Assessing Officer must consult creditor's AO before rejecting creditor's profit-and-loss account when PAN and assessment exist

HC held that the Assessing Officer cannot independently reassess or reject the profit and loss account of a creditor who is himself an assessed taxpayer. Once the creditor's PAN and evidence of assessment are available, the AO should consult the creditor's AO to verify genuineness and acceptance of the transaction. Instead of doing so, the AO improperly disbelieved the creditor's return; the court found this approach impermissible and decided in favor of the assessee.

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Issues:
Assessment of share application money as income - Failure to verify creditor's return acceptance - Burden of proof on assessing officer - Adverse view against assessee based on creditor's transaction - Appeal against CIT(A) and Tribunal orders - Section 260A of Income Tax Act - Lack of substantial question of law.

Analysis:
The appeal before the High Court concerned the assessment of share application money received by the assessee company from a creditor. The Income Tax Appellate Tribunal had dismissed the Revenue's appeal, leading to the current appeal. The assessing officer had added the amount to the assessee's income, suspecting the genuineness of the creditor's procurement of money. However, the CIT(A) found the creditor's identity, creditworthiness, and the transaction's genuineness to be established, holding that any action regarding the share's market rate should be against the creditor, not the assessee.

The High Court noted that both the CIT(A) and the Tribunal had considered crucial factors such as the payment through an account payee cheque, the creditor's appearance before the assessing officer, and disclosure of PAN and account details. The assessing officer's failure to verify the creditor's return acceptance was highlighted. The court emphasized that the burden of assessing the creditor's profit and loss account should not fall on the assessee, especially when the creditor is an income tax assessee.

The High Court upheld the lower authorities' findings, stating that the assessing officer should have inquired with the creditor's assessing officer regarding the transaction's genuineness before drawing adverse conclusions. The court emphasized the importance of following the principles under Section 68 of the Income Tax Act. Ultimately, the appeal was dismissed as lacking substance, with no interference in the concurrent factual findings. The connected application was disposed of accordingly, and parties were granted the option to obtain a certified copy of the order.

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