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2021 (9) TMI 469 - HC - Income TaxAddition u/s 68 - Unexplained share application money - onus to prove - ITAT allowed the relief - HELD THAT - Onus is on the assessee to establish the creditworthiness of various persons and as to how the share application money was brought in - furnishing the list of names or stating that the monies were paid by cheques will not, by itself, establish the creditworthiness and genuineness of the transaction. The initial onus is on the assessee to discharge the burden cast upon them to prove the creditworthiness and genuineness of the transaction. In the case on hand, the assessee miserably failed to discharge the primary onus cast upon them - AO conducted a detailed enquiry, issued summons, recorded statements, permitted the authorized representative of the assessee to peruse the seized records and in fact, came to a provisional conclusion as to how he intends to proceed and gave further opportunity to the authorized representative of the assessee, who had filed a written submission on 03.12.2007 raising certain factual issues and relying upon certain decisions. Those factual issues were considered and held to be not sustainable and the decisions, which were relied upon by the assessee, were also distinguished and in our considered view, are rightly so. - Decided against assessee.
Issues Involved:
1. Reversal of CIT(A)'s order by ITAT under Section 68. 2. Application of the Supreme Court judgment in CIT Vs. Lovely Exports P. Ltd. 3. Assessing Officer's evidence and positive material regarding share application money as undisclosed income. Detailed Analysis: Issue 1: Reversal of CIT(A)'s Order by ITAT under Section 68 The Revenue appealed under Section 260A of the Income Tax Act against the ITAT's order reversing the CIT(A)'s confirmation of the addition under Section 68. The Assessing Officer (AO) found discrepancies in the share capital introduced by the assessee, involving intermediary companies with no real business activity. The AO concluded that the share application money was unexplained and assessed it as income. The CIT(A) upheld this assessment after detailed examination, agreeing that the share application money remained unexplained. However, the ITAT reversed this order, stating that the AO did not provide positive material or evidence to indicate that the share application money was the assessee's own undisclosed income. Issue 2: Application of the Supreme Court Judgment in CIT Vs. Lovely Exports P. Ltd. The assessee relied on the Supreme Court's judgment in CIT Vs. Lovely Exports P. Ltd., arguing that the share application money could not be regarded as undisclosed income. The AO and CIT(A) distinguished this case, noting that the assessee failed to establish the genuineness and creditworthiness of the transactions. The ITAT's reliance on this judgment was deemed erroneous by the High Court, as the factual matrix of the present case was different, and the assessee had not discharged the primary onus of proving the genuineness and creditworthiness of the share applicants. Issue 3: Assessing Officer's Evidence and Positive Material Regarding Share Application Money as Undisclosed Income The AO conducted a detailed inquiry, including summoning directors and employees, inspecting seized documents, and recording statements. The AO found that the intermediary companies were shell companies, and the share application money was routed through these entities without proper explanation of the source. The CIT(A) concurred with the AO's findings, highlighting that the directors had no significant role in decision-making and that the funds were channeled through dubious means. The ITAT, however, dismissed these findings, stating that the AO did not provide positive material evidence. The High Court found this conclusion erroneous, emphasizing that the AO had indeed conducted a thorough investigation and provided sufficient evidence to substantiate the addition under Section 68. Conclusion: The High Court held that the ITAT's order was perverse and devoid of reasons, failing to consider the detailed findings of the AO and CIT(A). The court reinstated the AO's order, confirming the addition of the share application money as unexplained income under Section 68. The substantial questions of law were answered in favor of the Revenue, and the ITAT's order was set aside.
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