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2018 (11) TMI 943 - AT - Income TaxAddition u/s 68 - unsecured credit - proof of identity, creditworthiness and genuineness of the transaction - Held that - Section 68 provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its income of the previous year in which the same was received. Both the nature & source of the share capital received with premium were fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed before the AO. All the three conditions as required u/s. 68 i.e. the identity, creditworthiness and genuineness of the transaction were placed before the AO and the onus shifted to the AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted u/s 68. CIT(A) s findings under challenge deleting the impugned sec. 68 addition of unexplained share capital / premium. - Decided against revenue.
Issues Involved:
1. Correctness of the CIT(A)'s findings reversing the Assessing Officer's action treating the taxpayer's share application/premium amount as unexplained cash credits under Section 68 of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Correctness of the CIT(A)'s Findings under Section 68 of the Income Tax Act, 1961 The Revenue challenged the CIT(A)'s decision to reverse the Assessing Officer's (AO) action, which treated the taxpayer's share application/premium amount as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The key points of the CIT(A)’s findings are as follows: 1. Violation of Natural Justice: The CIT(A) noted that the AO did not provide the taxpayer with an opportunity to explain the nature and source of the share application monies. According to the CIT(A), the principles of natural justice, which include the right to a fair hearing (audi alteram partem), were not followed. This omission rendered the AO's order null and void. 2. Merits of the Case: On the merits, the CIT(A) observed that the AO had a predetermined mindset that the share application monies were not genuine. The taxpayer had raised share capital by issuing equity shares at a premium, and all payments were made through account payee cheques by six corporate entities, five of which were Non-Banking Financial Companies (NBFCs) registered with the Reserve Bank of India. The taxpayer provided comprehensive documentation, including audited financial statements, income tax returns, and bank statements of the share applicants, proving their identity, creditworthiness, and the genuineness of the transactions. 3. Legal Precedents: The CIT(A) cited several legal precedents to support the decision: - Colonizers vs. ACIT: Additions made in violation of natural justice principles are void. - CIT vs. Orissa Corporation Ltd.: If the assessee provides names and addresses of creditors, the burden shifts to the Revenue to pursue the matter further. - CIT vs. Divine Leasing & Finance Ltd.: The assessee must prove the identity of the creditor, genuineness of the transaction, and creditworthiness. - CIT vs. Lovely Exports Ltd.: If share application money is received from alleged bogus shareholders, the Revenue can reopen their individual assessments. - CIT vs. Dataware Private Ltd.: The AO should inquire from the AO of the creditor about the genuineness of the transaction. 4. Identity, Creditworthiness, and Genuineness: The CIT(A) found that the taxpayer had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants. The share applicants were regularly assessed to income tax, and their investments were reflected in their audited accounts. The AO did not find any defects in the evidence provided by the taxpayer. 5. AO’s Failure to Pursue Evidence: The CIT(A) noted that the AO did not issue summons under Section 131 or notices under Section 133(6) or make inquiries through inspectors. The AO's failure to pursue the evidence provided by the taxpayer was a critical flaw. 6. Jurisdictional High Court Decisions: The CIT(A) referred to several decisions of the jurisdictional High Court, which supported the view that the burden shifts to the Revenue once the taxpayer provides sufficient evidence. The AO must then disprove the evidence, which was not done in this case. 7. Conclusion: The CIT(A) concluded that the taxpayer had discharged the initial burden of proving the identity, creditworthiness, and genuineness of the share applicants. The AO's action of making the addition under Section 68 was not justified, and the addition was directed to be deleted. Tribunal’s Decision: The Tribunal upheld the CIT(A)'s findings, noting that the taxpayer had successfully proved all three parameters of identity, genuineness, and creditworthiness of the six investor parties. The Tribunal also emphasized that the AO did not issue any summons or notices to verify the details provided by the taxpayer. The Tribunal dismissed the Revenue's appeal, affirming that the addition under Section 68 was not warranted. Conclusion: The Tribunal's decision confirms that the CIT(A) correctly reversed the AO's action of treating the taxpayer's share application/premium amount as unexplained cash credits under Section 68. The taxpayer provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share applicants, and the AO failed to disprove this evidence. The principles of natural justice were also not followed by the AO, rendering the addition void.
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