2025 (7) TMI 240 - AT - Income Tax

Addition u/s 68 - genuineness of the transaction not proved - addition made by the AO is based on the evidences available during the assessment proceedings which establishes that the transactions leading to the investment in the Assessee Company are not genuine -CIT(Appeals) deleted the addition - HELD THAT - Assessee had produced the following documentary evidences to discharge its onus cast upon it u/s 68 of the Act a) Complete name and addresses of Share Applicants b) Confirmation of Share Applicants c) Copy of bank statements of shareholder reflecting the investments made in appellant company. d) Income Tax particulars of shareholders copy of their ITR and computation of income. e) Copy of Audited Statement of accounts of Investor Companies. In response to the notice issued by the AO the shareholders have appeared before the AO and confirmed their investment in the Assessee Company. In order to prove the identity of the parties the Assessee produced documents to show that all the share applicants are existing income tax Assessee s they have been allotted with the PAN by the Department having bank accounts and three out of four shareholders are Companies incorporated in Companies Act 1956. Genuineness of the transaction - Admittedly the transactions have been taken place by account payee cheques and the shareholders have confirmed about their investment in the Company. The copy of the Bank statement and copy of audited statement of account of the share holders have been furnished to the A.O. Thus the Assessee has discharged the onus cast upon it u/s 68 of the Act. It is further observed that one of the reasons for making the additions by the AO on the pretext of doubting the source of source of the investments. The assessment year under consideration being 2011-12 and for the year under consideration the Assessee has to explain the source of the amount credited in its book and need not prove the source of source. AO has not made any further enquiry after the Assessee producing the documents to discharge the burden u/s 68 of the Act by producing the confirmation ITR balance sheet and the bank statement of the investors. CIT(A) committed no error in deleting the addition - Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

- Whether the Assessing Officer was justified in making an addition under Section 68 of the Income Tax Act, 1961, on the ground that the share capital investments made by certain shareholders in the Assessee company were not genuine?

- Whether the Assessee discharged the onus cast upon it under Section 68 of the Act by adequately proving the identity, genuineness, and source of the share capital investments?

- Whether the Commissioner of Income Tax (Appeals) erred in deleting the addition made by the Assessing Officer?

- Whether the Department was entitled to question the "source of source" of the investments, or only the immediate source credited to the Assessee's books, for the Assessment Year 2011-12?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of addition under Section 68 of the Income Tax Act, 1961

The legal framework under Section 68 of the Income Tax Act requires that when any sum is found credited in the books of an Assessee as share capital, the Assessee must prove the identity of the shareholder and the genuineness of the transaction, including the source of the amount credited.

Relevant precedents establish that the Assessee bears the initial onus to prove these elements, failing which the addition is justified.

The Assessing Officer made an addition of Rs. 3,45,30,000/- on the ground that the transactions leading to investment by certain shareholders were not genuine. The AO specifically questioned the genuineness and source of these investments from M. R. Tradex (P) Ltd., TarunBuildwell (P) Ltd., TarunRealcon (P) Ltd., and Pawan Kumar Jain.

The Department contended that the Assessee failed to discharge the onus under Section 68 and that the CIT(A) erred in deleting the addition.

Issue 2: Whether the Assessee discharged the onus under Section 68

The Assessee produced extensive documentary evidence to discharge the onus, including:

• Complete names and addresses of the share applicants;
• Confirmations from the share applicants regarding their investments;
• Bank statements of the shareholders reflecting the transactions;
• Income Tax Returns and computations of income of the shareholders;
• Audited financial statements of the investor companies.

Furthermore, the shareholders appeared before the AO and confirmed their investments. The Assessee also demonstrated that the shareholders were legitimate entities with PAN allotments and bank accounts, with three out of four being companies incorporated under the Companies Act, 1956.

The transactions were made via account payee cheques, further supporting genuineness. The AO did not conduct further inquiries after receipt of these documents.

The Tribunal noted that the Assessee had satisfactorily established the identity and genuineness of the transactions as required under Section 68.

Issue 3: Questioning the "source of source" vs. immediate source

The Department argued that the Assessee failed to prove the "source of source" of the investments. However, the Tribunal clarified that for the Assessment Year 2011-12, the Assessee was only required to explain the source of the amount credited in its books and not the source of the investors' funds.

The AO had not pursued further investigation into the source of source after the Assessee provided relevant documents.

Issue 4: Whether the CIT(A) erred in deleting the addition

The CIT(A) after appreciating the documentary evidence and confirmations, deleted the additions made by the AO. The Tribunal found no error in this approach, noting that the CIT(A)'s order was well-reasoned and based on the material on record.

The Tribunal emphasized that the Department failed to demonstrate any infirmity in the CIT(A)'s findings or produce additional evidence to counter the Assessee's discharge of onus.

3. SIGNIFICANT HOLDINGS

- "The Assessee has discharged the onus cast upon it u/s 68 of the Act by producing confirmation, ITR, balance sheet and the bank statement of the investors."

- "The transactions have been taken place by account payee cheques and the shareholders have confirmed about their investment in the Company."

- "The Assessee has to explain the source of the amount credited in its book and need not prove the source of source."

- "The Ld. A.O. has not made any further enquiry after the Assessee producing the documents to discharge the burden u/s 68 of the Act."

- "Considering the above facts and circumstances of the case, we are of the opinion that the Ld. CIT(A) committed no error in deleting the addition made by the A.O."

Core principles established include the requirement for the Assessee to prove identity and genuineness of share capital transactions under Section 68, and that once this onus is discharged with sufficient documentary evidence and confirmations, additions cannot be sustained merely on suspicion or demand for "source of source" beyond the immediate credit.

The final determination was that the addition of Rs. 3,07,09,348/- under Section 68 was rightly deleted by the CIT(A), and the Revenue's appeal was dismissed for lack of merit.