2016 (10) TMI 219 - AT - Income Tax

Unexplained share capital and premium received - addition u/s 68 - Held that - Assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily called upon the investors. The investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. As assessee has been able to just prove the identity of the company but unable to prove the genuineness & creditworthiness of the impugned 5 parties. In the result, the sum of ₹ 3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the ld. Assessing Officer. We set aside the order of ld. CIT(A) and restore that of the Assessing Officer - Decided in favour of revenue

Summary

Issues Involved:
1. Deletion of addition of ?3,50,00,000/- under Section 68 of the Income Tax Act for unexplained share capital and premium received by the Assessee.
2. Whether the Commissioner of Income Tax (Appeals) should have upheld the Assessing Officer’s order.
3. Request to set aside the order of the Commissioner of Income Tax (Appeals) and restore that of the Assessing Officer.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 68:
The Revenue appealed against the deletion of ?3,50,00,000/- added by the Assessing Officer (AO) under Section 68 for unexplained share capital and premium received by the Assessee from five companies. The AO’s scrutiny revealed that the Assessee, a private limited company, received ?3.5 crores towards share capital and premium from the following companies: Green Star Financial Service Pvt. Ltd., Archer Financial Service Pvt. Ltd., Suraj Corporate Service Pvt. Ltd., Fly High Exports Pvt. Ltd., and Oasis Cine Communication Ltd. Despite submitting necessary documents like PAN, IT returns, bank statements, and confirmations, the Assessee failed to produce any shareholders for verification. The AO relied on a statement by Mr. Jitendra Jain, director of Suraj Corporate Service Pvt. Ltd., who admitted that his company provided accommodation entries and was a paper company. Consequently, the AO added ?3.5 crores as unexplained money under Section 68.

2. Commissioner of Income Tax (Appeals) Decision:
The Assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition, citing that the Assessee had provided sufficient evidence to establish the identity, genuineness, and creditworthiness of the transactions. The CIT(A) referenced the Supreme Court case of Lovely Exports Pvt. Ltd., asserting that the identity of the subscribing companies was established beyond doubt. The CIT(A) also noted that any doubts regarding the source of deposits in the subscribers' bank accounts should be investigated in the subscribers' cases, not the Assessee’s.

3. Tribunal’s Analysis and Decision:
The Tribunal examined the facts and the judgments cited by both parties. It noted that the Assessee received ?3.5 crores from five companies through account payee cheques and provided necessary documents to prove the transactions. However, the Tribunal observed that the financial statements of the subscribing companies showed large volumes of transactions with meager incomes, indicating they were paper companies. The Tribunal also referenced the statement of Mr. Jitendra Jain, which confirmed that Suraj Corporate Services Pvt. Ltd. provided accommodation entries. The Tribunal emphasized that mere submission of PAN, IT returns, and bank statements is insufficient to prove the genuineness and creditworthiness of the transactions. It cited various judgments, including those of the Supreme Court and High Courts, which held that the Assessee must prove the identity, capacity, and genuineness of the creditors. The Tribunal concluded that the Assessee failed to prove the genuineness and creditworthiness of the transactions and restored the AO’s addition of ?3.5 crores under Section 68.

Conclusion:
The Tribunal allowed the Revenue’s appeal, set aside the CIT(A)’s order, and restored the AO’s addition of ?3.5 crores as unexplained money under Section 68. The Tribunal emphasized that the Assessee failed to prove the genuineness and creditworthiness of the transactions despite providing preliminary documents.