Income Tax Act, 1961

--Income from undisclosed sources--Addition under section 68Share application moneyAssessing officer received an investigation report wherein the share applicants, on the basis of statement of one 'M' had been found to be providing accommodation entries. He, therefore, invoked the provisions of section 68 and made an addition of share application money received from such applicants. Assessee contended that assessing officer was not justified in making the addition when initial burden was cast upon him by virtue of the judgment of the Supreme Court in CIT v. Lovely Exports (P) Ltd. 216 CTR (SC) 195 had been discharged and that the assessing officer was free to satisfy himself as to the veracity and genuineness of the transactions by examining the bank accounts or the accounts of the companies who had applied for shares in the present case. Held: Assessee had filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the directors, Form 2 filed with the ROC by such applicants, confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, assessing officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of M. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when assessee produced material. The least that the assessing officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility, assessing officer was not justified in making addition under section 68.

Income Tax Act, 1961 Section 68

In the Delhi High Court

S. Ravindra Bhat & R.V. Easwar, J.J.

CIT v. Fair Finvest Ltd.

ITA 232/2012

A.Y. 2002-03

22 November, 2012

Income Tax Act, 1961, S. 68

Decision: In assessees favour.