2023 (12) TMI 65 - HC - Income Tax

Addition u/s 68 - unexplained credits in the hands of assessee company - reliance on chain of transactions and probative value of the statements and other incriminating facts - HELD THAT - CIT (Appeals) has reasoned, the doubts and suspicions howsoever strong may never lead to adverse findings against the assessee. He has categorised the findings recorded by the assessing authority as conjectural being not based on any cogent material or evidence on record. It is the above findings recorded by the CIT (A) that have been sustained by the learned Tribunal. On specific query made, learned counsel for the revenue could not point to any evidence existing on record as may have led to the conclusion that any part of the investment made in the assessee company by the three investing entities was false or bogus. Prima facie , in face of investment made through banking channel which according to revenue was duly disclosed in the regular returns of the investing entities, there does not exist any presumption or room to disbelieve the investment made in the assessee company. The burden to prove otherwise rested squarely on the revenue authorities. Unless the initial onus had been discharged by leading some evidence that may have led itself to the conclusion that the investment was never made, the burden that was cast on the revenue remained undischarged. Accordingly, the findings of fact recorded by the learned Tribunal, confirming the order of the CIT (Appeals) is seen to be in accordance with law and based on material consideration.

Summary

Issues involved: Appeal under Section 260-A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal dismissing the appeal filed by the revenue regarding additions made under Section 68 of the Act with respect to share capital invested in the assessee company.

Summary:

Issue 1: Substantial question of law
The substantial question of law raised in the appeal questioned the validity of the ITAT's order in deleting the addition of unexplained credits in the hands of the assessee company without considering material facts, chain of transactions, and probative value of statements, as per the judgment in the case of Sudarshan Silk and Sarees 300 ITR 205 (SC).

Judgment:
The High Court found that the substantial question of law raised did not arise in the present facts. Although doubts arose from search proceedings, the investment of Rs. 19 crores in the share capital of the assessee company was made through banking channels and duly disclosed by the investors in their books. The revenue authorities relied on statements of directors from the investing entities, but failed to prove that the investment was bogus or not genuine.

Issue 2: Burden of proof
The assessing authority relied on statements from directors recorded during search proceedings without allowing the assessee to cross-examine them, leading to doubts about the credibility of the evidence presented.

Judgment:
The CIT (Appeals) reasoned that doubts and suspicions, no matter how strong, cannot lead to adverse findings against the assessee without concrete evidence. The High Court upheld the CIT (Appeals) decision, stating that the burden to prove the investment was false rested on the revenue authorities, which was not discharged in this case.

Conclusion:
The High Court dismissed the appeal, affirming the findings of the CIT (Appeals) and the ITAT. The court emphasized that the investment made through banking channels and disclosed in regular returns of the investing entities should not be doubted without sufficient evidence. The judgment was based on material consideration and in accordance with the law, thus the question of law raised was deemed not applicable.