2016 (7) TMI 1719 - AT - Income Tax

Share application money and section 68: documentary proof of identity, creditworthiness and genuineness defeats unexplained income addition.

Share application money could not be treated as unexplained under section 68 where the assessee produced names, addresses, PAN, bank statements, ... Section 68 share application money - Initial onus as to identity, creditworthiness and genuineness - Failure of inquiry by Assessing OfficerSection 68 share application money - Initial onus as to identity, creditworthiness and genuineness - Failure of inquiry by Assessing Officer - Addition under section 68 in respect of share application money was not sustainable once the assessee had furnished the shareholders' names, addresses, PAN, bank statements, income-tax return acknowledgements, confirmations and balance sheets, and the Assessing Officer made no further effective inquiry. - HELD THAT: - The Tribunal held that the assessee had discharged the primary onus by producing documentary material establishing the identity of the subscribers, their creditworthiness and the genuineness of the receipts. Mere non-service of summons or the Inspector's inability to locate some parties at the stated addresses could not, by itself, justify the addition, particularly when the bank account particulars were available and no verification was pursued from the Assessing Officers of the subscribers. The Tribunal further held that meagre income of the subscribers was not, without more, a valid basis to disbelieve the transactions, and applied the principle noticed in CIT Vs. Vrindavan Farms that where full particulars are furnished and no meaningful inquiry is undertaken, no addition can be made in the assessee's hands under section 68. [Paras 7, 8]The deletion of the addition was upheld and the Revenue's challenge failed.Final Conclusion: The Tribunal affirmed the order deleting the section 68 addition on share application money, holding that the assessee had discharged its initial burden and that the Assessing Officer had not carried out the necessary inquiry on the material already furnished. The Revenue's appeal was dismissed. Issues: Whether the addition made under section 68 in respect of share application money was sustainable when the assessee furnished names and addresses, PAN, bank statements, income-tax returns, confirmations and balance sheets of the subscribers.Analysis: The assessee produced documentary material showing the identity of the shareholders, their bank accounts, confirmations, acknowledgements of returns and, in the case of companies, balance sheets and incorporation details. On these facts, the primary onus to establish identity, creditworthiness and the prima facie genuineness of the share capital stood discharged. The assessment could not rest merely on the inability of the Inspector to locate some parties at the stated addresses or on the low income reflected by the subscribers in their returns. Once complete particulars were available, the Assessing Officer was required to conduct further inquiry, including verification through the respective assessing officers of the subscribers, before treating the amount as unexplained.Conclusion: The addition under section 68 was not justified and the deletion by the first appellate authority was upheld.