2023 (9) TMI 619 - HC - Income Tax

Revenue Authority Wins: HC Overturns ITAT Decision, Questions Investor Financials and Transaction Genuineness Under Sec 68.

Commissioner Of Income Tax, Delhi Versus M/s. Mayank Service Ltd.

Commissioner Of Income Tax, Delhi Versus M/s. Mayank Service Ltd. - [2024] 463 ITR 119 (Del) Issues:The issues involved in this case are:1. Whether the Income Tax Appellate Tribunal was right in deleting the addition of Rs. 45 crores made by the Assessing Officer under Section 68 of the Income Tax Act, 1961Rs.2. Whether the order of the Income Tax Appellate Tribunal is vitiated on account of a perverse interpretation of the facts of the caseRs.Issue 1:In the Financial Year 1999-2000, the respondent received Rs. 45 crores from five companies as share capital and share premium. The respondent then invested a significant portion of this amount in the share capital and share premium of three out of the five companies. Despite the respondent's poor financial performance in previous assessment years, the Assessing Officer added the entire Rs. 45 crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld this addition, stating that the respondent failed to prove the genuineness of the transaction. However, the Tribunal reversed this decision, noting that the respondent had sufficiently explained the nature and source of the investment, shifting the burden of proof to the Department. The Tribunal emphasized that once the identity and creditworthiness of the investor companies were established, no further proof was required.Issue 2:The Tribunal's decision was based on the respondent's submissions that all investor companies were existing assessees, had provided necessary documentation, and had appeared before the Assessing Officer. However, the High Court found discrepancies in the Tribunal's reasoning. It questioned why investors would inject a substantial amount into a company with poor financial performance. The High Court also highlighted the lack of inquiry into the financial status of the investor companies, crucial for assessing creditworthiness. Ultimately, the High Court concluded that the Tribunal's finding that the respondent had discharged its onus was erroneous and ruled in favor of the revenue authority, holding the transaction as failing to meet the test of creditworthiness and genuineness.Separate Judgment:The High Court, comprising Hon'ble Mr. Justice Rajiv Shakdher and Hon'ble Mr. Justice Girish Kathpalia, delivered this judgment, answering both questions of law in favor of the revenue authority against the respondent. The appeal was disposed of accordingly, with parties instructed to act based on the digitally signed copy of the order.