Charging High Premium not correct Test for making Addition u/s 68 of Income Tax Act: Delhi HC [Read Order]

The Delhi High Court recently ruled that charging high premium not correct test for making addition under Section 68 of the Income Tax Act, 1961.

By this appeal, the appellant/revenue sought to assail the order dated 14.01.2019, passed by the Income Tax Appellate Tribunal [ITAT].  The counsel for the petitioner highlighted the fact that although an amount of Rs.20 crores was invested by Adhyay Equi Pref Private Limited [“Adhyay”] via cheques in the period spanning between 20.02.2007 and 13.03.2007, on 19.02.2007, the credit balance in the account of Adhyay was “NIL”.

This amount, as per the AO, ballooned to Rs.3 crores on 21.02.2007, albeit without a clue as to the source, and thereafter, the amounts were channelled by way of investment to the respondent/assessee. It was also emphasized that after Rs.20 crores was invested, the credit balance in the bank account of Adhyay fell to a nominal figure. 7.1 It is pointed out that on 14.03.2007, the credit balance was Rs.7,200/-, which stood enhanced to Rs.82,200/- on 26.03.2007 and thereafter, to Rs.6,82,200/- on 31.03.2007.

In sum, the argument advanced by the counsel for the petitioner was that the state of affairs represented that the investment made in the shares of the respondent/assessee was, in effect, undisclosed income.

A Two-Judge Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “As regards the first issue, it is crucial to bear in mind that the addition under Section 68 of the Income Tax Act can only be made if the respondent/assessee fails to come through vis-a-vis the triple test enunciated by the court. The triple test requires an assessee to prove identity, creditworthiness, and the genuineness of the subject transaction.”

“That said, what has come through on perusal of the record is that the respondent/assessee has furnished the details of the cheque payments and therefore, there was enough and more material available with the AO to make further inquiry into the matter. The AO, instead of making further inquiries, seems to have been burdened by the fact that the premium charged was high, which, according to us, was not the correct test for making an addition under Section 68 of the Income Tax Act.”

To Read the full text of the Order CLICK HERE

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