2018 (3) TMI 672 - HC - Income Tax

Addition u/s 68 - share application money - primary burden of establishing the identity of the applicant, the genuineness of the transaction and the creditworthiness of the party - Held that - In this case, the assessee was a sick company; it pulled out of the woods in 2010. To tide over its financial sickness, apparently, it sought the help of the share applicants. The identity of those share applicants was clearly revealed. As noted by both the lower appellate authorities, no suspicion is attached to the said share applicants; moreover, the AO did not conduct any further enquiry except resting his conclusions on surmises. - Decided in favour of assessee.

Summary

Issues:
1. Addition to the assessee's income under Section 68 of the Income Tax Act, 1961 for A.Y. 2007-08.

Analysis:
1. The primary issue in this case revolved around the addition made to the assessee's income for the assessment year 2007-08 under Section 68 of the Income Tax Act, 1961. The Assessing Officer (AO) had raised concerns regarding the substantial amounts invested by two share applicants in the assessee, a sick company at the time. The AO concluded that the identity of the shareholders and the genuineness of the transaction were not established, leading to the addition of the said amount to the assessee's income. However, the CIT(A) and the ITAT later found that the AO did not conduct proper inquiries regarding the identity of the share applicants, and the assessee contended that the provided information was sufficient to warrant an inquiry.

2. The ITAT's findings highlighted that the revenue's appeal against the deletion of the addition under Section 68 lacked merit. Citing the decision in the case of Lovely Exports, it was emphasized that if share application money is received from alleged bogus shareholders, the Department can proceed to reopen their individual assessments. The ITAT also referred to the decision in the case of Mehta Parikh, emphasizing the importance of examining deponent affidavits before rejecting them. Additionally, various decisions by the Delhi High Court were mentioned to support the assessee's case, emphasizing the need for credible material and proper inquiry by the Assessing Officer before making additions under Section 68.

3. The Court considered the circumstances of the case, noting that the assessee, a sick company, had disclosed the identity of the share applicants, and no suspicion was attached to them. Both lower appellate authorities found no grounds for suspicion, and the AO's conclusions were based on surmises without further inquiry. Consequently, the Court concluded that the concurrent factual findings were justified, and no substantial question of law arose, leading to the dismissal of the appeal.

This detailed analysis of the judgment showcases the critical issues, the arguments presented by both parties, and the legal principles applied by the authorities in reaching their decision.