2024 (12) TMI 1536 - HC - Income Tax

Addition on account of unexplained receipts of share application money u/s 68 - assessee failed to prove the identity of the alleged shareholders their creditworthiness and also the genuineness of the whole transactions - ITAT deleted addition affirming the order passed by the CIT(A) - HELD THAT - CIT (A) while examining the correctness of the transaction had taken into consideration the parameters which have been laid down in various decisions of the Hon ble Supreme Court as to how a matter should be examined when the assessing officer proposes to invoke this power under Section 68 of the Act. The broad principles which were laid by the Hon ble Supreme Court in so far as the credits of the share capital/premium are that the assessee under a legal obligation to prove the genuineness of the transactions the identity of the creditors and creditworthiness of the investors who should have financial capacity to make the investment in question to the satisfaction of the assessing officer so as to discharge the primary onus. The second aspect is with regard to the duty of the assessing officer wherein it was held that the assessing officer is duty bound to investigate the creditworthiness of the creditors/subscribers verify the identity of the subscribers and ascertain whether the transaction is genuine or there are bogus increase of name lenders. If the enquiry and investigation reveal that the identity of the creditors to be dubious or doubtful or lack of creditworthiness then the genuineness of the transaction would not be established. Not stopping with that the learned Tribunal took note of various decisions of the High Courts and has recorded that the assessing officer has not pointed out that the identity of the share applicants is not proved and/or the subscription made by them to the share capital of the assessee was not genuine and/or the source of investment was not fully explained to the satisfaction of the assessing officer. The correctness of the factual finding rendered by the CIT (A) was re-examined by the Tribunal and the learned Tribunal also found that the assessing officer has not pointed out as to what enquiry he has made and as to how in his opinion the transactions were held to be not genuine. The only aspect which borne in the mind of the assessing officer was that the directors of the erstwhile subscribers company though were issued summons did not personally appear. However it is not in dispute that the documents were all placed before the assessing officer and no independent enquiry was conducted by the assessing officer to re-examine those documents which were produced. - Decided against revenue.

Summary

The Court considered an appeal filed by the assessee under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal. The main issues raised by the revenue were whether the Tribunal was justified in deleting the addition of Rs. 85,61,00,000 on account of unexplained receipts of share application money and whether compliance under Section 133(6) of the Act is sufficient to fulfill the requirements of Section 68 regarding proving creditworthiness and genuineness of transactions. The Court analyzed whether the Tribunal correctly affirmed the order of the Commissioner of Income Tax (Appeals) setting aside the addition made under Section 68 of the Act.The Court referred to the parameters set by the Hon'ble Supreme Court regarding the obligation of the assessee to prove the genuineness of transactions, identity of creditors, and creditworthiness of investors to discharge the primary onus. It emphasized the duty of the assessing officer to investigate the creditworthiness of creditors, verify their identity, and ascertain the genuineness of transactions. If the identity or creditworthiness of creditors is doubtful, the genuineness of the transaction cannot be established.The Court noted that the CIT (A) considered the creditworthiness of seven subscribers and their net worth, along with their assessment status under Section 143(3) of the Act. The Tribunal found that the assessing officer failed to point out any lack of proof regarding the identity of share applicants, genuineness of subscriptions, or explanation of the source of investment. The assessing officer did not conduct an independent inquiry despite the documents being submitted. The Court concluded that the matter was factual, and no substantial question of law arose for consideration.Ultimately, the Court dismissed the appeal, upholding the decision of the Tribunal and closing the connected application.