2019 (9) TMI 625 - AT - Income Tax

Tribunal affirms deletion of addition under Section 68 of Income Tax Act based on share subscribers' authenticity.

ITO, Ward-10 (1), Kolkata Versus M/s. Axisline Investment Consultants Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,54,00,000/- under Section 68 of the Income Tax Act. The assessee successfully ... Addition u/s 68 - bogus LTCG - assessee did not produce the share applicants before the AO establishes that the share applicants did not exist at all and so the claim of assessee is bogus - onus of identity, creditworthiness and genuineness of the transaction - HELD THAT:- Assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the AO, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of CIT (Appeals) 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 undisclosed income. In the facts of the present case, both the nature & source of the share application received was 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 on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to 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. - Decided in favour of assessee. Issues Involved:1. Deletion of addition made under Section 68 of the Income Tax Act.2. Identity, genuineness, and creditworthiness of share subscribers.3. Burden of proof and shifting of onus.4. Legal precedents and interpretation of Section 68.Detailed Analysis:1. Deletion of Addition Made Under Section 68:The main grievance of the Revenue was against the action of the CIT(A) in deleting the addition of Rs. 1,54,00,000/- made by the AO under Section 68 of the Income Tax Act. The AO had added the entire share capital and premium as undisclosed income, citing that the assessee failed to produce the directors/investors/share applicants. The CIT(A) deleted this addition, leading the Revenue to appeal.2. Identity, Genuineness, and Creditworthiness of Share Subscribers:The assessee company, in its first year of incorporation, received a share capital of Rs. 7,12,000/- and a premium of Rs. 1,46,88,000/-, totaling Rs. 1,54,00,000/-. The AO issued notices under Sections 133(6) and 131 to ascertain the identity, genuineness, and creditworthiness of the share subscribers. The assessee provided confirmation letters, profit and loss accounts, balance sheets, income tax return acknowledgments, and banking documents. Despite these submissions, the AO was not satisfied due to the non-appearance of the directors. The CIT(A) noted that the assessee had provided sufficient documents to establish the identity, genuineness, and creditworthiness of the share subscribers, including their assessments under Section 143(3) and payments made through banking channels.3. Burden of Proof and Shifting of Onus:The AO's main contention was the non-appearance of the directors of the share subscribing companies. However, judicial precedents, including the Supreme Court's decision in CIT v. Smt. P. K. Noorjahan, emphasize that the unsatisfactoriness of the explanation does not automatically result in deeming the amount credited as the income of the assessee. The onus shifts to the Revenue once the assessee provides the necessary details. The CIT(A) observed that the identity of the share subscribers was established through ROC data and income tax assessments, and the genuineness of transactions was proved by banking documents. The creditworthiness was demonstrated by the substantial capital and reserves of the share subscribing companies.4. Legal Precedents and Interpretation of Section 68:Several judicial precedents were cited to support the deletion of the addition. The Supreme Court in Orissa Corpn. (P) Ltd. and the Gujarat High Court in Dy. CIT v. Rohini Builders held that the onus of the assessee is discharged if the identity of the creditor is established and the actual receipt of money is proved. The Hon'ble Guahati High Court in Nemi Chand Kothari emphasized that the burden on the assessee under Section 68 should be decided by considering Section 106 of the Evidence Act. The Calcutta High Court in S.K. Bothra & Sons, HUF v. ITO and Crystal Networks (P.) Ltd. v. CIT reiterated that the initial burden is on the assessee, which shifts to the AO once sufficient material is provided. The Hon'ble High Court, Calcutta in CIT v. DATAWARE PRIVATE LIMITED and other cases affirmed that the creditworthiness of the creditor should be assessed by the AO of the creditor, not the AO of the assessee.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,54,00,000/-, concluding that the assessee had discharged its onus by providing sufficient evidence to prove the identity, genuineness, and creditworthiness of the share subscribers. The AO failed to disprove the materials placed before him, and the addition made was based on conjectures and surmises. The appeal of the Revenue was dismissed.