2018 (3) TMI 672 - HC - Income Tax

Court upholds income addition under Section 68 of Income Tax Act for lack of proper inquiry.

The Court dismissed the appeal regarding the addition to the assessee's income under Section 68 of the Income Tax Act, 1961 for A.Y. 2007-08. The ... Section 68 - share application money - onus of proof on assessee - prima facie material - deeming provision - concurrent findings of fact - failure to make enquiriesSection 68 - share application money - onus of proof on assessee - failure to make enquiries - concurrent findings of fact - Validity of the addition to the assessee's income under Section 68 in respect of share application money received during A.Y. 2007-08. - HELD THAT: - The Court reviewed the concurrent factual findings of the CIT(A) and the ITAT that the Assessing Officer did not carry out enquiries with respect to the shareholders whose identities and addresses were on record and that there was no incriminating material showing that the shareholders were untraceable or tainted. Relying on the appellate authorities cited by the lower fora, the Tribunal held that where the assessee furnishes shareholder names, affidavits and relevant documents and the AO fails to make enquiries or produce credible material to raise a prima facie doubt, the addition under the deeming provision of Section 68 cannot be sustained. The Court found these concurrent findings to be factual and not perverse, noting that suspicion or surmise by the AO, without relevant enquiry or material, does not justify treating the share money as undisclosed income. The Court therefore declined to disturb the deletion of the addition. [Paras 2, 3, 4, 5, 6]The addition under Section 68 was rightly deleted by the lower authorities; concurrent factual findings upholding the deletion are maintained and not interfered with.Final Conclusion: The appeal is dismissed: the High Court approves the concurrent factual findings that the AO failed to make requisite enquiries and that, on the material before the authorities, the addition under Section 68 for A.Y. 2007-08 could not be sustained. 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.