2020 (11) TMI 606 - AT - Income Tax

Appellant wins appeal, Section 68 addition deleted due to lack of proof by Assessing Officer.

The Tribunal allowed the appellant's appeal, ruling that the addition under Section 68 of the Income Tax Act could not be sustained. It found that the ... Addition u/s 68 - unexplained cash credit - where there is lack of enquiry on the part of the AO - HELD THAT:- As decided in GANGESHWARI METAL PVT LTD. [2013 (1) TMI 624 - DELHI HIGH COURT] to sum up section 68 of the Act 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 assessments u/s 143(3) were placed on 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. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 Considering M/S. GOODPOINT COMMODEAL PVT. LTD. [2019 (6) TMI 600 - ITAT KOLKATA] case to the facts of this case and as M/s. Mahakal Shoppers (P) Ltd., has been assessed to income tax u/s 143(3) of the Act by the Income Tax Department and as the documents filed by the assessee as well as by M/s. Mahakal Shoppers (P) Ltd. directly with the AO in response to a direct enquiry, prove the identity and creditworthiness of the applicant for share and as similar applicant for share from this very share holder has been accepted as genuine by the AO in the immediately preceding assessment year, and the addition in question, in our view, cannot be sustained. Hence, we delete the same. Appeal of the assessee is allowed. Issues Involved:1. Re-opening of assessment.2. Addition under Section 68 of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Re-opening of Assessment:The appellant challenged the re-opening of the assessment. The Tribunal noted that the assessee received share capital from M/s. Mahakal Shoppers (P) Ltd. in the previous assessment year (AY 2009-10), which was accepted as genuine by the Assessing Officer (AO) under Section 143(3) of the Act. The AO issued a notice to M/s. Mahakal Shoppers (P) Ltd., which responded by providing several documents supporting the genuineness of the transactions, identity, and creditworthiness. These documents included the PAN card, certificate of incorporation, return acknowledgment, audited accounts, and bank statements. The Tribunal emphasized that since M/s. Mahakal Shoppers (P) Ltd. was assessed under Section 143(3), its existence could not be disputed.2. Addition under Section 68:The AO made an addition under Section 68, claiming that the share capital received was not genuine. The AO's reasons included the assessee's meager income, lack of declared dividends, and the high premium on shares. The AO also noted that the directors of the investing company were not actively involved in business affairs and lacked sufficient income, suggesting they did not have the creditworthiness to invest such a large amount.The Tribunal referenced multiple judicial precedents to address the addition under Section 68. Key points included:- Identity and Creditworthiness: The Tribunal cited the case of ITO vs. Goodpoint Commodeal Pvt. Ltd., where it was held that the identity and creditworthiness of share subscribers were established if they were assessed by the Department and the transactions were through banking channels.- Genuineness of Transactions: The Tribunal noted that the AO must prove the lack of genuineness and creditworthiness. It referenced the case of CIT vs. S. Kamaljeet Singh, where the Tribunal held that the assessee discharged the onus by providing confirmation letters, affidavits, addresses, and PANs of the creditors.- Burden of Proof: The Tribunal highlighted that once the assessee provided sufficient evidence, the burden shifted to the AO to disprove the documents. This was supported by the case of CIT vs. Gangeshwari Metal (P) Ltd., where the Delhi High Court held that if the AO did not conduct any inquiry or verification, no addition could be made under Section 68.The Tribunal found that the assessee provided comprehensive documentation, including share application forms, bank statements, and financial statements, to prove the identity, creditworthiness, and genuineness of the transactions. The AO failed to disprove these documents or conduct further inquiries. The Tribunal also noted that similar transactions in the previous year were accepted as genuine.Conclusion:The Tribunal concluded that the addition under Section 68 could not be sustained as the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the share subscribers. The appeal of the assessee was allowed, and the addition was deleted.