Facts of the case:
- Assessee had filed the original Return of Income for the AY 2009-10 reporting Rs. 17.6 crores as share application money having premium of Rs. 180 per share from several companies situated at Mumbai, Kolkata, and Guwahati. Assessing Officer (AO) issued a detailed questionnaire to the Assessee to provide information with respect to Rs. 17.6 crores received from various investor companies.
- Assessee inter alia submitted that the entire Share Capital had been received through normal banking channels by account payee cheques / demand drafts, and produced documents such as income tax return acknowledgments to establish the identity and genuineness of the transaction. AO issued summons to the representatives of the investor companies wherein no one appeared personally for response.
- A.O. found that most of the companies could not produce the bank statements to establish the source of funds for such investment declaring a very meagre income in their returns. Some of the investor companies were even found to be non-existent
- AO held that Assessee had failed to discharge the onus by cogent evidence either of the credit worthiness of the investor companies or genuineness of those transactions. Accordingly, additions were made by AO for such application money as income.
- On appeal, CIT(A) deleted the additions on the ground that Assessee had filed confirmations from the investor companies, their ITR acknowledgments and copies of their bank account. Similar stand was taken by ITAT and Delhi High Court.
Held by the Hon’ble Supreme Court :-
- Assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO.
- The AO is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or are bogus entries of the name-lenders.
- The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income couldn’t explain how they had invested such huge sums of money in the Assessee. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility.
- The appeal filed by the Dept. Is allowed and order passed by AO is restored (in favor of revenue)
Source:-  103 taxmann.com 48 (SC)– Principal Commissioner of Income-tax v. NRA Iron & Steel Private Limited.