Income Tax Act, 1961 – s.68 – Cash credits – Money received through Share Capital/Premium from various companies – Assessing Officer (A.O.) issued show cause notice to respondent-assessee to establish the genuineness of the transaction – Assessee inter alia submitted that the entire Share Capital was received 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 – A.O. issued summons to the representatives of the investor companies – None appeared on behalf of any of the investor companies – A.O. independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies – Enquiries were made at Mumbai, Kolkatta, and Guwahati where these Companies were stated to be situated – On the basis of the enquiries conducted, A.O. held that the assessee had failed to prove the genuineness of the transaction – On appeal, held: 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 A.O., so as to discharge the primary onus – If the enquiries and investigations reveal the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established – In such a case, the primary onus contemplated by s.68 of the Act is not discharged – In the instant case, the survey conducted by A.O. revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee – The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made – Also, there was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share – Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested – Assessee failed to discharge the onus required under s.68 – Therefore, A.O. was justified in adding back the amounts to the assessee’s income.
Allowing the appeal, the Court
HELD: 1. The use of the words “any sum found credited in the books” in Section 68 of the I.T. Act (prior to the Finance Act, 2012) indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium. As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act. The assessee is expected to establish to the satisfaction of the Assessing Officer, the proof of identity of the creditors; capacity of creditors to advance money; and genuineness of transaction. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee’s knowledge. [Paras 8.1, 8.2 and 8.3] [176-C-E; 177-A]
Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1(SC); Roshan Di Hatti v. CIT (1977) 107 ITR (SC) – affirmed.
CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal); CIT v. Oasis Hospitalities Pvt. Ltd. 333 ITR 119 (Delhi) (2011); Shankar Ghosh v. ITO (1985) 23 TTJ (Cal.); CIT v. Kamdhenu Steel & Alloys Limited and Other (2012) 206 Taxman 254 (Delhi) – approved.
2. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the share-holders were either non-existent, or lacked credit-worthiness. The A.O. had conducted detailed enquiry which revealed that there was no material to prove that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. The two companies at Guwahati were found to be non-existent at the address provided. The genuineness of the transaction was found to be completely doubtful. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90,00,000 to Rs. 95,00,000 in the A.Y 2009-10, for purchase of shares at such a high premium. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act. The entire transaction seemed bogus, and lacked credibility. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. [Paras 9, 12 and 14][178-A, B; 180-F-H, 181-A-D, F-H, 182-C-E]
Sumati Dayal v.CIT [1995] 214 ITR 801 (SC); CIT v. P. Mohankala 291 ITR 278; PR.CIT -6, New Delhi v. NDR Promoters Pvt. Ltd. 410 ITR 379; Roshan Di Hatti v. CIT (1992) 2 SCC 378; Nemi Chand Kothari v. CIT [2003] 264 ITR 254 (Gau.); CIT v. Divine Leasing & Financing Ltd. (2007) 158 Taxman 440; CIT v. Value Capital Service (P) Ltd. (2008) 307 ITR 334 – relied on.
CIT v. Lovely Exports Pvt. Ltd (2008) 299 ITR 268 (Delhi) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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