Principal Commissioner of Income Tax (Central)-1 vs NRA Iron and Steel Pvt. Ltd. - Important Supreme Court Judgment 2019

Principal Commissioner of Income Tax (Central)-1 vs NRA Iron and Steel Pvt. Ltd. - Important Supreme Court Judgment 2019

On 5th March, 2019, in the case of Principal Commissioner of Income Tax (Central)-1 v. NRA Iron and Steel Pvt. Ltd. [Civil Appeal No. 2463 of 2019], it was held that where sums of money are credited as Share Capital/Premium, “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 AO, so as to discharge the primary onus.” It was held that “the Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.” It was further held that if the enquiries and investigations reveal the identity of the creditors to be dubious or doubtful, or lacking credit-worthiness, “then the genuineness of the transaction would not be established” and “in such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Income Tax Act.”

The Supreme Court observed that “the practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny” “particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee.”

Further observing that “the Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee”, the Supreme Court held that on the facts of the present case, “clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act”, and “the Assessing Officer was justified in adding back the amounts to the Assessee’s income.”