2021 (12) TMI 985 - AT - Income Tax

Addition u/s 68 - no genuineness of the transaction and the identity and creditworthiness of the creditors not proved - HELD THAT - Appellant had given adequate information in order to proof the genuineness of the transaction as well identity of the creditors whereas the condition of the provision of Section 68 is this that when any sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the AO satisfactory, the same so credited to be charged to Income Tax as the income of the assessee. Where the assessee is a company where the public are not substantially interested and the sum so credited consists of Share Application Money, share capital, share premium or any such amount by whatever name called, the explanation offered by such assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded in the books of the company also offers and explanation about the nature and source of such sum so credited which has been found to be satisfactory the addition under Section 68 is maintainble. Thus, the provision of 68 does not speak about mere belief of the Revenue in regard to the proof of the genuineness of the transaction as well as identity and creditworthiness of the creditors but must have a clear finding on this aspect. Main ingredients of the provision of Section 68 has not been satisfied and taking into consideration this particular aspect of the matter we find that the Ld. AO rightly added the impugned amount in the hands of the assessee - Decided in favour of Revenue.

Summary

Issues Involved:
1. Addition of ?4,10,00,000/- under Section 68 of the Income Tax Act, 1961.
2. Identity, creditworthiness of the creditors, and genuineness of the transactions.
3. Procedural aspects and evidence submission by the assessee.

Issue-wise Detailed Analysis:

1. Addition of ?4,10,00,000/- under Section 68 of the Income Tax Act, 1961:
The Revenue appealed against the deletion of an addition of ?4,10,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO had initially added this amount to the assessee's total income, citing unexplained cash credits. The Commissioner of Income Tax (Appeals) [CIT(A)] had deleted this addition, leading to the Revenue's appeal.

2. Identity, creditworthiness of the creditors, and genuineness of the transactions:
The AO observed that the assessee received Share Application Money amounting to ?4,10,00,000/- from two individuals, Shri Jayantilal M. Patel and Shri Jimmy J. Patel. The AO found that the assessee failed to establish the identity, creditworthiness of the creditors, and genuineness of the transactions. The AO noted deficiencies such as the absence of income tax returns for AY 2012-13, lack of balance sheets and profit and loss accounts of the creditors, and insufficient documentary evidence supporting the assessee's claims. The AO also questioned the valuation certificate provided by the assessee, which was based on information furnished by Mr. Jimmy Patel and not an actual valuation.

The CIT(A), however, accepted the assessee's submissions, including bank statements, PAN details, and affidavits, and concluded that the assessee had provided adequate information to prove the genuineness of the transactions and the identity and creditworthiness of the creditors. The CIT(A) believed that the AO had not considered various submissions made by the assessee.

3. Procedural aspects and evidence submission by the assessee:
The AO pointed out that the assessee failed to produce confirmations from the creditors, share application forms, and documentary evidence supporting the negotiations with BMW Group. The AO also highlighted discrepancies in the explanation provided by the assessee regarding the adjustment of an advance against the sale of BMW cars.

The Tribunal noted that the CIT(A) did not adequately address the AO's observations and failed to seek a remand report. The Tribunal emphasized that the CIT(A) should have considered the AO's findings and the lack of rebuttal from the assessee. The Tribunal also found that the CIT(A) relied on judgments that were not applicable to the peculiar facts of the case.

Conclusion:
The Tribunal concluded that the CIT(A) erred in deleting the addition made by the AO under Section 68 of the Act. The Tribunal found that the assessee did not satisfactorily discharge the onus of proving the identity, creditworthiness of the creditors, and genuineness of the transactions. The Tribunal quashed the CIT(A)'s order and upheld the AO's addition of ?4,10,00,000/- to the assessee's total income.

Result:
The appeal preferred by the Revenue was allowed, and the order passed by the CIT(A) was quashed. The addition of ?4,10,00,000/- under Section 68 of the Income Tax Act, 1961, was upheld.