Onus is on Income Tax Dept to Prove that Investments Made through Banking Channels is Doubtful: Allahabad HC [Read Order]

The Allahabad High Court has ruled that the onus is on the Income Tax Department to prove that investments made through banking channels is doubtful.

The present appeal has been filed under Section 260-A of the Income Tax Act, 1961, arising from the orderpassed by the Income Tax Appellate Tribunal, Agra Bench, for A.Y. 2010-11. By that order, the Tribunal has dismissed the appeal filed by the revenue and thus confirmed the order passed by the CIT (Appeals), allowing the assessee’s appeal, deleting additions made under Section 68 of the Income Tax Act with respect to share capital Rs. 19 crores invested in the assessee company by three entities namely – M/s JewellockTreximPvt. Ltd., M/s Alberta Merchants Pvt. Ltd. and M/s Gurprasad Holding Pvt. Ltd.

It is true, that the assessee was a recipient of share capital Rs. 19 crores from the three entities (described above) for A.Y. 2010-11. At the same time, it is not in dispute that the said money was invested through banking channels. It is also not doubted, the investors had duly disclosed such investment in their books. At the same time, certain doubts and suspicions arose with the revenue authorities arising from search proceedings conducted in the case of the assessee as also the investors.

The CIT (Appeals) has reasoned, the doubts and suspicions howsoever strong may never lead to adverse findings against the assessee. He has categorised the findings recorded by the assessing authority as conjectural being not based on any cogent material or evidence on record.

A Division Bench comprising Justices Shiv Shanker Prasad and S. D. Singh observed that “Prima facie, in face of investment made through banking channel which according to learned counsel for the revenue was duly disclosed in the regular returns of the investing entities, there does not exist any presumption or room to disbelieve the investment made in the assessee company.”

“The burden to prove otherwise rested squarely on the revenue authorities. Unless the initial onus had been discharged by leading some evidence that may have led itself to the conclusion that the investment was never made, the burden that was cast on the revenue remained undischarged.”

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