2022 (5) TMI 1005 - AT - Income Tax

Bogus LTCG - Addition u/s 68 - addition of amount received by the appellant as share capital from various shareholders - HELD THAT - It is established principle of law that the pre-requisites of section 68 of the Act, the onus is on the assessee to prima-facie establish the three ingredients for the purposes of the section. Before us also, the ld. AR could not prove the merits of the case. He only relied on the submissions made before the CIT(A) in the first round of appeal where his case was allowed. But that becomes irrelevant now since the order of the ld. CIT(A) in the first round has already been overturned by the Tribunal. Even the case laws placed on record by the ld. AR are substantially different on facts and are not applicable to the facts and circumstances in respect of the present assessee. Admittedly, the assessee has not been able to prove the identity nor the assessee was able to prove the credit worthiness nor the genuineness of the transaction. Therefore, the prima-facie onus of the provisions of the Act has not been discharged by the assessee. We find the Hon ble Supreme Court in the case of P. R.Ganpathy 2012 (9) TMI 482 - SUPREME COURT has observed that the burden to show that the amount received by purported gifts from the donors was a gift in the legal sense is upon the assessee. Also in the case of Roshan Di. Hatti Vs. CIT 1977 (3) TMI 3 - SUPREME COURT has held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. Where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that income is from any particular source. - Decided against assessee.

Summary

Issues Involved:
1. Validity of the order passed by CIT(A)
2. Taxation of share capital received by the appellant
3. Burden of proof under Section 68 to establish the genuineness of the share capital

Issue-wise Detailed Analysis:

1. Validity of the order passed by CIT(A):
The appellant challenged the order of the CIT(A), arguing it was "bad in law" and should be canceled. The Tribunal noted that the CIT(A) had initially deleted the addition made by the Assessing Officer (AO) without verifying the genuineness of the transaction. The Tribunal in the first round had remanded the case back to the CIT(A) to re-examine the three essential elements under Section 68: Identity, Creditworthiness, and Genuineness of the transaction. The CIT(A) failed to properly address these elements, leading to the Tribunal setting aside the CIT(A)'s order and restoring the matter for fresh adjudication.

2. Taxation of share capital received by the appellant:
The AO found an increase in the share capital of Rs. 9,30,00,000/- during the assessment year 2001-02, which was allegedly contributed by ten shareholders. The AO's investigation revealed that these shareholders received the amounts from M/s. Portal India, and the shares were pledged against loans raised from M/s. Portal India. The AO was not satisfied with the genuineness of the transaction, noting that the purchase of the software portal from M/s. Portal India was found to be ingenuine. The Tribunal upheld the AO's findings, emphasizing that the assessee failed to prove the genuineness of the transaction, thus treating the share capital as unexplained income under Section 68.

3. Burden of proof under Section 68 to establish the genuineness of the share capital:
The Tribunal reiterated that the onus is on the assessee to establish the identity, creditworthiness, and genuineness of the transaction under Section 68. The AO had issued summons to the shareholders, but only one appeared and denied the transaction. The assessee failed to produce any substantial evidence or credible explanation to prove the genuineness of the share capital. The Tribunal noted that the assessee's evasive attitude and failure to respond to notices further undermined its position. Citing various judgments, the Tribunal emphasized that mere identity proof is insufficient; the assessee must also demonstrate the creditworthiness of the investors and the genuineness of the transactions. The Tribunal upheld the AO's decision to treat the share capital as unexplained income, dismissing the appeal.

Conclusion:
The Tribunal dismissed the appeal, affirming the AO's findings that the share capital of Rs. 9,30,00,000/- was unexplained under Section 68. The assessee failed to discharge the burden of proof regarding the identity, creditworthiness, and genuineness of the transaction. The Tribunal upheld the CIT(A)'s order in the second round, which had found the assessee's explanations unsatisfactory and the transactions not bona fide. The appeal was dismissed, and the addition of Rs. 9.03 crores to the appellant's income was upheld.