2020 (2) TMI 269 - HC - Income Tax

Unexplained income u/s 68 - moneys credited in the books as share application money - onus to establish identity of the investor companies - HELD THAT - Identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source. In a thorough consideration of the matter, we are of the view that the first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of the creditors, genuineness of the transactions and credit-worthiness of the creditors which finding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below. - Decided in favour of assessee.

Issues Involved:
1. Addition of share application money as unexplained income under Section 68 of the Income Tax Act, 1961.
2. Proof of identity, creditworthiness, and genuineness of the share application money.
3. Ignoring the facts brought out by the Assessing Officer regarding the creditworthiness of the investing company.

Detailed Analysis:

Issue 1: Addition of Share Application Money as Unexplained Income
The core issue in this appeal is the addition of ?34 crores as unexplained income by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO noted that the assessee had disclosed funds from three Kolkata-based companies as share application money. The AO issued a notice to the assessee on the grounds that the whereabouts of these companies were doubtful, and their identities could not be authenticated. Consequently, the AO treated the share application money as unexplained cash credit and added it to the income of the assessee.

Issue 2: Proof of Identity, Creditworthiness, and Genuineness
The Tribunal was tasked with determining whether the assessee had proved the identity, creditworthiness, and genuineness of the share application money. The AO argued that the assessee had not discharged the burden to prove the creditworthiness of the creditors and was required to prove the source of the source. The assessee, however, provided PAN numbers, copies of income tax returns, confirmation letters, and bank statements of the three creditor companies. The first appellate authority and the Tribunal found that the assessee had discharged its burden by proving the identity of the creditors, genuineness of the transactions, and creditworthiness of the creditors. The Tribunal held that the AO did not consider the detailed investigation report from the department's investigation wing, which found the source of the credit to be genuine.

Issue 3: Ignoring Facts Regarding Creditworthiness
The AO contended that the investing companies lacked creditworthiness as their income tax returns showed meager income. The Tribunal, however, noted that the AO did not provide a copy of the investigation report to the assessee and ignored the fact that the companies were in existence and had filed income tax returns. The Tribunal concluded that the AO had not brought any cogent material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources.

Conclusion:
The Tribunal upheld the order of the first appellate authority, which had deleted the addition made by the AO. The Tribunal found that the assessee had provided sufficient evidence to prove the identity, genuineness, and creditworthiness of the creditors. The Tribunal also held that the assessee was not required to prove the source of the source. The High Court found no error or infirmity in the Tribunal's decision and dismissed the appeal, stating that no substantial question of law arose from the order of the Tribunal. Consequently, the appeal was dismissed without any order as to cost.

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