2021 (2) TMI 735 - AT - Income Tax

Addition u/s 68 - search seizure operation under section 132 - substantial increase in the share capital and introduction of share premium during the year under consideration - HELD THAT - Assessee produced sufficient documentary evidences before A.O. to prove the ingredients of Section 68 - A.O. did not make any further enquiry on the documents filed by the assessee and also did not make any inquiry from the Investors directly or indirectly. A.O. failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the Investors and the assessee. A.O. has also not brought any evidence on record that even if the share applicants did not have the means to make the investments, the investments made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. Assessee discharged its initial onus to prove the identity of the Investors, their creditworthiness and genuineness of the transaction in the matter. The Ld. CIT(A), therefore, rightly deleted the part addition in respect of 26 creditors with reference to the present Departmental Appeal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act, 1961.
2. Assessment of the identity, creditworthiness, and genuineness of transactions related to investors.
3. Application of legal precedents and judicial principles.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act, 1961:

The primary issue in this case was the deletion of an addition of ?11,30,50,000/- out of a total addition of ?15 crores under Section 68 of the Income Tax Act, 1961. The Assessing Officer (A.O.) had made this addition on the grounds that the assessee failed to substantiate the identity, genuineness, and creditworthiness of the investors who contributed to the share capital and premium.

2. Assessment of the Identity, Creditworthiness, and Genuineness of Transactions Related to Investors:

- Assessee's Submissions:
The assessee provided various documents such as confirmations, bank statements, income tax returns, and balance sheets to prove the identity and creditworthiness of the investors. The investors included both individuals/HUFs and companies incorporated under the Companies Act. The assessee argued that the initial onus to prove the genuineness of the transactions was discharged by submitting these documents.

- A.O.'s Observations:
The A.O. observed that the investors did not have adequate income to justify their investments, and there were consecutive credit and debit entries in their bank accounts, suggesting they were conduits for fund transfers. The A.O. treated the transactions as not genuine and invoked Section 68, adding ?15 crores to the assessee's income.

- CIT(A)'s Findings:
The CIT(A) confirmed the addition of ?3,69,50,000/- for 9 investors but deleted the addition of ?11,30,50,000/- for 26 investors. The CIT(A) found that the assessee had provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions for the 26 investors.

3. Application of Legal Precedents and Judicial Principles:

- Legal Precedents Cited:
The assessee relied on several judicial decisions to support its case, including:
- Pr. CIT vs. Kurele Paper Mills Pvt. Ltd., 380 ITR 571 (Del.)
- CIT vs. Orissa Corporation Pvt. Ltd., 159 ITR 78 (SC)
- CIT vs. Rohini Builders, 256 ITR 360 (Guj.)
- CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195 (SC)

- Tribunal's Analysis:
The Tribunal noted that the A.O. did not conduct any further enquiry or investigation into the documentary evidence provided by the assessee. The A.O. also did not summon the investors to verify the genuineness of the transactions. The Tribunal held that merely because the investors had low income or there were credits in their bank accounts before making the investment, it was not sufficient to reject the assessee's explanation. The Tribunal emphasized that the A.O. cannot ask the assessee to prove the "source of the source."

- Judicial Principles Applied:
The Tribunal applied the principle that once the assessee provides adequate evidence to prove the identity, creditworthiness, and genuineness of the transactions, the onus shifts to the Revenue to discredit the evidence. The Tribunal cited multiple decisions where it was held that the A.O. must conduct thorough investigations and cannot merely rely on suspicions to make additions under Section 68.

Conclusion:

The Tribunal upheld the CIT(A)'s decision to delete the addition of ?11,30,50,000/- for 26 investors, concluding that the assessee had successfully discharged its initial onus. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the Department's appeal. The Tribunal reiterated that the A.O. failed to provide substantial evidence to discredit the assessee's documentary evidence and did not conduct necessary investigations to justify the addition under Section 68.