2015 (11) TMI 279 - HC - Income Tax

Addition u/s 68 - ITAT deleted the addition - Held that - Assessee by produced sufficient documentation discharged its initial onus of showing the genuineness and creditworthiness of the share applicants. It was incumbent to the AO to have undertaken some inquiry and investigation before coming to a conclusion on the issue of creditworthiness. In Nova Promoters (2012 (2) TMI 194 - DELHI HIGH COURT), the Court has taken note of a situation where the complete particulars of the share applicants are furnished to the AO and the AO fails to conduct an inquiry. The Court has observed that in that event no addition can be made in the hands of the Assessee under Section 68 of the Act and it will be open to the Revenue to move against the share applicants in accordance with law. - Decided in favour of assessee.

Summary

Issues:
- Appeal against ITAT order for AY 2006-07, 2007-08, and 2008-09
- Deletion of addition under Section 68 of the Income Tax Act, 1961
- Burden of proof on the Assessee regarding identity and creditworthiness of share applicants

Analysis:
1. The appeals by the Revenue were directed against the ITAT's common order for the Assessment Years 2006-07, 2007-08, and 2008-09. The main issue raised was the deletion of an addition made under Section 68 of the Income Tax Act, 1961 to the income of the Assessee. This deletion required an examination of whether the Assessee had proven the identity and creditworthiness of the share applicants and the genuineness of the transactions.

2. The Senior Standing Counsel for the Appellant referred to a previous court decision and argued that it was the Assessee's responsibility to provide a satisfactory explanation regarding the nature and source of the funds, rather than the Assessing Officer needing to point out the source of the money. The ITAT noted that the Revenue did not doubt the identity of the share applicants. The only basis for doubting their creditworthiness was their low income as per their tax returns. The Assessee had provided detailed information about the share applicants, including PAN numbers, confirmations, bank statements, balance sheets, profit and loss accounts, and certificates of incorporation. The ITAT criticized the AO for not investigating the veracity of the documents and making assumptions based solely on the low income of the share applicants.

3. The Court found that the Assessee had sufficiently discharged its initial burden of proving the genuineness and creditworthiness of the share applicants through documentation. It was highlighted that the AO should have conducted an inquiry before concluding on the issue of creditworthiness. Referring to a previous decision, the Court emphasized that when complete details of share applicants are provided to the AO and no inquiry is conducted, no addition can be made in the Assessee's hands under Section 68 of the Act. The Revenue can then take action against the share applicants as per the law.

4. Considering the circumstances, the Court concluded that no substantial question of law arose in the appeals, leading to their dismissal.