INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Alleged unexplained share capital - Directors/share applicants did not turn up before AO

AO in order to ascertain the identity of the share subscribers and genuineness and creditworthiness of the share-subscribers issued notices under section 133(6) as well as summons under section 131 to the directors of company. According to AO, since no appearance was made by the directors of the assessee company as well as it failed to produce the directors/investor/share applicants, AO, therefore, passed assessment order saddling the entire share capital and premium as undisclosed income under section 68 by a cryptic assessment order. According to the revenue, since the assessee did not produce the share applicants before the AO establishes that the share applicants did not exist at all and so the claim of assessee was bogus and so it was disallowed and added which was erroneously deleted by CIT(A).Held: In this case the main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him. In such a case the Apex Court had held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor was established and actual receipt of money from such creditor was proved. In the absence of any investigation, much less gathering of evidence by the AO, an addition cannot be sustained merely based on inferences drawn by circumstance. In the facts of the present case, both the nature and 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 acknowledgments were placed on AO's record. Accordingly, all the three conditions as required under section 68, 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 was based on conjectures and surmises cannot be justified. In the facts and circumstanted under section 68. Therefore, order of CIT(A) was confirmed and consequently the appeal of revenue was dismissed.

Relied:CIT v. Orissa Corpn. (P) Ltd. (1986) 159 ITR 78 (SC) : 1986 TaxPub(DT) 1425 (SC) and Dy. CIT v. Rohini Buildrs (2002) 256 ITR 360 (Guj) : 2002 TaxPyb(DT) 305 (Guj-HC), Nemi Chand Kothari v. CIT (2003) 264 ITR 254 (Gau) : 2003 TaxPub(DT) 1401 (Gau-HC), CIT v. Lovely Exports (P.) Ltd. [Application No. 11993 of 2007, dated 11-1-2008] : 2009 TaxPub(DT) 261 (SC) : (2009) 216 CTR 295 (SC), Dy.CIT v. Global Mercantiles (P.) Ltd. ITA No. 1669/Kol/2009, dt. 13-1-2016] : 2016 TaxPub(DT) 1420 (Kol-Trib), ITO v. R.B. Horticulture & Animal Projects Co. Ltd. [ITA No. 632 (Kol.) of 2011, dt. 13-1-2016], ITO, Wd.3(2) Kol. v. Steel Emporium Ltd., [ITA No. 1061 (Kol.) of 2012, dt. 5-2-2016] : 2016 TaxPub(DT) 1414 (Kol-Trib), ITO v. Cygnus Developers (I) (P.) Ltd. [ITA No. 282 (Kol.) of 2012, dt. 2-3-2016], CIT v. Gangeshwari Metal (P.) Ltd. (2014) 361 ITR 10 (Del) : 2013 TaxPub(DT) 1319 (Del-HC) and CIT v. Novo Promoters & Finlease (P.) Ltd. (2012) 342 ITR 169 (Del) : 2012 TaxPub(DT) 1558 (Del-HC).

REFERRED : CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC) : 1999 TaxPub(DT) 80 (SC), CIT v. S. Kamaljeet Singh (2005) 147 Taxman 18 (All.) : 2005 TaxPub(DT) 1275 (All-HC) , S.K. Bothra & Sons, (HUF) v. ITO (2012) 347 ITR 347 (Cal) : 2012 TaxPub(DT) 815 (Cal-HC), Crystal Networks (P.) Ltd. v. CIT (2013) 353 ITR 171 (Cal) : 2013 TaxPub(DT) 1470 (Cal-HC), CIT v. Roseberry Mercantile (P) Ltd. [ITAT No. 241 of 2010, dt. 10-1-2011, CIT v. Nishan Indoa Commerce Ltd. ITA No. 52 of 2001, dt. 2-12-2013] : 2014 TaxPub(DT) 1934 (Cal-HC) and CIT v. Leonard Commercial (P.) Ltd. [ITAT No. 114 of 2011, dt. 13-6-2011].

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