the creditworthiness and genuineness of the transactions. The share applicant companies had substantial shareholder funds and had provided necessary documents to prove their identity and creditworthiness. The tribunal found no adverse material brought on record by the revenue to negate the assessee's claims. Consequently, the addition of ?1,80,00,000/- under Section 68 was deleted, and the appeal of the assessee was allowed. Order pronounced in the Court on 28.11.2018.
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