Case Law Details
PCIT Vs SRM Systems and Software P. Ltd. (Madras High Court)
The assessee disclosed share capital advance to the tune of Rs.6,17,81,000/- and they were directed to furnish names and addresses of the persons, who contributed the advance share capital. The assessee, by reply dated 15.12.2010, stated that the advance towards share capital is Rs.5,65,96,723/- however, did not furnish any details with regard to their names, addresses, Permanent Account Numbers (PAN), proof in respect of their credit worthiness and proof in respect of genuineness. In the absence of any documents, the Assessing Officer added the said amount to the returned income as undisclosed income in the assessment order dated 31.12.2010, under Section 143(3) read with Section 147 of the Act.
Under section 68 if the assessee offers no explanation about the nature and source of the amounts found credited in their books or the explanation offered by the assessee is not in the opinion of the Assessing Officer, satisfactory, the same so credited, may be charged to income tax, as the income of the assessee of that previous year. Therefore, to establish, the assessee was required to produce the creditworthiness of various persons, who are said to have made the share capital advance. Therefore, what is required to be established is the identity of the person, who has made the share capital advance, his creditworthiness and genuineness of the transaction. The onus is on the assessee to establish these factors and mere furnishing of the list of persons, who have claimed to have advanced towards share capital, will not constitute sufficient compliance of the onus placed on the assessee.
In Principal Commissioner of Income Tax, Central I vs. NRA Iron & Steel Pvt. Ltd., [(2019) 103 taxmann.com 48 (SC)], the issue, which fell for consideration, was whether the share capital/premium credited in the books of accounts of the assessee-company, the onus of proof is on the assessee to establish by cogent and reliable evidence of the identity of the investor companies, the creditworthiness of the investors and genuineness of the transaction to the satisfaction of the Assessing Officer. While answering the said issue, the Hon’ble Supreme Court held that it is for the assessee to prove by cogent and credible evidence that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee’s knowledge. After referring to several decisions, the principles, which emerged there from, were summed up in paragraph 11 of the judgment on the following terms:-
“11. The principles which emerge where sums of money are credited as Share Capital/Premium are :
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