2019 (8) TMI 706 - AT - Income Tax

Addition u/s 68 - AO made the addition was because the directors of the share subscribers did not turn up 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 furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the AO, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of CIT(Appeals) To sum up section 68 of the Act 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 undisclosed income. 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 and the onus shifted to 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. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 - Decided in favour of assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Identity, creditworthiness, and genuineness of transactions.
3. Onus of proof and burden shifting between the assessee and the Assessing Officer (AO).
4. Judicial precedents and legal principles applicable to Section 68 cases.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The core issue revolves around the addition made by the AO under Section 68, which pertains to unexplained cash credits. The AO added ?2.40 crores to the assessee's income, citing the failure to establish the existence, creditworthiness, and genuineness of transactions. The CIT(A) partially upheld this addition, confirming ?90 lakhs and deleting ?1.50 crores.

2. Identity, Creditworthiness, and Genuineness of Transactions:
The AO questioned the identity, creditworthiness, and genuineness of the share subscribers, noting similarities in documentation and lack of tangible assets. The AO's concerns included the use of identical paper, fonts, and stamps, suggesting a managed arrangement. The AO added the entire ?2.40 crores under Section 68 due to these discrepancies and the non-appearance of directors.

The CIT(A) provided relief of ?1.50 crores, noting that five of the share subscribers were also share subscribers in the subsequent assessment year (AY 2013-14), where their transactions were accepted by the AO. The CIT(A) found this sufficient to establish the identity, creditworthiness, and genuineness of these transactions.

For the remaining ?90 lakhs, the CIT(A) upheld the addition, despite the assessee providing PAN, bank statements, and confirmations from the share subscribers. The CIT(A) did not find these sufficient in the absence of personal appearances by the directors.

3. Onus of Proof and Burden Shifting:
The legal principle established is that the initial onus to prove the identity, creditworthiness, and genuineness of the transactions lies with the assessee. Once the assessee provides prima facie evidence, the burden shifts to the AO to disprove the evidence provided.

The Tribunal noted that the assessee had provided substantial evidence, including PAN details, bank statements, and audited accounts of the share subscribers. The AO's failure to further investigate or summon the directors under Section 131 was seen as a lack of due diligence.

4. Judicial Precedents and Legal Principles:
The Tribunal relied on several judicial precedents, including:
- CIT v. Smt. P. K. Noorjahan: The Supreme Court held that the unsatisfactoriness of an explanation does not automatically result in deeming the amount as income.
- Orissa Corporation (P) Ltd.: The Supreme Court ruled that the burden shifts to the department once the assessee provides names and addresses of creditors.
- Nemi Chand Kothari: The Guahati High Court emphasized that the assessee is only required to prove the source of the credit and not the source's source.
- S. Kamaljeet Singh: The Allahabad High Court held that the assessee's burden is discharged by providing confirmation letters, affidavits, and PAN details.
- S.K. Bothra & Sons, HUF: The Calcutta High Court reiterated that the initial burden is on the assessee, but it shifts to the AO once prima facie evidence is provided.

The Tribunal concluded that the assessee had discharged its onus by providing comprehensive documentation. The AO's reliance on the non-appearance of directors and similarities in documentation was insufficient to justify the addition under Section 68.

Conclusion:
The Tribunal upheld the CIT(A)'s deletion of ?1.50 crores, as the AO had accepted similar transactions in the subsequent year. However, it overturned the CIT(A)'s confirmation of ?90 lakhs, finding that the assessee had sufficiently proved the identity, creditworthiness, and genuineness of the transactions. The Tribunal emphasized the importance of the AO conducting a thorough investigation before making additions under Section 68. Consequently, the appeal of the revenue was dismissed, and the appeal of the assessee was allowed.

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