In B.R Petrochem Pvt Ltd v. ITO, the division bench of the Madras High Court held that mere furnishing of identity of shareholders by the asseessee would not sufficient to discharge their onus under section 68 of the Income Tax Act.
While confirming the addition made against the assessee, the bench ruled that the assessee must prove the genuineness and credit worthiness of the creditors in order to shift the burden to the department.
Assessing Officer enquired about the genuineness of share capital of Rs. 50 Lakhs received by the assessee. Though the assessee given the names and address of the contributors, they failed to prove the source and credit worthiness of the creditors. AO found that the assessee has not discharged the onus of proof mandated under section 68, made addition.
However, the first appellate authority deleted the addition by relying upon the Delhi High Court decision in Commissioner of Income Tax Vs. Sophia Finance Limited. On departmental appeal, the Tribunal reversed the order and sustained the addition made by the AO.
Before the High Court, assessee contended that in view of the decisions of the apex Court in Commissioner of Income Tax Vs. Lovely Exports and CIT Vs. Steller Investiment, no addition could be made invoking Section 68 of the Act in cases of contributions to share capital and that the Department was free to proceed against the share holders itself in cases where the genuineness of the transaction was in question.
The division bench comprising of Justice Huluvadi G Ramesh and Justice Anita Sumant observed that s. 68 of the IT Act is a provision that enables the assessment of any sum found credited in the books of an assessee where no satisfactory explanation is offered by the assessee to explain the same. It was observed that the Courts, in a catena of decisions, have consistently held that the three guiding principles in the context of section 68 would be the establishment of the identity and credit worthiness of the creditor and the genuineness of the transaction. “In the present case, only the first of the three conditions has been established by the assessee. Neither the credit worthiness nor the genuineness stand explained. The stand of the assessee to the effect that any transaction styled as a contribution to sharecapital would stand excluded from the purview of Section 68 is too wide to be accepted. The language of Section 68 does not admit of such an interpretation. In fact, it would indicate the opposite in so far as the opening words of the section are ‘Where any sum is credited in the books of an assessee….’”
Dismissing assessees’ appeal the bench sustained the additions for the reason that assessee failed to establish the genuineness of the cash contributions as well as the capacity of the persons to have made such contributions.
Read the full text of the Judgment below.
