The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) dismissed an appeal, emphasizing that the mere disclosure of addresses and identities of shareholders was not sufficient under section 68 of the Income Tax Act, 1961
The assessee initially reported an income of Rs.7,090 in its tax return. After processing under section 143(3) of the Income Tax Act, 1961 on 10/06/2011 without scrutiny, the Investigation Wing later revealed transactions involving M/s Midway Exim Pvt. Ltd. and the assessee’s bank account, showing a substantial receipt of Rs.8, 18, 01, 000 in Punjab National Bank. Despite this, the reported income remained minimal. Subsequently, an assessment order on 28/12/2017, under sections 147 and 143(3) of the Income Tax Act, 1961, added Rs.8, 18, 01,000 under section 68, treating the credits in the bank account as unexplained.
The counsel for the Respondent Smita Singh argued that the assessee failed to substantiate the three conditions outlined in Section 68 of the Income Tax Act, 1961. Specifically, the burden of proving the identity of the creditor, the capacity of the creditor to advance/invest the amount, and the genuineness of the transaction were not adequately demonstrated. Consequently, the Assessing Officer rightfully added the amount under Section 68, a decision upheld by the Commissioner of Income Tax ( Appeals ) and deemed not in need of intervention.
The Counsel for the assessee Suresh Gupta argued that the Commissioner of Income Tax ( Appeals ) [ CIT(A) ] made an error in affirming the addition of Rs. 7,54,01,000 under Section 68 of the Income Tax Act, 1961. The counsel contended that this provision does not apply to the realization from the sale of investments. Additionally, without prejudice, it was asserted that the CIT(A) also erred in law by upholding the Rs. 8,18,01,000 addition under Section 68, of the Income Tax Act, 1961, including a share application of Rs. 64,00,000. The argument emphasized that the assessee had fulfilled the initial burden under Section 68 of the Income Tax Act, 1961by explaining the nature and source of the credits with relevant documents during the assessment proceedings.
The two member bench of the tribunal comprising Dr. B.R.R. Kmar ( Accountant member) and Yogesh Kumar U.S ( Judicial member ) questioned the credibility of a sudden increase in share premium from Rs. 1,90,000 to Rs. 3,43,42,500, considering the company’s meager reported income. Citing legal precedents, the CIT(A) emphasized that the burden of proof under section 68 of the Income Tax Act, 1961 lies with the assessee, mere banking channel transactions are insufficient, and the mere provision of PAN and return copies does not discharge the burden.
Furthermore, the CIT(A) asserted that the addition under section 68 does not require the AO to establish the source of funds, and the burden remains on the assessee to prove the entry’s non-income character. The CIT (A) concluded that the failure to establish the creditworthiness of investor companies justified the AO’s addition under section 68 of the Income Tax Act, 1961. In light of these considerations, the Tribunal found no merit in the assessee’s appeal, and Grounds was dismissed.
In the result, the appeal of the assessee was dismissed.
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