ACIT v. Prem Castings (P) Ltd.

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The Tax Publishers2016 TaxPub(DT) 0004 (Del-Trib) ACIT v. Prem Castings (P) Ltd. INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 68Burden of proof in respect of share applicants--The assessee was a private limited company deriving income from manufacture and sale of iron and steel products. After going through the written submissions filed by the assessee in which the names of the alleged investors, their addresses, PAN, date of transactions involving share application money and amount of share application money in each case, the AO made the investigation. After taking note of the hand-writing expert's opinion that signature on affidavits and ITRs did not match and the search in AIS data base of PAN yielding negative results, the AO subsequently enhanced the scope of the investigation. The AO issued a show cause notice under section 142(1) on 4-12-2009 asking the assessee to produce the investors/shareholders as claimed by it for examination before him; and the AO cautioned the assessee that if it failed to produce these investors for examination, the amount of share application money received by it would be added to the income of the assessee. The AO issued another notice dated 10-12-2009 wherein, the assessee was further supplied with Handwriting Expert's opinion, the copies of the report of Inspector and reasons were spelt out as to why the identity, creditworthiness and genuineness of the shareholders were under serious doubt and the assessee was asked to submit original affidavits of the shareholders, since the assessee did not produce the original affidavits of the shareholders and had filed before him only the photocopies of the same. Meanwhile AO, cross checked with few banks the veracity of the bank statements submitted by the assessee in order to prove the creditworthiness of the investors, which also turned out to be bogus. The AO, taking into consideration the report of IT Inspector, unserved notices, hand writing expert's opinion and the bank report which stated that the share applicants/holders did not had any bank account in their branches, concluded that the assessee company failed to comply with the requirements of the notices issued under section 142(1) and also took note of the fact that assessee failed to produce a single investor to prove the identity, creditworthiness and genuineness of the transactions of the claimed investors, made thus addition under section 68. The AO had taken note of the fact that the assessee had been delaying filing of reply to the queries for details of share capital and answer was given only after a gap of three (3) months and nine (9) days knowing very well that the instant case was getting time-barred. The CIT(A), however, deleted the addition observing that the share subscribers are identifiable and are assessed to tax. The transactions were genuine as the share application money has been received through undisputed banking channel. The appellant had furnished copies of ITRs, PAN cards, copy of driving licence, voter card, incorporation certificate from R.O.C., active status of the company from Ministry of Company Affairs sites. Further, in the remand report dated 28-10-2011 the AO had not been able to controvert the documentary evidences furnished by the appellant. *Held:* It would be kept in mind that the assessee could not discharge this burden of merely proving the identity of the share applicant/shareholder, he had to prove all about the transaction, namely, identity, capacity of the shareholder to invest money and genuineness of the transaction. The burden of proving that the cash credit was genuine or that receipt was genuine was on the assessee. The CIT(A) erred in giving a finding based on irrelevant material like document pertaining to subsequent assessment years, which is not legally tenable. The finding of the AO in respect to PAN details from the AIS data base could not be brushed aside. The information given by the banks are credible evidences to disprove the creditworthiness of the so-called investors since the documents furnished by the assessee turned out to be bogus. Tribunal was unable to accept the reasoning and finding of CIT(A) because the assessee failed to prove the identity of the share applicants by adducing evidences of their existence at the addresses or by cogent materials before the AO. The PAN details were wrong. The transactions from the bank which were claimed to have transacted the share application money had been found to be bogus and even during the remand proceedings, the assessee failed to produce even a single share applicant before the AO. In the said scenario, the CIT(A) accepting the audited balance sheet for financial year 2007-08, i.e., assessment year 2008-09 which was subsequent assessment year is not acceptable. The AO had disproved the evidences brought by the assessee to discharge its burden of proof, which showed that the assessee failed to discharge its burden of proof in respect to share application money which has come into its account. The CIT(A) erred in taking the audited balance sheet of subsequent assessment year and documents to prove the creditworthiness which was filed before him to prove the existence of the said companies and individuals. Moreover, even before the CIT(A), the assessee had not been able to bring anything on record to state that the bank's letters stating that the alleged share holders / investors had no account, was factually wrong. In the absence of the same, the burden of proof had not been discharged by the assessee, to prove the creditworthiness of the shareholders. It was seen that when the assessee had failed at the hands of AO's investigation, these Private Limited Companies had been brought back to life after the impugned assessment order by filing statutory compliances and was claimed later during appellate proceedings (i.e., before the CIT(A) as a running concern was clearly an after-thought and could not be given any credence. The AO had demolished the case of the assessee to prove the identity, creditworthiness and genuineness of the alleged shareholders. So, Tribunal was not inclined to send the case back to the AO again for fresh adjudication. AO had given reasoned order which was upheld and thereby the order of the CIT(A) was reversed. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 0004 (Del-Trib)

ACIT v. Prem Castings (P) Ltd.

