The main legal point established in the judgment is the requirement for thorough investigation by the Assessing Officer to establish the legitimacy of share capital subscriptions, emphasizing the need for evidence beyond mere documentation to prove the identity, creditworthiness, and genuineness of the transactions.

Sanjiv Khanna, J.

1. Revenue in this appeal, which relates to assessment year 2002-03, has raised the following substantial question of law:-

“Whether the ITAT fell into error in upholding the deletion of Rs.54 lakh, which was directed to be added back by virtue of section 68 of the Income Tax Act on the ground that assessee has discharged the onus of proving the identity and credit-worthiness of the share subscriber and the genuineness of the subscription?”

2. The appeal arises out of the impugned order dated 31st October, 2011, passed by the Income Tax Appellate Tribunal, upholding the order passed by the Commissioner of Income Tax (Appeals) deleting addition of Rs.54,00,000/- made under Section 68 of the Income Tax Act, 1961 (Act, for short), by the Assessing Officer on account of share application.

3. The assessee, a company, had filed their return of income for the assessment year 2002-03 declaring loss of Rs.1,58,035/- on 20th October, 2002, which was processed under Section 143 (1) of the Act. Subsequently, on the basis of a report submitted by the Investigation Wing that the assessee was a recipient of accommodation entries in form of share application money/share capital/share premium, notice under Section 147 read with Section 148 of the Act was issued and served on 25th March, 2009. The assessee, in response, pleaded that the return filed earlier under Section 139 (1) on 20th October, 2002, may be considered as a return, filed pursuant to the said notice. In response to the assessee’s letter dated 18th April, 2009, reasons recorded for issue of notice under Section 147/148, were communicated to the respondent assessee on 2nd September, 2009.

4. Authorized representative of the assessee appeared on 9th September, 2009, and sought adjournment for providing documents, evidence etc. in response to the notice under Section 143 (2), which was issued on 2nd September, 2009. The case was adjourned to 11th September, 2009, but no one attended the proceedings and belatedly on 14th September, 2009, request for adjournment was made on the ground that authorized representative was ill. To give further opportunity, proceeding was adjourned to 22nd September, 2009, and other details were sought. On 22nd September, 2009, again request for adjournment was made. On the said date, a questionnaire along with notice under Sections 142(1) and 143(2) was issued, fixing the hearing on 8th October, 2009. On 8th October, 2009, authorized representative of the respondent-assessee once again requested for time on the ground that the requisite information was under preparation/compilation. The assessee was required to furnish details of shareholders who were allotted shares in the year under consideration, their confirmations, copy of the income tax returns, bank accounts, copy of share certificate issued, allotment letter etc. The case was adjourned to 22nd October, 2009, but the said hearing yet again remained unattended. Belatedly, on 17th November, 2009, part information was furnished by the authorized representative. Further details were required to be furnished.

5. On 17th November, 2009, the assessee raised objection to re-opening and submitted that reasons for re-opening were merely surmises and conjectures. It was stated that the five amounts aggregating to Rs. 47,00,000/-, which were mentioned twice in the list prepared by the Investigation Wing, did not relate them. However, the assessee accepted that they had received six amounts aggregating to Rs.54,00,000/- as per the details given below:-

Bane-Ficiary Bank Name Bane-Ficiary Bank Branch Value of Entry taken Instru-ment No. by Which Entry taken Date of Which Entry taken Name of a/c Account Holder of Entry Giving A/c Bank from which entry given Branch of entry giving Bank A/c No. of Entry giving Account.

HDFC Bank Rajender Nagar Mkt.,

ND 700000 972521 7.3.02 Sekhaw-ati Finance P.Ltd. SBP Daryag-anj 50111

HDFC Bank Old Rajender Nagar, ND 1000000 13.3.02 D.K. Ispat & Timber