2022 (5) TMI 1379 - AT - Income Tax

Addition u/s 68 - unexplained credit - Onus to prove - share capital introduced during the year under consideration as the assessee company failed to prove the creditworthiness of the persons who have contributed the fresh share capital allotted by the company during the year under consideration - HELD THAT - Section 68 of the Act cast obligation on the assessee where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source of credit thereof or the explanation offered by the assessee is found not satisfactory in the opinion of the AO, the sum so credited may be treated as income and charged to income-tax as income of the assessee of that previous year. The burden/onus is cast on the assessee and the assessee is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make the additions u/s. 68 of the Act as an income. In the closely held companies the share capital are mostly raised from family, close relatives and friends and the assessee is expected to know the share subscribers and the burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s. 68 of the Act as unexplained cash credit. The use of the word any sum found credited in the books in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s. 68 of the Act as an unexplained credit in the hands of the assessee company raising the share capital because the AO is both an investigator and adjudicator. After perusing the entire record before us including taxable income declared by these two subscribers, we are of the considered view that the assessee failed to explain the sources of investment of cash of Rs. 10 lacs each by Mr. Sanjeev Kumar and Mr. Vinod Kumar Sharma, in the share capital of the assessee company during the year under consideration, as credit worthiness of these persons could not be proved keeping in view the material on record including income declared in the return of income filed by these persons, thus impeaching Section 68 of the 1961 Act, which requires assessee to cumulatively prove to the satisfaction of the AO as to identity, creditworthiness of the creditors and genuineness of the transaction. Thus, we dismiss this appeal filed by the assessee, as it lacks merit.

Summary

Issues Involved:
1. Addition of Rs. 20,00,000/- to the income of the assessee.
2. Investment of Rs. 10,00,000/- each by shareholders Sanjeev Kumar and Vinod Kumar Sharma.
3. Creditworthiness and genuineness of the transactions under Section 68 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 20,00,000/- to the Income of the Assessee:
The assessee filed an appeal against the appellate order dated 02.12.2019, which upheld the addition of Rs. 20,00,000/- to the assessee's income for the assessment year 2016-17. The addition was based on the investments made by two shareholders, Sanjeev Kumar and Vinod Kumar Sharma, each contributing Rs. 10,00,000/-. The assessee contended that the addition was incorrect and illegal, arguing that the investments were made through bank channels and cash, and that the burden of proof had been discharged by filing confirmations.

2. Investment of Rs. 10,00,000/- Each by Shareholders Sanjeev Kumar and Vinod Kumar Sharma:
The assessee claimed that both shareholders made investments through bank channels and cash, and that their creditworthiness was established by filing necessary documents such as Aadhar cards, ITRs, and bank statements. However, the AO and CIT(A) found that the assessee failed to prove the creditworthiness of these shareholders. The CIT(A) upheld the addition of Rs. 10,00,000/- each for Sanjeev Kumar and Vinod Kumar Sharma, citing the lack of evidence to support their capacity to invest such amounts.

3. Creditworthiness and Genuineness of the Transactions under Section 68 of the Income-tax Act, 1961:
The AO made additions under Section 68 of the Act, which requires the assessee to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) upheld the AO's decision for the investments made by Sanjeev Kumar and Vinod Kumar Sharma, stating that the assessee failed to provide satisfactory evidence of their creditworthiness. The Tribunal noted that the income declared by these investors was nominal and did not justify their capacity to invest Rs. 10,00,000/- each in cash. The Tribunal emphasized that Section 68 casts a heavy burden on the assessee to explain the nature and source of credits in its books, especially when the amounts are invested in cash.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the addition of Rs. 20,00,000/- to the assessee's income. The Tribunal concurred with the findings of the AO and CIT(A) that the assessee failed to prove the creditworthiness of the shareholders Sanjeev Kumar and Vinod Kumar Sharma, thereby not satisfying the requirements under Section 68 of the Income-tax Act, 1961. The appeal was heard ex-parte in the absence of the assessee, and the Tribunal found no merit in the appeal, leading to its dismissal.