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Burden of proof in respect of share applicants--The assessee was a private limited company deriving income from manufacture and sale of iron and steel products. After going through the written submissions filed by the assessee in which the names of the alleged investors, their addresses, PAN, date of transactions involving share application money and amount of share application money in each case, the AO made the investigation. After taking note of the hand-writing expert's opinion that signature on affidavits and ITRs did not match and the search in AIS data base of PAN yielding negative results, the AO subsequently enhanced the scope of the investigation. The AO issued a show cause notice under section 142(1) on 4-12-2009 asking the assessee to produce the investors/shareholders as claimed by it for examination before him; and the AO cautioned the assessee that if it failed to produce these investors for examination, the amount of share application money received by it would be added to the income of the assessee. The AO issued another notice dated 10-12-2009 wherein, the assessee was further supplied with Handwriting Expert's opinion, the copies of the report of Inspector and reasons were spelt out as to why the identity, creditworthiness and genuineness of the shareholders were under serious doubt and the assessee was asked to submit original affidavits of the shareholders, since the assessee did not produce the original affidavits of the shareholders and had filed before him only the photocopies of the same. Meanwhile AO, cross checked with few banks the veracity of the bank statements submitted by the assessee in order to prove the creditworthiness of the investors, which also turned out to be bogus. The AO, taking into consideration the report of IT Inspector, unserved notices, hand writing expert's opinion and the bank report which stated that the share applicants/holders did not had any bank account in their branches, concluded that the assessee company failed to comply with the requirements of the notices issued under section 142(1) and also took note of the fact that assessee failed to produce a single investor to prove the identity, creditworthiness and genuineness of the transactions of the claimed investors, made thus addition under section 68. The AO had taken note of the fact that the assessee had been delaying filing of reply to the queries for details of share capital and answer was given only after a gap of three (3) months and nine (9) days knowing very well that the instant case was getting time-barred. The CIT(A), however, deleted the addition observing that the share subscribers are identifiable and are assessed to tax. The transactions were genuine as the share application money has been received through undisputed banking channel. The appellant had furnished copies of ITRs, PAN cards, copy of driving licence, voter card, incorporation certificate from R.O.C., active status of the company from Ministry of Company Affairs sites. Further, in the remand report dated 28-10-2011 the AO had not been able to controvert the documentary evidences furnished by the appellant. Held: It would be kept in mind that the assessee could not discharge this burden of merely proving the identity of the share applicant/shareholder, he had to prove all about the transaction, namely, identity, capacity of the shareholder to invest money and genuineness of the transaction. The burden of proving that the cash credit was genuine or that receipt was genuine was on the assessee. The CIT(A) erred in giving a finding based on irrelevant material like document pertaining to subsequent assessment years, which is not legally tenable. The finding of the AO in respect to PAN details from the AIS data base could not be brushed aside. The information given by the banks are credible evidences to disprove the creditworthiness of the so-called investors since the documents furnished by the assessee turned out to be bogus. Tribunal was unable to accept the reasoning and finding of CIT(A) because the assessee failed to prove the identity of the share applicants by adducing evidences of their existence at the addresses or by cogent materials before the AO. The PAN details were wrong. The transactions from the bank which were claimed to have transacted the share application money had been found to be bogus and even during the remand proceedings, the assessee failed to produce even a single share applicant before the AO. In the said scenario, the CIT(A) accepting the audited balance sheet for financial year 2007-08, i.e., assessment year 2008-09 which was subsequent assessment year is not acceptable. The AO had disproved the evidences brought by the assessee to discharge its burden of proof, which showed that the assessee failed to discharge its burden of proof in respect to share application money which has come into its account. The CIT(A) erred in taking the audited balance sheet of subsequent assessment year and documents to prove the creditworthiness which was filed before him to prove the existence of the said companies and individuals. Moreover, even before the CIT(A), the assessee had not been able to bring anything on record to state that the bank's letters stating that the alleged share holders / investors had no account, was factually wrong. In the absence of the same, the burden of proof had not been discharged by the assessee, to prove the creditworthiness of the shareholders. It was seen that when the assessee had failed at the hands of AO's investigation, these Private Limited Companies had been brought back to life after the impugned assessment order by filing statutory compliances and was claimed later during appellate proceedings (i.e., before the CIT(A) as a running concern was clearly an after-thought and could not be given any credence. The AO had demolished the case of the assessee to prove the identity, creditworthiness and genuineness of the alleged shareholders. So, Tribunal was not inclined to send the case back to the AO again for fresh adjudication. AO had given reasoned order which was upheld and thereby the order of the CIT(A) was reversed.