2020 (2) TMI 1215 - AT - Income Tax

Unexplained cash credit being share application money u/s. 68 - case of the assessee was taken up for scrutiny through CASS - 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 allow the appeal of the assessee. 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.

Summary

Issues Involved:
1. Addition of ?5,60,000/- as unexplained cash credit under Section 68 of the Income-tax Act, 1961.
2. Identity, creditworthiness, and genuineness of the share applicants.

Detailed Analysis:

1. Addition of ?5,60,000/- as unexplained cash credit under Section 68 of the Income-tax Act, 1961:

The assessee company filed its return for the assessment year 2013-14, declaring a total income of ?1,17,810/-. During scrutiny, the Assessing Officer (AO) noted that the assessee, a non-banking finance company, received ?5,60,000/- as share application money in cash from various individuals. Notices under Section 133(6) were issued to these individuals, who provided balance sheets, ITR acknowledgments, and bank statements. However, the AO added back the amount to the assessee's income, citing unexplained sources of cash payments. The CIT(A) upheld this addition, leading to the assessee's appeal to the ITAT.

2. Identity, creditworthiness, and genuineness of the share applicants:

The ITAT examined the evidence provided by the assessee, including PAN numbers, ITR acknowledgments, account statements, share application forms, bank accounts, and balance sheets of the share applicants. The assessee argued that the share applicants were creditworthy and the amounts involved were small, ranging from ?20,000/- to ?80,000/-. Despite this, the CIT(A) dismissed the appeal, questioning the genuineness of the transactions and the availability of cash on different dates.

The ITAT noted that the assessee had discharged its onus under Section 68 by proving the identity, creditworthiness, and genuineness of the share applicants. The share applicants were income tax assessees with sufficient capital, and the transactions were reflected in their balance sheets. The ITAT emphasized that the AO should have made further inquiries with the AO of the share applicants if doubts persisted.

The ITAT referred to several judicial precedents, including the Supreme Court's decision in CIT v. Orissa Corpn. (P.) Ltd. and the Gujarat High Court's ruling in Dy. CIT v. Rohini Builders, which held that the onus shifts to the department once the assessee provides sufficient evidence. The ITAT also cited the Calcutta High Court's decision in CIT v. DATAWARE (P.) Ltd., which stated that the AO of the assessee should not question the creditworthiness of the creditor if the creditor is an income tax assessee.

The ITAT concluded that the assessee had provided ample evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The addition under Section 68 was deemed unwarranted, and the ITAT allowed the assessee's appeal, deleting the addition of ?5,60,000/-.

Conclusion:

The ITAT held that the assessee had successfully discharged its burden of proof under Section 68 by providing comprehensive evidence regarding the share applicants. The addition of ?5,60,000/- as unexplained cash credit was deleted, and the appeal of the assessee was allowed.