2012 (12) TMI 1167 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 38.4 lakhs made on account of introduction of share capital u/s 68 of the Income-tax Act, 1961.

Summary:

Issue 1: Deletion of addition of Rs. 38.4 lakhs made on account of introduction of share capital u/s 68 of the Income-tax Act, 1961.

The Department's grievance is the deletion of the addition of Rs. 38.4 lakhs made on account of introduction of share capital u/s 68 of the Income-tax Act, 1961. The assessee, a public limited company, received share capital of Rs. 38.4 lakhs. The Assessing Officer (AO) initially passed the assessment order on 31.12.2008 u/s 143(3) r.w.s. 254 of the Act, treating the amount as unexplained credit. The CIT(A) set aside the AO's order and remitted the issue back to the AO for fresh consideration. The AO again treated the amount as unexplained credit in the subsequent order passed on 28.3.2002. The CIT(A) partly allowed the appeal, accepting Rs. 17,00,000/- as explained but not the balance of Rs. 21,40,000/-. The ITAT, Hyderabad, set aside the appeal to the AO for fresh consideration, who again determined the total income at Rs. 38,40,000/-. On further appeal, the CIT(A) allowed the assessee's appeal, leading to the Revenue's appeal before the Tribunal.

The learned DR argued that the investors were petty agriculturists with limited income, making it improbable for them to invest such a large amount. The DR contended that the assessee failed to produce substantial evidence supporting the agricultural holdings and that the investors lacked the capacity to invest. Conversely, the learned AR argued that the company was in its inception stage and had not commenced business, relying on the Supreme Court's judgment in CIT v. Bharat Engineering & Construction Co. (83 ITR 187), which held that unexplained cash credit entries in the first year of business could not be considered income. The AR submitted that the assessee provided all necessary information, including share applications, affidavits, and details of holdings, which the CIT(A) considered before deleting the addition.

The Tribunal, after hearing both parties, concluded that the CIT(A)'s reliance on the Bharat Engineering & Construction Co. case was misplaced, as it pertained to the Indian Income-tax Act, 1922. The Tribunal emphasized that u/s 68 of the Income-tax Act, 1961, even if an amount is credited on the first day of the accounting year, it could be assessed as income if the explanation is not accepted by the AO. The Tribunal referred to the case of VBC Fertilisers Pvt. Ltd. v. DCIT, where it was held that the burden of proving the existence of shareholders lies with the assessee. The Tribunal also cited the Delhi High Court's judgment in CIT v. Lovely Exports Pvt. Ltd. (299 ITR 268), which highlighted the necessity for the AO to investigate the creditworthiness of share applicants.

In the present case, the Tribunal noted that the AO had issued summons, which returned unserved, and the assessee failed to produce the shareholders. The Tribunal concluded that the assessee did not establish the genuineness and creditworthiness of the transactions, and thus, the deletion of the addition by the CIT(A) was not justified. The Tribunal reversed the CIT(A)'s order and restored the AO's order, sustaining the addition of Rs. 38.4 lakhs.

In the result, the appeal of the Revenue was allowed.

Order pronounced in the open court on 20th December, 2012.