The assessee credit the books of accounts on share capital and share premium to the tune of Rs.2,40,00,000/-. During the assessment proceedings, the A.O. requested the assessee to provided details of identity and creditworthiness of the share applicant. Further, it requested the directors of the share applicant company to appear before him. The A.O. drew an adverse inference as the director failed to appear and the similarity on documentation filed by all parties showed the entire transaction is a sham. Further, it stated that the share applicants showed little or no tangible asset in their financial. It noted that the assessee failed to show the creditworthiness of the investors and genuineness of the transaction. He brought the entire amount as income u/s. 68 of the Act.  On appeal, the CIT(A) granted part relief to the assessee. On cross-appeal to the Tribunal.  

The Tribunal held the duty is cast upon the assessee to explain the nature, and source of credit in books of account. The assessee has to prove 3 ingredients, i.e. identity of the share applicant, genuineness of the transaction and creditworthiness of the share applicant. To prove these ingredients, the assessee furnished the name, address, permanent account number (PAN), balance sheet and income tax return. On verification of share applicants’ financial statements, it was noticed that they had crores of rupees and the investment made was a small part of their capital. The transactions reflected in the share applicants balance sheet. The share applicants have confirmed the amount in the responses to the notice u/s. 133(6) issued by the A.O. If the assessee has discharged the initial onus, the burden shift to the A.O. to rebut by showing contra evidence.  The assessee is not required to prove the source of source. If there is doubt about the creditworthiness of the investor, the A.O. should have carried out an enquired without which no adverse inference can be drawn. In the absence of investigation and gathering of evidence, the addition could not be sustained merely on suspicion or conjectures.  (AY. 2012-13)