By TIOL News Service

CHANDIGARH, MAY 11, 2018: THE ISSUE IS - Whether simple assertion regarding failure of the assessee to prove genuineness & creditworthiness of share subscribers, is not sufficient for enforcing Section 68, unless any contrary evidence is shown by the Department. YES IS THE ANSWER.

Facts of the case:

During the relevant year, two parties, namely "New Star Information System India Pvt Ltd." and "Rapid Packaging Pvt Ltd." had contributed towards the share capital/premium through normal banking channels to the assessee. During the course of assessment proceedings, the assessee filed confirmations from the said companies and submitted that the amount as invested by the two subscriber companies had earlier been lying with M/s BBF Industries Ltd., and which had been returned back by M/s BBF Industries Ltd., to both the said subscriber companies. Regarding the reduction in share application money as received by assessee in previous years, it was submitted that there was net reduction in the share application money of Rs. 11,44,25,000/-. This argument did not found favour with the AO. However, the FAA held that once, the share application had been accepted by the AO of the same companies in M/s BBF Industries Ltd., then the identity, genuineness and credit worthiness stands proved and the onus on the assessee stood discharged. The FAA further held that it could not be treated as unexplained money of the assessee. He was of the view that the assessee even volunteered to produce such parties before the AO, but no sufficient time had been afforded to him during the course of assessment proceedings. Thus, the addition made by AO u/s 68 stood deleted by the FAA.

Tribunal held that,

++ the assessee before the AO as well as the CIT(A) has placed evidence in support of its claims not only of the source of the source but also the credit worthiness and produced the Directors whose statements etc. have been recorded by the AO. It is also found that though the DR has relied upon the assessment order heavily, however has not upset the evidence relied upon by the assessee before the CIT(A) on the basis of which the conclusions drawn is challenged by the Revenue in the present proceedings. Going through the relevant findings of the CIT(A) that the two firms who have subscribed for shares namely M/s New Star Information System India Private Limited and M/s Rapid Packaging Private Limited in the remand proceedings had not only filed confirmed copies of M/s BBF Industries Ltd, but also filed copies of the assessment orders of M/s BBF Industries. These facts and evidences have been made available not only to the AO but also the CIT(A) who has remanded these to the AO and considering which fact the conclusion has been drawn that the identity of M/s BBF Industries Ltd along with genuineness as well as creditworthiness of the said firm has been held to be established. It is seen that the parties have been summoned by the AO in the remand proceedings, where the statements of the Directors have been recorded and the books of accounts have been examined. Thus, the assertion of AO that the assessee has failed to prove genuineness and creditworthiness of the subscribers becomes a meaningless observation as no evidence to the contrary has been made available by the AO. Accordingly, being satisfied on facts qua the conclusions drawn by the CIT(A), there seems no good reason to vary the conclusion drawn.

(See 2018-TIOL-688-ITAT-CHD)