2019 (5) TMI 422 - AT - Income Tax

Addition u/s 68 - summons u/s. 131 was issued director of the assessee company to produce the investor/investors directors along with requisite documents - Since director of the Assessee Company and share subscribing companies did not appear before him - HELD THAT - In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. In the facts of the present case, both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO. The addition made by the AO is based on conjectures and surmises cannot be justified. Therefore, we do not want to interfere in the impugned order of Ld. CIT(A) which is confirmed and consequently the appeal of Revenue is dismissed - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition made under Section 68 of the Income-tax Act, 1961.
2. Proof of identity, creditworthiness, and genuineness of share subscribers.
3. Legal interpretation and application of Section 68 of the Income-tax Act.

Comprehensive, Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income-tax Act, 1961:
The sole grievance of the revenue was against the action of the Learned Commissioner of Income Tax (Appeals) [CIT(A)] in deleting the addition of ?1,62,08,000/- made under Section 68 of the Income-tax Act, 1961. The CIT(A) observed that only ?1.30 crores were received in the assessment year, while ?32 lakhs were from the previous year and could not be brought under Section 68. The Tribunal agreed with the CIT(A) that the Assessing Officer (AO) erred in making the addition of ?1.62 crores under Section 68, as ?32 lakhs were already part of the share capital from earlier years.

2. Proof of Identity, Creditworthiness, and Genuineness of Share Subscribers:
The AO had issued summons under Section 131 to the director of the assessee company to produce the investor/investors’ directors along with requisite documents. Although the director of the assessee company filed the requisite documents, the AO made the addition because the directors of the share subscribing companies did not appear before him. The CIT(A) found that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the share subscribers by providing necessary documents, including PAN details, bank statements, and financial statements. The Tribunal noted that the AO did not conduct further inquiries from the AO of the share subscribers, which was necessary to disprove the materials placed before him.

3. Legal Interpretation and Application of Section 68 of the Income-tax Act:
Section 68 states that any sum found credited in the books of an assessee for any previous year, for which the assessee offers no satisfactory explanation, may be charged to income-tax as the income of the assessee for that previous year. The Tribunal emphasized that the legislative mandate uses "may" and not "shall," meaning the unsatisfactoriness of the explanation does not automatically result in deeming the amount as income. Judicial precedents, including the Supreme Court's decision in CIT v. Smt. P. K. Noorjahan and other High Court rulings, were cited to support this interpretation.

The Tribunal further referenced several judicial decisions that established the principles for discharging the onus under Section 68. It was held that the assessee must establish the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor. If the AO is dissatisfied with the source of the cash deposited in the creditors' bank accounts, the proper course would be to assess such credit in the hands of the creditor after making due inquiries.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition of ?1.30 crores made under Section 68, as the assessee had provided sufficient evidence to establish the identity, creditworthiness, and genuineness of the share subscribers. The AO's failure to conduct further inquiries or disprove the materials placed before him led to the conclusion that no addition was warranted under Section 68. The appeal of the revenue was dismissed.