2021 (5) TMI 570 - AT - Income Tax

Addition u/s 68 - onus to prove the identity, creditworthiness and genuineness of the share applicants - as per revenue assessee fails to explain the nature and source shall be assessed as its undisclosed income - HELD THAT - Onus shifted to AO to disprove the documents furnished by assessee; and further the AO could not have brushed aside the documents produced by assessee/share subscribers without pointing out any infirmities; and without doing this exercise, the AO could not have drawn adverse view against the share subscribers and therefore, for the same reasons the impugned action of Ld CIT(A) to sustain the addition also cannot be countenanced because the very same exercise the Ld CIT(A) could have resorted to exercising his co-terminus powers, which he did not do. In the absence of any fruitful investigation, much less gathering of evidence by the Assessing Officer/Ld CIT(A), we are of the opinion that addition could not have been sustained merely based on inferences drawn by circumstance/conjectures/surmises. 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, confirmation of source of source and fourteen (14) share subscribers scrutiny assessments passed u/s 143(3) out of twenty one (21) share subscribers were placed on AO/Ld CIT(A)'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 were placed before the AO/Ld CIT(A) and the onus shifted to AO/Ld CIT(A) to disprove the materials placed before him. Without doing so, the addition made by the AO and sustained by Ld CIT(A) was based on conjectures and surmises, so it cannot be justified. In the facts and circumstances of the case as discussed above, no addition was sustainable under Section 68 of the Act. Therefore, the impugned order of Ld. CIT(A) is set aside and the AO is directed to delete the addition and consequently the appeal of assessee stands allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to pass the assessment order.
2. Validity of the reassessment order under Section 144 read with Section 263, 147, and 143(3) of the Income Tax Act.
3. Addition of share capital and premium under Section 68 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) to Pass the Assessment Order:
The assessee challenged the jurisdiction of the AO to pass the assessment order dated 25.03.2015 under Section 144 of the Income Tax Act, arguing that it was illegal and without jurisdiction as per Section 127 of the Act. The assessee contended that there was no proper order or intimation for the transfer of jurisdiction from ITO Ward 1(2)/Kolkata to ITO Ward 6(1)/Kolkata. The Tribunal noted that the jurisdiction was shifted on the plea of restructuring without following the due process under Section 127 of the Act, making the assessment order passed by ITO Ward-6(1) potentially without jurisdiction and bad in law.

2. Validity of the Reassessment Order Under Section 144 Read with Section 263, 147, and 143(3) of the Income Tax Act:
The reassessment order was passed following a revision order under Section 263 by CIT-1, Kolkata, which set aside the original assessment order dated 12.05.2011. The reassessment was conducted by ITO Ward 6(1) within 45 days, ignoring the assessee's response to the show cause notice dated 17.03.2015. The Tribunal observed that the AO did not properly consider the documents and explanations provided by the assessee, and the reassessment order was made hastily without proper verification, making it procedurally flawed.

3. Addition of Share Capital and Premium Under Section 68 of the Income Tax Act:
The main issue was the addition of ?11,10,00,000/- as unexplained cash credits under Section 68. The assessee had provided substantial evidence, including income tax returns, audited accounts, share application forms, bank statements, and other documents to substantiate the identity, creditworthiness, and genuineness of the share subscribers. The Tribunal emphasized that the AO and CIT(A) did not properly examine these documents and failed to provide valid reasons for rejecting them. The Tribunal cited several judicial precedents, including the Supreme Court's decision in CIT v. Lovely Exports Pvt. Ltd., to highlight that the burden of proof shifts to the AO once the assessee provides prima facie evidence. The Tribunal concluded that the assessee had discharged its onus, and the AO's addition was based on conjectures and surmises without disproving the evidence provided by the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the order of the CIT(A) and directing the AO to delete the addition made under Section 68. The Tribunal also left the jurisdictional issue open, as the decision on the merits rendered it academic. The order was pronounced on 5th May 2021.