The burden of proof on the genuineness of the identity of individuals or entities subscribing to share capital lies with the assessee initially, and shifts to the Revenue once relevant facts are furnished. The inability of the investors to provide a reasonable explanation for the disproportionate amounts subscribed also shifts the onus to the Revenue.

S.Ravindra Bhat, J. (Open Court)

1. The following substantial question of law arises for consideration : -

“Did the Tribunal fall into error of law in upholding the deletion of Rs.31.94 lakhs which had been added under Section 68 by the Assessing Officer in respect of AY 2006-07 in the circumstances of the case?”

2. With the consent of counsel for the parties, the matter is heard for disposal.

3. The facts in brief are that the assessee filed its income tax return for the year 2006-07. It is a matter of record that the assessee was incorporated on 20.10.2005 and commenced business thereafter. The assessee had reported receipt of share capital to the tune of Rs.11 lakhs; it sold them at 1000% premium and claimed to have received Rs.1.1 crores on that count. During the enquiry made at the time of assessment proceedings, the AO required the assessee to furnish various particulars which have been set out in pages 21-23 of the paper book and contained in about 10 columns. He also proceeded to make further enquiry to that end and issued notices under Section 133 (6) of the Income Tax Act, 1961 to the individuals and entities who had applied as shareholders directly. This yielded certain information. 28 of the 39 investors responded to the queries. Out of the balance of 11, 2 of them did not receive the notice and 9 received the notices and apparently had responded. Based on the materials on record, the AO framed the assessment adding the entire amount under Section 68. The assessee claiming to be aggrieved approached the Commissioner (Appeals) and successfully argued that once the identity of the investors had been disclosed, it had discharged the burden imposed upon it by law and that the amount could not be added back under Section 68. The Commissioner of Income Tax (Appeals) directed the deletion of Rs.1.10 crores holding that since these individuals had responded and furnished the particulars elicited, the AO should not have added the amount as income. Almost similar approach was adopted in respect of the other 11 investors on the reasoning that the assessee did all that was required of it under the law by disclosing the identity of investors. The ITAT confirmed the order of the CIT (A). The Revenue, therefore, is in appeal before us.

4. It is argued on behalf of the Revenue before us that the impugned order is in clear error of law in upholding the reasoning of the CIT (A) that the assessee had discharged the burden imposed upon it and disclosed the particulars and identity of the investors. It is pointed out that a bare reading of the chart prepared by the Assessing Officer, during the course of his investigation, reflected in the impugned order would show that apart from the Section 133 (6) notices, independent enquiries had been made on the basis of the materials disclosed by way of income tax returns from the relevant assessing authorities. The AO concluded that the amounts claimed by the subscribers to be bona fide investors could not have been so having regard to the quantum of the income reported by them during the relevant assessment years. Counsel, therefore, submitted that even the requirement of the assessee having to discharge the burden imposed upon him was not in fact discharged in the facts of this case. Counsel highlighted that the decision in CIT v. Lovely Exports (2008) 299 ITR 268 (SC) has to be read with CIT v. Nova Promoters & Finlease (P) Ltd. (2012) 342 ITR 169 (Del). It is submitted that the Assessing Officer in this case not only issued notice to the investors but also carried on further enquiry which led into the conclusion that such persons or individuals could not have made the extent of investment that was claimed and that in these circumstances the addition under Section 68 was justified.

5. Counsel for the respondent submitted that the impugned order should not be interfered with given that it has concurrently upheld the decision to set aside the addition under Section 68. It was stressed that