Case Law Details
Brief summary
The assessee is a private company incorporated on 11.03.2003. Assessment was done u/s 143(1) of the Income Tax Act, 1961. Later revenue re-opened the assessment u/s 147 and 148 of the Act. In reassessment proceedings A.O. was not convinced by the explanation furnished by the assessee with regard to share capital received from six applicants and a sum of Rs.24 lacs was added u/s 68 of the Act. Appeal filed with CIT was rejected on the ground of assessee inability to explain the identity, genuineness and creditworthiness of the persons who have allegedly made the investment. Further Aggrieved with the order of ITAT, the assessee is in appeal before the High Court.
Contention of Assessee
The appellant urged that the share applicants were friends and relatives of the Directors of the appellant company and that since the entity was incorporated just a few days before the end of the financial year, it was unexpected to generate any income. It was further contended that given the CIT (Appeals)’s order which expressly recognized that the sum of Rs.24 lakhs in fact emanated from the directors of the share applicants, it could not be said that requirement of Section 68 of the Act is not discharged.
Contention of Revenue
The expression “the assessee offers no explanation” used u/s 68 means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. In this case the appellant has offered no creditable explanation about the amounts credited in its books, the receipt of Rs.24,00,000/- therefore cannot be treated as explained. In the case of private limited company where funds are arranged through personal contacts of directors, giving it a color of share application money/ share capital was within the reach of the assessee company. It is beyond doubt to say that sham transaction is given color to introduce their own money as such type of transaction are purely arrangements between the two known entities.
Held by Court
Under the requirement of Section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee’s reliance upon the CIT (Appeals) order to contend that the sources of the funds were in essence as directors is in this context of no avail. The assessee has contended that it was incorporated just before the end of the financial year. However, the assessee had to necessarily show that the amount which it indicated as borrowed from the six applicants in fact belonged to them. It is not sufficient for the assessee to just raise such contentions on the basis of certain observations of the CIT (Appeals) in this regard. The creditworthiness of the share applicants had to be seen in the context of the assertion made by them or the materials presented before the AO at the relevant time. The materials on record disclosed that some information from at least two individuals indicated that the money had not been given by them.
In view of the fact that concurrently the lower authorities held against the assessee and given the intensive factual nature of the evidence, no substantial question of law arises. The appeal is accordingly dismissed.
