2025 (3) TMI 935 - HC - Income Tax

ITAT deletion of section 68 addition upheld as shareholders satisfied triple test requirements

Pr. Commissioner of Income Tax (Central) -2 Versus BDR Builders And Developers Pvt. Ltd.

The Delhi HC upheld ITAT's decision to delete addition u/s 68 of the Income Tax Act. The AO had made additions despite having all requisite information ... Addition u/s 68 - onus to prove - ITAT deleted addition as creditworthiness, genuineness and identity of the shareholders is proved just because they are existing shareholders - HELD THAT:- All requisite information and documents regarding the shareholders were available with the AO, yet the conclusion appears to be contrary to record available. ITAT has satisfied itself, albeit, after a thorough examination of material available on record that the assessee had successfully discharged the burden cast upon it under the mandate of section 68 of the Act, and unequivocally concluded that the assessee has complied completely with the conditions of triple test. The aforesaid paragraphs demonstrate the re-examination and re-appreciation of facts/material and record by the two Appellate Authorities which propel us not to interfere with such findings. Suffice it to state that though the AO appears to have examined the material available before him, yet, recorded findings without rendering any reasons in support thereof. This itself would render such findings perverse requiring hierarchical appellate authorities to scrutinise such findings. Both the Appellate Authorities have concurrently found that the shareholders, who were the investors in the relevant years were existing shareholders of the assessee and thus, not doubting their identities. The creditworthiness was tested on the anvil of some such shareholders having huge exempt income in their individual capacities to offer such investments. In fact it was found to be beyond doubt that such shareholders had sufficiency of funds available which satisfactorily explained the source. The appellate authorities had also taken into consideration the past transactions of the shareholders which were duly disclosed to the AO. Having rendered reasons on the triple test envisaged in section 68 of the Act by the CIT (A) and learned ITAT, we are not persuaded to interfere with such findings. The submissions of the revenue are unmerited. We also find that the ITAT had relied upon the judgement of this Court in CIT vs. Divine Leasing & Finance Ltd. [2006 (11) TMI 121 - DELHI HIGH COURT] and rightly so. Decided against revenue. 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this appeal were:Whether the Income Tax Appellate Tribunal (ITAT) was correct in holding that the onus of the assessee is discharged under Section 68 of the Income Tax Act, 1961, even when some notices under Section 133(6) remained un-complied.Whether the ITAT was correct in holding that the creditworthiness, genuineness, and identity of the shareholders are proved merely because they are existing shareholders.Whether the ITAT was correct in holding that the creditworthiness, genuineness, and identity of the shareholders are proved even when the investing companies had not carried out any business.2. ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and Precedents:The appeal was filed under Section 260A of the Income Tax Act, 1961, challenging the ITAT's decision which upheld the CIT (A)'s order deleting an addition made by the Assessing Officer (AO) under Section 68. Section 68 requires the assessee to satisfactorily explain the nature and source of any sum credited in the books of accounts, failing which it may be treated as income. The Supreme Court's decision in Principal Commissioner of Income-Tax vs. NRA Iron and Steel Pvt. Ltd. was cited, emphasizing the AO's duty to verify the creditworthiness, identity, and genuineness of transactions.Court's Interpretation and Reasoning:The Court noted that the CIT (A) and ITAT had both found that the assessee had provided sufficient documentation to satisfy the requirements of Section 68. The Court emphasized that the role of appellate courts under Section 260A is limited to examining substantial questions of law and not re-assessing facts already determined by lower appellate authorities.Key Evidence and Findings:The ITAT and CIT (A) found that the assessee had provided comprehensive documentation, including bank statements, income tax returns, and confirmations from shareholders, demonstrating the identity, creditworthiness, and genuineness of the investors. The shareholders were existing investors, and their financial capacity was supported by their tax filings and bank statements.Application of Law to Facts:The Court found that the assessee had discharged its burden under Section 68 by providing evidence of the identity, creditworthiness, and genuineness of the shareholders. The ITAT's decision was based on a detailed examination of the evidence, which showed that the shareholders had sufficient funds and their identities were established beyond doubt.Treatment of Competing Arguments:The revenue argued that the AO's findings were correct and that the ITAT and CIT (A) failed to appreciate the facts correctly. However, the Court found that the ITAT and CIT (A) had appropriately re-evaluated the evidence and that their findings were not perverse or unsupported by the record. The Court also distinguished the present case from the NRA Iron and Steel case, noting that in the present case, the assessee had provided all necessary information to satisfy the triple test under Section 68.Conclusions:The Court concluded that the ITAT and CIT (A) had correctly applied the law and that the assessee had satisfied the conditions of Section 68. The appeal was dismissed as no substantial question of law arose.3. SIGNIFICANT HOLDINGSCore Principles Established:The Court reaffirmed the principle that under Section 68 of the Income Tax Act, the assessee must prove the identity, creditworthiness, and genuineness of the transactions. The appellate authorities' findings based on a thorough examination of evidence should not be interfered with unless there is a substantial question of law.Final Determinations on Each Issue:The Court upheld the ITAT's decision, confirming that the assessee had discharged its burden under Section 68 by providing sufficient evidence of the shareholders' identity, creditworthiness, and genuineness of the transactions. The Court found no substantial question of law warranting interference with the lower appellate authorities' concurrent findings.