Genuinity of Transaction cannot be suspected if it is supported by Documentary Proof: Delhi HC [Read Order]

Finance Act - Delhi High Court - taxscan

Recently, in Pr. Commissioner Of Income Tax – 5 V. Jatin Investment Pvt. Ltd, the division bench of the Delhi High Court observed that a transaction cannot be treated as fraudulent if the assessee has furnished documentary proof and proved the identity of the purchasers and no discrepancy is found.

The bench observed that, in such a case, the AO has to exercise his powers under section 131 & 133(6) of the Income Tax Act to verify the genuineness of the claim and cannot proceed on surmises.

The bench comprising of Justice S. Ravindra Bhat and Justice Najmi Waziri was hearing an appeal filed by the IT Department against the order of the ITAT wherein the Tribunal upheld the order of the first appellate authority deleting the addition of Rs 93.45 lakh made under Section 68 were unwarranted. It was further observed that the Department cannot work on mere suspicion and needs to exercise his powers to verify genuineness of the claim, without surmising.

“A transaction cannot be treated as fraudulent if the assessee has furnished documentary proof and proved the identity of the purchasers and no discrepancy is found. The AO has to exercise his powers under section 131 & 133(6) of the I-T Act to verify the genuineness of the claim and cannot proceed on surmises,”

Coming to the facts of the case, re-assessment was initiated against the assessee, Jatin Investment Pvt Ltd for Assessment Year (AY) 2003-04, during which the company had reported Rs96.25 lakh as receipts. For AY2004-05, Jatin Investment reported receipts of Rs1.50 crore. The AO by his order, added Rs93.45 lakh on his conclusion that various amounts received from 21 parties were suspect. The AO’s findings were based on his appreciation of the facts, which are that upon issuance of summons under Section 131 none of the parties reported or joined the proceedings.

The first appellate authority observed that “the AO based his argument purely on the basis of information from DIT (Investigation), New Delhi. He has entirely relied upon such information for reaching such conclusion. The above information may be sufficient grounds to initiate reassessment proceedings of a case, but no (sic) make an addition the AO has to establish the fact of fraudulent nature of such transaction. Purely on surmises and conjuncture (sic) no transaction can be held as bogus unless the same is proved on the basis of sound reasoning and evidence on the part of the AO before making the addition. When the assessee has furnished all necessary proofs in support of its claim, it is all the more necessary to rebut such evidence with cogent and credible evidence on the part of the AO before making the addition. It is true that the said amount of Rs93.45 lakh has been received during the year under consideration by the appellant from 21 persons listed in the assessment order. However, the perusal of the balance sheet as on 31 March 2003 reveals that no new money has been introduced during the year under consideration. This also implies that there has neither been fresh loan nor fresh share capital introduced in the accounts of the appellant company during the year under consideration. The perusal of the account of the appellant company does not leave any room for doubt that the said amount was nothing but the sale proceeds of the shares, which have already been shown by the appellant in the profit & loss account for AY2003-04. When the sale proceeds of the shares have already been shown by the appellant and the same has also been offered as income, it cannot be brought to tax again in the same AY2003-04 which is under appeal.”

The assessee contented that it is engaged in trading of shares and security and had in previous years acquired shares of some companies. They claimed that those shares were sold during the assessment year in question and amounts received from purchases of the shares were shown as receipts. These amounts were garnered in the ordinary course of business.

The bench rejected the contention of the Revenue that the incorrect reflection of the receipts in the balance sheet belied the true nature of the receipts, as a justification for the application of Section 68.

“The ITAT in our opinion quite correctly appreciated the law and its application by the first appellate authority, the CIT (A). Having regard to the facts and the nature of the analysis based upon the decisions of this Court, as well as the reliance on various decisions with respect to the true nature of Section 68, we are of the opinion that no question of law arises; the appeals are accordingly dismissed,” the bench said.

Read the full text of the order below.

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