In a recent judgement, the Pune bench of the Income Tax Appellate Tribunal ( ITAT ) restored the assessment order, stating that the taxpayer failed to provide evidence to discharge the onus under Section 68 of the Income Tax Act, 1961.
The revenue, Assistant Commissioner of Income Tax ( ACIT ) has filed an appeal disputing the CIT(A)’s decision to delete the addition of Rs. 30,00,00,364/-, which was attributed to the receipt of share capital and share premium. This amount was received from three parties, Rainbow Ventures Limited, Mauritius, and Ambit Pragma Fund Scheme-1.
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During the assessment proceedings, the assessee, Prasanna Purple Mobility Solutions Private Limited had received this substantial amount from the mentioned parties. The Assessing Officer (AO) required the company to prove the identity, creditworthiness of the investors, and the genuineness of the transaction. However, the assessment order indicated that the company failed to meet these requirements.
It was well-established that the assessee must prove the identity, creditworthiness, and genuineness of the transaction to the AO’s satisfaction. The AO is also obligated to verify these aspects and ensure the transactions are not bogus entries from lenders. If the assessee fails to provide convincing evidence, the AO is justified in adding the amount to the assessee’s total income.
In this case, the company did not fulfill its obligation under Section 68 of the Income Tax Act. Before the CIT (A), the assessee submitted financial statements of Rainbow Ventures Limited and the registration certificate of Ambit Pragma Fund Scheme. The CIT (A) sought a remand report from the AO, who admitted that a reference was made to the Foreign Tax and Tax Research Authority during the assessment proceedings for the A.Y. 2012-13. This was to seek information from the Mauritius Tax Authority under the Double Taxation Avoidance Agreement (DTAA). The AO confirmed that, based on the received information, credits standing in the name of Rainbow Ventures Limited for the A.Y. 2012-13 were accepted.
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Based on this information, the CIT (A) concluded that the receipt of share capital/share premium from Rainbow Ventures Limited was genuine and directed the AO to delete the addition. Regarding Ambit Pragma Fund Scheme, the CIT (A) noted its registration with SEBI and deleted the addition.
However, the bench found the CIT (A)’s findings to be insufficient and lacking detailed enquiry. The CIT (A) did not adequately explain how the identity, creditworthiness, and genuineness of the transactions were verified. The bench emphasized that mere production of incorporation details, PAN numbers, or banking transaction receipts do not establish the genuineness of the transaction. The assessee must demonstrate how the parties are connected, the mode of their approach, and whether there was a written agreement to protect the investment, among other details.
In this case, the AO’s suspicion was heightened by the fact that the assessee received a large amount of share capital/share premium from a loss-making company, Rainbow Ventures Limited. The AO concluded that it was unaccounted money of the assessee, an allegation the company did not refute with evidence.
Consequently, the bench found the CIT (A)’s order lacking in factual discussion. The assessee did not provide any material to discharge its onus under Section 68 of the Income Tax Act. Therefore, Astha Chandra (Judicial Member) and Inturi Rama (Accountant Member) reversed the CIT (A)’s decision to delete the addition. Without sufficient material on record, they restored the assessment order and allowed the revenue’s appeal.
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