Merely because assessee company had filed all primary evidence, it could not be said that onus on assessee company to establish the credit worthiness of investor companies stood discharge. Assessing Officer was justified in passing assessment order making additions under section 68 for share capital/share premium received by assessee company – SC

Held: 

The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee.

The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.  

In the present case, the assessee company failed to discharge the onus required under section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee’s Income. “

Favor : In the Favor of Revenue

Facts of the Case :

1. 1. 1. The case pertains to AY 2009-10, wherein the assessee company had filed its return of income declaring total income of Rs. 7,01,870/-.
      2. A notice was issued u/s 148 of the Income Tax Act, 1961.
      3. The Assessee Company in its return of income aggregating to Rs. 17,60,00,000/-had been received through Share Capital/Premium during the Financial Year 2009-10 from various companies situated at Mumbai, Kolkatta and Guwahati.

Question of Law:

Whether the amount of Rs. 17,60,00,000/- allegedly raised by the assessee through share capital/premium were genuine transaction or not. 

Discussion:

1. The AO issued a detailed questionnaire to the Assessee to provide information with respect to the amount of Rs. 17,60,00,000 shown to have been received as Share Capital/Premium from various legal entities.
2. The Assessee inter alia submitted that the entire Share Capital had been received by the Assessee through normal banking channels by account payee cheques/demand drafts, and produced documents such as income tax return acknowledgments to establish the identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to Section 68 of the Act, and that the onus on the Assessee Company stood fully discharged.
3.  The AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of the transaction. Enquiries were made at Mumbai, Kolkatta, and Guwahati where these Companies were stated to be situated.
4. The AO recorded that the enquiries at Mumbai revealed that out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished.With respect to the Kolkata companies, the response came through dak only. However, nobody appeared, nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made.With respect to the Guwahati companies – Ispat Sheet Ltd. and Novelty Traders Ltd., enquiries revealed that they were non-existent at the given address.
5. The Commissioner of Income Tax (Appeals)-I, New Delhi vide Order dated 11.04.2014 deleted the addition made by the A.O. on the ground that the Respondent had filed confirmations from the investor companies, their Income Tax Return, acknowledgments with PAN numbers, copies of their bank account to show that the entire amount had been paid through normal banking channels, and hence discharged the initial onus under Section 68 of the Act, for establishing the credibility and identity of the shareholders.
6. The Revenue filed an Appeal before the Income Tax Appellate Tribunal (hereinafter referred to as “ITAT”). The ITAT dismissed the appeal, and confirmed the order of the CIT(A) vide Order dated 16.10.2017 on the ground that the Assessee had discharged their primary onus to establish the identity and credit-worthiness of the investors, especially when the investor companies had filed their returns and were being assessed.

The principles which emerge where sums of money are credited as Share Capital/Premium are :

1. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.
2. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders
3. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established.

Conclusion :

From the above judgement , it can be concluded that the onus of proving the credit worthiness is not only restricted to providing the return of income through Dak, the assessee is required to prove the identity of the creditors and credit worthiness of the investors to the satisfaction of the AO. Further, the AO is duty bound to investigate the credit worthiness of the creditor, verify the identity of the subscribers to ascertain the genuineness of the transaction.