2019 (2) TMI 723 - HC - Income Tax

Addition u/s 68 - identity of the investor/ creditor, its credit worthiness and genuineness of the transactions - Held that - In this case, the assessee had provided the details of the investor; a survey enquiry pursuant to Section 133(6) was carried out. That the investor M/s Mekastar Finlease Pvt. Ltd. was genuine stood established; it had resources to the tune of ₹300 crores. The only ground on which the genuineness of the transactions was doubted was that the M/s Mekastar Finlease Pvt. Ltd. also received some amounts from dubious sources. It is now established that the investor s duty is to satisfy the Revenue about the trinity of tests indicated in the said judgment, which itself is an authority for the proposition that the assessee is not under a duty to enquire or satisfy the Revenue about the source of the source. On a fair application of that decision of this Court, as affirmed by the Supreme Court, this Court is satisfied that no case is made out for interference. No substantial question of law arises

Summary

Issues: Revenue's appeal against ITAT's order on addition of share application money under Section 68 and fair market value under Section 69C of Income Tax Act.

Analysis:

1. Addition of Share Application Money under Section 68: The appellant Revenue challenged the ITAT's decision upholding the assessee's receipt of ?6 crores as share application money. The AO disallowed the money, suspecting it to be an accommodation entry, and brought it to tax under Section 68. The CIT(A) concurred, adding tax under Section 69C for not offering shares at fair market value. However, the ITAT set aside these findings, emphasizing the lack of inquiry from the investor's banker and absence of notice under Section 131. The Court referred to various precedents, including Commissioner of Income Tax-II vs. M/s. Jansampark Advertising & Marketing, to emphasize the importance of identity, creditworthiness, and genuineness in such transactions. The burden to prove these aspects lies on the assessee, as established in Commissioner of Income Tax vs. Lovely Exports Pvt. Ltd.

2. Genuineness of Investor and Transactions: The assessee provided details of the investor, M/s. Mekastar Finlease Pvt. Ltd., and a survey confirmed its genuineness with substantial resources. While doubts arose due to funds from dubious sources, the Court clarified that the investor's duty is to satisfy the Revenue on the three tests mentioned earlier, without delving into the source of the source. Following the precedent set by the Supreme Court, the Court found no grounds for interference, dismissing the appeal as no substantial question of law arose. The judgment highlights the importance of meeting the criteria of identity, creditworthiness, and genuineness in financial transactions to avoid tax implications under Section 68 of the Income Tax Act.

This detailed analysis of the judgment showcases the Court's reasoning behind dismissing the Revenue's appeal and upholding the ITAT's decision regarding the addition of share application money and fair market value under the Income Tax Act.