2017 (6) TMI 84 - HC - Income Tax

Additions made u/s 68 - bogus transactions - existence of the companies, their creditworthiness and the genuineness of the transactions - Held that - We are of the opinion that this matter stands concluded by the findings of fact to the effect that the transaction as appearing in the books of accounts of the respondent assessee in respect of the share application money of the named two companies are genuine and since the respondent assessee has discharged the onus cast upon it to prove the identity and creditworthiness of the two companies, the amount is not liable to be added under Section 68 of the Act in the absence of any contrary evidence to prove the transaction to be bogus. - Decided in favour of assessee.

Summary

Issues:
1. Addition under Section 68 of the Income Tax Act, 1961 based on accommodation entries from paper companies.
2. Burden of proof on creditworthiness and identity of companies making investments.

Analysis:
1. The case involved an appeal by the Revenue against the Income Tax Appellate Tribunal's order deleting additions made under Section 68 of the Income Tax Act. The respondent had declared a gross income for the assessment year 2010-11. The Revenue contended that the respondent had received bogus entries as share application money from companies that were not genuine. The Assessing Officer made an addition of the amount under Section 68, which was confirmed by the Commissioner of Income Tax (Appeals).

2. The respondent argued before the Tribunal that sufficient documentary evidence was provided to prove the share application money received from the companies. The Tribunal found that the companies were registered with the Registrar of Companies, regularly assessed for tax, and had sufficient creditworthiness to make the investments. The companies had submitted application forms for share allotment, paid through account payee cheques/RTGS, and had substantial worth as per their balance sheets.

3. The Tribunal emphasized that when the assessee proves the creditworthiness and identity of the companies making the investment, the burden shifts to the Assessing Officer to prove otherwise. The Tribunal referred to a Delhi High Court decision stating that the Assessing Officer cannot reject evidence without verification or enquiry. The Tribunal's findings regarding the existence of the companies, their creditworthiness, and the genuineness of the transactions were considered as findings of fact.

4. The High Court concluded that the transactions in the respondent's books related to share application money were genuine. Since the respondent had proven the identity and creditworthiness of the companies, the amount was not liable to be added under Section 68. As no substantial question of law was involved, the appeal was dismissed based on the established findings of fact.

5. The judgment highlighted the importance of documentary evidence, registration with authorities, and financial credibility in determining the genuineness of transactions. The burden of proof on the parties involved, shifting responsibilities, and the need for thorough verification by the Assessing Officer were key aspects considered in the decision.