2016 (4) TMI 1228 - AT - Income Tax

Unexplained cash credit u/s. 68 - proof of creditworthiness of the shareholders - Held that - The creditworthiness of the shareholders is not proved because they did not had their own money as every cheque/draft issued in favour of the assessee is preceded by deposit of cash/cheque in the bank account of the shareholder and these share holders are merely name lenders. The genuineness of the transactions is also not proved as to how such a huge sum of money got invested by the share subscribers and that too at a huge premium when the company was merely a paper/shell company having no business/project worth in its hand. The shareholders could not be interrogated by the AO which was essential to unearth the truth as the assessee did not produced the shareholders nor they appeared before the AO in response to summons issued u/s 131. The blank transfer forms and receipts from the shareholders were found during survey with respect to transfer of these shares from shareholders to the persons to be nominated by the promoters, all the share application forms were filled in the same handwriting, there was no serial numbers in share application form, the acknowledgment of receipt of share application forms were not given to the share subscribers by the assessee and these are not usual conduct of the carrying on of business. We are of the considered view that the Revenue has rightly made the addition received as share subscription as unexplained cash credit u/s. 68 - Decided against assessee.

Issues Involved:
1. Addition of amounts as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.
3. Examination of the genuineness of share subscription transactions.
4. Onus of proof regarding the identity, creditworthiness of shareholders, and genuineness of transactions.
5. Applicability of amended Section 68 and its retrospective effect.

Detailed Analysis:

1. Addition of Amounts as Unexplained Cash Credit under Section 68:
The assessee company challenged the addition of ?1.60 crores for AY 2006-07 and ?3.75 crores for AY 2007-08 as unexplained cash credit under Section 68. The Assessing Officer (AO) found that the share subscription credited in the assessee's books was bogus, supported by incriminating documents and statements from the directors admitting the accommodation entries. The AO concluded that the share subscription was unexplained cash credit.

2. Validity of Reopening of Assessment under Section 147/148:
The assessment was reopened under Section 147 of the Act as the AO had reasons to believe that income had escaped assessment. The notice under Section 148 was issued within four years from the end of the assessment year, and the original assessment was not framed under Section 143(3). The assessee did not challenge the reopening of the assessment.

3. Examination of the Genuineness of Share Subscription Transactions:
During the survey, various incriminating documents were found, including share application forms, blank transfer forms, and bank passbooks showing cash deposits before issuing cheques to the assessee. The directors admitted that the share subscriptions were accommodation entries. The AO and CIT(A) found that the transactions were not genuine, supported by the lack of business activities and the improbability of earning such amounts within a short period.

4. Onus of Proof Regarding the Identity, Creditworthiness of Shareholders, and Genuineness of Transactions:
The assessee provided details such as names, addresses, PANs, and bank statements of the shareholders. However, the AO and CIT(A) found that the shareholders did not have the financial capacity to make such investments and failed to appear before the AO despite summons. The assessee failed to discharge the onus of proving the identity and creditworthiness of the shareholders and the genuineness of the transactions.

5. Applicability of Amended Section 68 and Its Retrospective Effect:
The CIT(A) referred to the amended Section 68, which requires the assessee to prove the source of the source of share subscription. The amendment was held to be clarificatory and retrospective by the Kolkata Tribunal in Subhlakshmi Vanijya (P.) Ltd. v. CIT. The Tribunal upheld the addition, noting that the assessee failed to produce shareholders and justify the premium charged on shares.

Conclusion:
The Tribunal dismissed the appeals, upholding the additions made by the AO under Section 68 for both assessment years. The assessee failed to prove the genuineness of the share subscriptions and the creditworthiness of the shareholders, and the reopening of the assessment was valid. The amended Section 68 was applicable retrospectively, and the assessee did not meet the burden of proof required under the section.

← Previous Next →