During the assessment proceedings, the A.O. notices various receipts which stood credited to the bank account of the assessee by way of unsecured loans. The A.O. repeatedly asked the assessee to provide an explanation and source of the cash credit. The assessee filed certain details. Due to time constraint, the A.O. could not verify the details and make the addition to the income u/s. 68 of the Act. The CIT(A) held that the A.O. had rejected additional evidence without any verification. The additional evidence was sufficient to discharge the burden cast on the assessee. The A.O. has failed to bring any material on record to disprove the correctness of additional evidence filed by the assessee. Revenue filed an appeal with the Tribunal.

Before the Tribunal, the assessee submitted that investors advance share application money. However, it treated them as an unsecured loan as the authorities share capital was less than the share application money. This treatment was unilateral without the consent of the share applicants.

The Tribunal noted section 68 cast an obligation on the assessee to explain the genuineness of the transaction to the satisfaction of the A.O. The assessee shall prove the identity and creditworthiness of the creditors. If the assessee fails to do so, A.O. can invoke provision to treat the amount credited to the books of accounts as income. Further, it noted that unlike the case of the public company that is not aware of the person making share subscription, the burden of proof in the case of private companies is different. Private companies raise funds through family members, relative and friends who are mostly known to the company and promoters. Therefore, onus heavy lies on the assessee to prove the identity and capacity of the shareholder and genuineness of the transaction.  The Tribunal held that the assessee had not discharged its primary onus u/s. 68. These transactions were merely accommodating entries wherein the assessee own unaccounted funds were brought back through the five companies.

Further, the A.O. had received specific information that the assessee was a beneficiary of bogus purchases from the Investigation Wing of the Department. On assessee failure to explain, the purchases were disallowed, and the amount was added back as income of the assessee. CIT(A) noted that the assessee had produced the transportation bills and the list of consumption of material purchased. The CIT(A) estimated the profits embedded in the purchase of 12.5% to be added back to the assessee income.

The Tribunal noted that the assessee has failed to produce the parties before the lower authorities for verification and enquiry. The notice issued by the A.O. to these parties were returned unserved. The assessee did not provide the proof of transportation, delivery of the material and consumptions of material. In the facts of the case, additions to the extent of 100 per cent of the alleged bogus purchases to be added back.  (AY. 2011-12)