“Section 131(2)”
The decision most relied on for Section 131(2) is CIT v. Simit P. Sheth (356 ITR 451), cited in 1,465 judgments on BharatTax.
Leading authorities on Section 131(2)
Additions for alleged bogus purchases should be restricted to the profit element, not the entire turnover. The profit element is often estimated at 12.5% of the purported bogus purchases.
When an assessee provides the identity and address of a creditor or investor for a cash credit or share capital under Section 68, the burden shifts to the Department to establish lack of genuineness or creditworthiness, requiring it to conduct further inquiries; mere non-compliance by third parties to summons cannot be the sole basis for an adverse inference against the assessee.
If an assessee company receives share application money from alleged bogus shareholders and provides their details to the Assessing Officer, no addition can be made under Section 68 in the company's hands; the Department must proceed against the shareholders by reopening their individual assessments.
To make an addition under Section 68 for unexplained cash credits, the Assessing Officer must conduct proper inquiry into the identity, genuineness, and creditworthiness of the creditor, especially concerning share application money. The assessee's initial discharge of burden by providing necessary details shifts the onus back to the AO for further investigation, including the source of source.
Disallowance under Section 14A is not attracted when no exempt income is earned in the relevant assessment year. The amendment to Section 14A by the Finance Act, 2022, applies prospectively.
When making an addition under section 68, the creditworthiness or financial strength of an investor contributing share capital or share application money can be proved by producing their bank statements showing sufficient balance for the investment. The Supreme Court dismissed the SLP against this decision.
Under Section 68, an assessee is only required to prove the identity and creditworthiness of the immediate creditor or share subscriber and the genuineness of the transaction. The assessee is not obligated to establish the 'source of the source' of funds or the creditworthiness of sub-lenders, as this information may not be within the assessee's special knowledge.
A statement recorded under Section 133A of the Income-tax Act has no evidentiary value because Section 133A does not empower an Income-tax Officer to examine any person on oath.
