2003 (11) TMI 300 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 7.10 lakhs under Section 68 of the IT Act as income from undisclosed sources.
2. Validity of the share application money received from eight companies.
3. Genuineness of the share transactions and the identity of the share applicants.
4. Onus of proof regarding the creditworthiness of shareholders and genuineness of the transactions.
5. Jurisdiction of Revenue authorities to examine the genuineness of transactions.

Detailed Analysis:

1. Addition of Rs. 7.10 lakhs under Section 68 of the IT Act as income from undisclosed sources:
The appeal by the assessee was directed against the order of the CIT(A), which upheld the addition of Rs. 7.10 lakhs as income from undisclosed sources under Section 68 of the IT Act. The original assessment was completed under Section 143(3), but the CIT set aside the order under Section 263 and directed the AO to reframe the assessment after proper inquiry into the share applications received by the assessee. Upon inquiry, it was discovered that various sums aggregating to Rs. 1.07 crores were credited in the assessee's books, purportedly as share application money from eight companies.

2. Validity of the share application money received from eight companies:
The assessee claimed that the share application money was received from eight companies, but several inconsistencies were noted. The AO observed that all eight companies were based in Muzaffarnagar, and a person named S.L. Garg signed applications for five companies. The applications were deposited with the Bank of India after the public issue had closed, and some applications were incomplete. Further, all eight companies denied receiving any shares from the assessee-company, as evidenced by legal notices.

3. Genuineness of the share transactions and the identity of the share applicants:
The AO conducted investigations, including issuing summons under Section 131, which were largely non-complied with. The AO's inquiries revealed that the companies were involved in hawala transactions and did not engage in genuine business activities. The AO concluded that the share capital shown by the assessee was bogus, based on findings from search and seizure operations and statements from directors of the companies involved.

4. Onus of proof regarding the creditworthiness of shareholders and genuineness of the transactions:
The CIT(A) upheld the AO's findings, noting that the assessee failed to prove the nature and source of the credit entries. The CIT(A) also highlighted discrepancies, such as the late submission of share applications and the lack of evidence for the balance payment of shares. The CIT(A) concluded that the assessee did not discharge the onus of proving the identity of the share applicants and the genuineness of the transactions.

5. Jurisdiction of Revenue authorities to examine the genuineness of transactions:
The assessee argued that the Revenue authorities had no jurisdiction to examine the genuineness of the transactions, relying on the judgment of CIT vs. Stellar Investment. However, the Tribunal noted that the Revenue had brought substantial material on record to doubt the genuineness of the transactions, shifting the onus to the assessee. The Tribunal found that the assessee failed to satisfactorily explain the queries raised by the lower authorities and upheld the CIT(A)'s order.

Conclusion:
The Tribunal dismissed the appeal of the assessee, confirming the addition of Rs. 7.10 lakhs as income from undisclosed sources under Section 68 of the IT Act. The Tribunal found no infirmity in the CIT(A)'s detailed adjudication of the issue, which was based on substantial evidence and material on record.