Section 68 of the Income Tax Act, 1961: Where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income-tax as the income of the assessee. Provided that where the assessee is private limited company and the sum so credited consists of share application money, share capital, share premium, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless - (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory. Facts of the case : 1. For AY 2009-10, the assessee had filed the income tax return by showing that Rs. 17,60,00,000/- was received through Share Capital/Premium from various companies. It is pertinent to mention that the shares of face value of Rs. 10 per share, were subscribed by the investor companies at Rs. 190 per share. The Assessee was called upon by the Assessing Officer to furnish details of the amounts received and provide documentary evidences. The Assessee submitted that the entire amount was received through normal banking channels and produced documents such as income tax return acknowledgments to establish the identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to Section 68 of the Act, and that the onus on the Assessee Company stood fully discharged.
- Later, The AO issued summons to the representatives of the investors and nobody appeared on behalf of any of the investor companies. The AO independently got field enquiries conducted and came to know that in several cases, the investor companies were found to be nonexistent.
- Therefore, AO has held that the Assessee failed to prove the existence of the identity of the investor companies and genuineness of the transaction and as a consequence, the amount of Rs. 17,60,00,000/- was added back to the total income of the Assessee.
- Aggreived by the order of AO, the Assessee filed an Appeal before the
CIT(Appeals) where the judgement was passed in favour of the Assessee. - Later, on appeal by the Revenue to ITAT, ITAT dismissed the appeal of Revenue. At a later stage, High Court also upheld the order of ITAT. Judgement : On appeal, Hon’ble Supreme Court of India has held the
following – “The earlier Court/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 nonexistent and the onus to establish the identity of the investor companies, was not discharged by the assessee. On the facts of the present case, as the Assessee Company failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income”.