Merely as the assessee fails to file the copy of the related return of income tax, a transaction cannot be treated as unexplained. The amount cannot be considered as unexplained credits under section 68 of the Income Tax Act.
The ITAT, Delhi in the case of Ocean Metals Pvt. Ltd. vs. ITO Ward 13(4) New Delhi – 2014 (11) TMI 131 has recently passed the aforesaid judgment.
Facts of the case:
The assessee claimed an amount to have been received for share application from other company. The assessee filed the confirmation of the applicant along with copies of his return of income before the Assessing Officer for the Assessment years 2004-05 and 2006-07, statement of bank account of the proprietor of the said company.
The Assessing Officer considered the amount as addition of income of the assessee company in its hands.
The Commissioner of Income Tax (Appeals) deleted the addition with the finding that the assessee had filed the statement of the Bank from where share application money was deposited to the assessee through cheque to prove the genuineness of the transaction and if the Assessing Officer had any doubt he could have asked the applicant to check the genuineness of the share application money. Only as the assessee could not file the copy of the income tax return of income of the investor, the transaction cannot be considered as unexplained in his hands.
It was further held that after filing of the primary evidence such as confirmation of the share applicant along with its related documents like PAN, bank statement, etc. the onus shifts upon the Assessing Officer to prove that such documents are not reliable.
It was held that the Assessing Officer was not justified in holding that the evidence filed by the assessee was not enough to prove the authenticity of the claim.
Section 68 of the Income tax Act:
Where any amount is found credited in the books of account of an assessee for any previous year and he fails to offer an explanation regarding the source of such income or the explanation given by him appears to be unsatisfactory to the Assessing Officer, the amount so credited may be charged as the income of the assessee in that previous year.
However, where the assessee is a company, and the sum so credited is found to be in connection with share application money or share premium, any explanation offered by such assessee¬ company shall not be considered as satisfactory.
The judgment:
The ITAT upheld the order of the CIT (A). The case was decided against revenue. It was held that the CIT (A) had rightly appreciated the contention of the assessee that he was not assessed regarding the income derived from the cash deposits in the account of the third party and the same cannot be treated as undisclosed income as per section 68 of the Act.
It was further held that what is taxable is the income which an assessee has in his own hands and has been disclosed by him. But nothing can prevent the assessee from venturing into new kind of business if he earns profit out of it. Both the purchaser and the vendor are identified and both of them are assessees in it’s their own hands separately. The CIT (A) was right in holding that the assessee had discharged its onus of proving that he was bonafide regarding the transaction.
