2015 (4) TMI 842 - HC - Income Tax

Addition under Section 68 - addition set aside concurrently by the CIT (Appeals) and the ITAT - Held that - The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the credit worthiness of the share applicants would have been apparent. Even otherwise, the share applicants particulars were available with the AO in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the AO did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee s account to the share applicants account. As held concurrently by the CIT (Appeals) and the ITAT, these conclusions were clearly baseless and false. This Court is constrained to observe that the AO utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. - Decided in favour of assessee.

Summary

Issues:
1. Appeal against the order of the Income Tax Appellate Tribunal (ITAT) rejecting the Revenue's appeal under Section 68 of the Income Tax Act, 1961.
2. Addition of a sum under Section 68 by the Assessing Officer (AO) based on suspicion regarding share capital received from companies during Assessment Year (AY) 2006-07.
3. Dispute over the genuineness of share capital received and the identity, creditworthiness, and genuineness of the share applicants.

Analysis:

Issue 1:
The Revenue contested the ITAT's order rejecting its appeal against the addition made by the AO under Section 68 of the Income Tax Act. The AO had added back a sum of &8377;12,78,60,000 to the assessee's income, which was subsequently set aside by the CIT (Appeals) and the ITAT. The Revenue argued that the entire order of the ITAT was erroneous.

Issue 2:
During AY 2006-07, the AO added back a sum under Section 68 concerning share capital issued at a premium to companies. The AO raised concerns about the identity, creditworthiness, and genuineness of the share applicants, noting that notices sent to them were returned unserved. The CIT (Appeals) considered the materials on record and held that the addition made by the AO was unjustified, as the necessary documents to establish the identity of the share applicants had been provided.

Issue 3:
The CIT (Appeals) extensively analyzed the case law on Section 68 and concluded that the appellant had received share capital from companies regularly assessed to tax. The CIT (Appeals) found that the share applicants had submitted relevant documents, and the onus on the appellant to prove the genuineness of the transaction was duly discharged. The ITAT affirmed these findings, noting the investigation report confirming the source of investment by the share applicants and the creditworthiness of the companies. The ITAT emphasized the importance of considering the genuineness of the transaction and the credibility of the share applicants, ultimately ruling in favor of the appellant.

In conclusion, the High Court upheld the concurrent findings of fact regarding the true identity, creditworthiness, and genuineness of the transaction related to the share capital issue. The Court criticized the AO for failing to consider crucial documents and observations, directing appropriate action by the income tax authorities. The Court dismissed the appeals, stating that no substantial question of law arose in the case.