2010 (5) TMI 62 - DELHI HIGH COURT

Share application money - undisclosed income - During the course of assessment, it was noticed by the Assessing Officer that the assessee had received Share Application Money, amounting to Rs.27 lakhs from four private limited companies. On being called upon to prove the genuineness of the receipts, the assessee furnished documents such as Share Application Money, copies of resolution by the Board of Directors of the applicant companies, as well as the bank statements, Memorandums & Articles of Association and Income Tax Return of these companies. The applicant could not produce the parties before the Assessing Officer. He accordingly added the Share Application Money as unexplained cash credit under Section 68 of the Act. – CIT(A) and ITAT decided in favor of assessee and deleted the addition

Held that: in the context of Section 68 of the Income Tax Act, the assessee has to prima facie establish (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; and (3) the creditworthiness or financial strength of the creditor/subscriber. It was observed that (a) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee; (b) the Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (c) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without anything more, against the assessee and the Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation. - the Commissioner of Income Tax(Appeals) and the Income Tax Appellate Tribunal, in our view were justified in holding that the identity of share applicants and the genuineness of the transactions had been established by the assessee.