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2022 (2) TMI 1312 - AT - Income TaxAddition u/s 68 - unexplained cash credit - amounts received by the assessee as share capital lack genuineness and these amounts were added to the income of the assessee - HELD THAT - When matter was carried in appeal before the Commissioner (Appeals), she noticed that the assessee has furnished (a) PAN Card of investor; (b) ITR Acknowledgement along-with computation of income of the investor company; (c) Financial statements of the investor company; (d) Bank Statement of the investor company highlighting the share application money invested ; (e) Copy of duly signed Share Application forms of the investor; (f) Copy of the Return of Allotment (Forrn 2) filed with the Registrar of Companies; (g) Copy of boards' resolution of the appellant company for issuing shares at premium and allotment of shares to the investor company; (h) Copy of Offer letter given by the assessee to the investor dated 02.08.2013; (i) Copy of letter showing acceptance to the offer of shares filed by the investor dated 06.08.2013; (j) Copy of Affidavit of Mr. Bhagwanji Patel ; (k) Copy of letter given by the assessee to the investor for intimation of allotment dated 02.11.201; (l) Retraction Statement of Shri Pradeep Poddar dated 09.12.2014; (m) CBDT Letter F.No.286/98/2013-IT(Inv II) dt. 09.01.2014; and (n) Judgment of Hon'ble Gujrat High Court (Ramanbhai B Patel and Chetnabhen J Shah 2016 (7) TMI 1212 - GUJARAT HIGH COURT If we follow the path taken by the coordinate benches in the cases where production of the evidences showing identity of parties and money having been routed through banking channels, in the absence of any findings to show lack of genuineness, we should unhesitatingly uphold taking the amounts outside the ambit of the unexplained credits under section 68. On the other hand, if we follow the path of putting genuineness to test on the basis of an overall larger picture and ground realities, it will be difficult to overlook all the red flags raised by the case history such as of a man of limited means being director in score of companies, the fact that some companies investing Rs 118 crores in the assessee group, could be purchased by the group entities for just Rs 5 crores, the fact that every time DTPL had to make payments to the assessee company, there were similar credits in its bank accounts of the DTPL from different sources, the fact that DTPL s annual office expenses were less than Rs 20,000, the fact that the DTPL made this investment at a huge premium and there is no justification on record for such a huge premium-that too through a private placement, and the fact that DTPL aptly meets the description of shell companies which are used for financial manoeuvrings. The phenomenon of shell companies being used for financial manoeuvrings and even money laundering, as even Hon ble Prime Minister took note of in his 2017 independence day address, is not an open secret- secret if it is; we, as a specialized Tribunal, cannot even pretend to be so na ve to be oblivious of it. When we so look at this case without any blinkers on, the share capital transaction in question can be anything but genuine, and genuineness is a critical factor for deciding whether or not a transaction can be said to be unexplained credit under section 68. Clearly, therefore, there is no meeting ground in the approaches so adopted by the coordinate benches. In order to ensure that there is consistency in approach, it is time that the matter is referred to a larger bench so that a reasonably uniform stand can be adopted in such cases, and some broad parameters can be set for taking calls in such cases. We have no doubt about what needs to be done in this case and in which manner the matter needs to examined in greater detail, and we are of the considered view that the approach adopted by Leena Power 2021 (9) TMI 1124 - ITAT MUMBAI is the right course, but we have to be equally respectful to contrary approaches adopted by the coordinate benches, and leave the matter to a larger bench to take an appropriate call and also to give requisite guidance for the division benches. Such a divergence of approach by the division benches, howsoever bonafide, has to be avoided, and an authoritative decision by a larger bench, which will constitute binding precedent for all the division benches, can certainly bring an end to this divergence of approach. We direct the Registry to place the matter before Hon ble President, for taking a call on our recommendation for constitution of a bench of three or more members to decide this bunch of appeals.
Issues Involved:
1. Deletion of the addition of Rs 26,59,63,357 made as unexplained cash credit under section 68. 2. Genuineness of the share subscription by Divine Tradecom Pvt Ltd (DTPL). 3. The approach to be adopted by the Tribunal in determining the genuineness of such transactions. Detailed Analysis: 1. Deletion of the Addition of Rs 26,59,63,357: The primary issue is whether the learned CIT(A) erred in deleting the addition of Rs 26,59,63,357 made by the Assessing Officer (AO) as unexplained cash credit received from DTPL under section 68. The AO had added this amount to the income of the assessee, arguing that the share subscription lacked genuineness. The CIT(A) deleted this addition, which is now contested in the appeal. 2. Genuineness of the Share Subscription by DTPL: The AO questioned the genuineness of the share subscription by DTPL, a Kolkata-based company with minimal operational expenses and a director (PKP) who retracted his statement about the company's activities. The AO's skepticism was based on several factors: - The director's limited means and his role in multiple companies. - The nature of DTPL as a shell company primarily used for financial maneuverings. - The substantial investments made by DTPL in the assessee's group companies, which were later purchased by the group for a fraction of the investment amount. - The pattern of similar credits in DTPL’s bank accounts before making payments to the assessee. 3. Approach to Determining Genuineness: The Tribunal noted conflicting approaches in previous decisions regarding such transactions. One approach emphasizes the need for the AO to scrutinize the evidence provided by the assessee, such as PAN cards, ITR acknowledgments, financial statements, and bank statements, to establish the genuineness of the transactions. If these documents are provided, the onus shifts to the department to disprove the transactions. Another approach, highlighted in the case of DCIT Vs Leena Power Tech Engineers Pvt Ltd, stresses examining the genuineness of transactions in the context of ground realities and overall circumstances, rather than relying solely on documentary evidence. This approach considers factors like the financial health of the companies involved, the nature of the transactions, and the broader economic context. Conclusion: The Tribunal observed a significant divergence in the approaches adopted by different benches in similar cases. To resolve this inconsistency and establish a uniform standard, the Tribunal recommended referring the matter to a larger bench. This larger bench would provide authoritative guidance on the parameters to be used in determining the genuineness of share capital subscriptions under section 68. The Tribunal emphasized the need for a detailed and context-sensitive examination of such transactions, taking into account all relevant factors and avoiding a superficial approach.
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