PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL)-I versus NRA IRON & STEEL PVT. LTD.

Citation: [2019] 4 S.C.R. 163 · Decided: 05-03-2019 · Supreme Court of India · Bench: UDAY UMESH LALIT · Disposal: Appeal(s) allowed

Judgment (excerpt)

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PRINCIPAL COMMISSIONER OF INCOME
TAX (CENTRAL) - I
v.
NRA IRON & STEEL PVT. LTD.
(Civil Appeal No. 2463 of 2019)
MARCH 05, 2019
[UDAY UMESH LALIT AND INDU MALHOTRA, JJ.]
Income Tax Act, 1961 – s.68 – Cash credits – Money received
through Share Capital/Premium  from various companies – Assessing
Officer (A.O.) issued show cause notice to respondent-assessee to
establish the genuineness of the transaction – Assessee inter alia
submitted that the entire Share Capital was 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 – A.O.
issued summons to the representatives of the investor companies –
None appeared on behalf of any of the investor companies – A.O.
independently got field enquiries conducted with respect to the
identity and credit-worthiness of the investor companies – Enquiries
were made at Mumbai, Kolkatta, and Guwahati where these
Companies were stated to be situated – On the basis of the enquiries
conducted, A.O. held that the assessee had failed to prove the
genuineness of the transaction – On appeal, held: The 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 A.O., so as to discharge the
primary onus – If the enquiries and investigations reveal the identity
of the creditors to be dubious or doubtful, or lack credit-worthiness,
then the genuineness of the transaction would not be established –
In such a case, the primary onus contemplated by s.68 of the Act is
not discharged – In the instant case, the survey conducted by A.O.
revealed that some of the investor companies were non-existent,
and had no office at the address mentioned by the assessee – The
companies at Kolkatta did not appear before the A.O., nor did they
produce their bank statements to substantiate the source of the funds
[2019] 4 S.C.R. 163
163
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SUPREME COURT REPORTS
[2019] 4 S.C.R.
from which the alleged investments were made – Also, there was no
explanation whatsoever offered as to why the investor companies
had applied for shares of the assessee Company at a high premium
of Rs. 190 per share, even though the face value of the share was
Rs. 10/- per share –  Furthermore, none of the so-called investor
companies established the source of funds from which the high share
premium was invested – Assessee failed to discharge the onus
required under s.68 – Therefore, A.O. was justified in adding back
the amounts to the assessee’s income.
Allowing the appeal, the Court
HELD:  1.  The use of the words “any sum found credited
in the books” in Section 68 of the I.T. Act (prior to the Finance
Act, 2012) indicates that the section is widely worded, and
includes investments made by the introduction of share capital
or share premium. As per settled law, the initial onus is on the
Assessee to establish by cogent evidence the genuineness of
the transaction, and credit-worthiness of the investors under
Section 68 of the Act.  The assessee is expected to establish to
the satisfaction of the Assessing Officer, the proof of identity of
the creditors; capacity of creditors to advance money; and
genuineness of transaction. With respect to the issue of
genuineness of transaction, it is for the assessee to prove by
cogent and credible evidence, that the investments made in share
capital are genuine borrowings, since the facts are exclusively
within the assessee’s knowledge. [Paras 8.1, 8.2 and 8.3]
[176-C-E; 177-A]
Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR
1(SC);  Roshan Di Hatti v. CIT (1977) 107 ITR (SC) –
affirmed.
CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465
(Cal);  CIT v. Oasis Hospitalities Pvt. Ltd. 333 ITR 119
(Delhi) (2011); Shankar Ghosh v. ITO (1985) 23 TTJ
(Cal.); CIT v. Kamdhenu Steel & Alloys Limited and
Other (2012) 206 Taxman 254 (Delhi) – approved.
2.  In the instant case, the Assessing Officer made an
independent and detailed enquiry, including survey of the so-called
investor companies from Mumbai, Kolkata and Guwahati to verify
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the credit-worthiness of the parties, the source of funds invested,
and the genuineness of the transactions. The field reports
revealed that the share-holders were either non-existent, or
lacked cr

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