By TIOL News Service

NEW DELHI, MAR 05, 2019 : THE issue is - Whether, in case of private placement of shares, higher onus lies on assessee to prove the genuineness of transactions because information is within the knowledge of the assessee - YES: SC

Facts of the case

The assessee-company filed returns for the relevant AY. Subsequent to search proceedings conducted at premises of a third party, the AO sought to reopen assessment for the relevant AY. Thereupon, the AO relied upon reports received from companies situated in Mumbai, Kolkata and Guwahati and made additions to the assessee's income, u/s 68. On appeal, the CIT(A) held that the AO did not conduct sufficient enquiry and held that the assessee had discharged its onus of proving the genuineness of the creditors as well as of the transactions. Such findings were upheld by the Tribunal. Later, the High Court held that additions u/s 68 were unwarranted if the assessee had proved the genuineness of transactions and the identities of its creditors.

On hearing the appeal, the Apex Court held that,

++ the issue which arises for determination is whether the assessee had discharged the primary onus to establish the genuineness of the transaction required u/s 68. As per settled law in the land mark case of Kale Khan Mohammad Hanif v. CIT3 and Roshan Di Hatti v. CIT4, the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the Revenue to show that the income is from any particular source;

++ in the instant case, the lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the assessee had filed all the primary evidence, the onus on the assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with nil income had to explain how they had invested such huge sums of money in the assessee company. Clearly the onus to establish the creditworthiness of the investor companies was not discharged. The entire transaction seemed bogus and lacked credibility. The lower authorities did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. Thus, the AO was justified in adding back the amounts to the assessee’s income.

(See 2019-TIOL-101-SC-IT )