Creditworthiness of Investor could not have been Doubted if he Remitted Amount Lower than his Net Income: HC

Case Details: Principal Commissioner of Income-tax v. Jaico Realtors (P.) Ltd. - [2023] 151 taxmann.com 159 (Karnataka)

Judiciary and Counsel Details

• • P.S. Dinesh Kumar & C.M. Poonacha, JJ.
  • E.I. Sanmathi, Standing Cousel, for the Appellant.
  • H. Vani, Adv. for the Respondent.

Facts of the Case

A search under section 132 was conducted on the premises of a Group. The authorities noticed that huge amounts were introduced as loans from various companies, and the assessee was also one such company. Consequently, a notice under section 148 for reassessment was issued to the assessee. Upon receipt of the notice, the assessee filed its returns. It was called upon to prove the genuineness of transactions with regard to investments along with relevant documentary evidence.

The Assessing Officer (AO) held that the assessee had not furnished any documentary evidence to prove the creditworthiness of the remitter (a shareholder) as he had declared a huge loss for the earlier years. Accordingly, the sum shown as receipt by the assessee towards the investment of shares was brought to tax as unexplained credit under section 68.

On appeal, the CIT(A) deleted the additions. Such deletion was further confirmed by the Tribunal. The matter then reached Karnataka High Court.

High Court Held

The High Court that AO’s case was that the investor had suffered loss during 2003, 2004 and 2006, and therefore, the assessee’s claim with regard to his investment in the company was doubtful. The ITAT noted that even after suffering losses in 2003, 2004 and 2006, the investor had a net income of USD 33 lakhs and remittance of only USD 10 lakhs.

Further, evidence in the form of bank accounts was also furnished in support of the investment made by the investor. The entries were available in the bank documents of Foreign Bank accounts, and transactions were in the nature of inter-bank transfers. Thus, there was no ground to draw any contrary interference.

List of Cases Reviewed

• • ACIT v Jaico Realtors (P.) Ltd. (IT Appeal No. 1444 (Bang.) of 2018, dated 8-5-2019 (para 10) affirmed.

List of Cases Referred to

• • Asstt. CIT v. Jaico Realtors (P.) Ltd. (IT Appeal No. 1444 (Bang.) of 2018, dated 8-5-2019) (para 1)
  • Pr. CIT v. NRA Iron & Steel (P.) Ltd. [2019] 103 taxmann.com 48/262 Taxman 74 (SC) (para 6).