2017 (6) TMI 130 - AT - Income Tax

Addition u/s 68 - proof of genuineness of transaction - accommodation entries - Held that - Five companies are claiming to have invested a sum of Rs. 5 lac each in the assessee company but the facts about their total income vis- -vis the value of assets do not prove the genuineness of transaction. It is further relevant to note that the assessee is claiming to have issued its share with face value of Rs. 10/- at a premium of Rs. 90/-. It is beyond my comprehension as to why a person will purchase the shares of the assessee company at such a huge premium more so when there is no payment of any dividend etc. No prudent investor will park his funds at such a high premium without the expected return commensurate with the investment. When all the facts and circumstances are seen in entirety it becomes evident that the assertion of Shri Surender Kumar Jain group (entry operator) about providing accommodation entries to the assessee was correct as the assessee could not prove the genuineness of transactions. CIT(A) was justified in sustaining the addition. - Decided against assessee.

Summary

Issues involved:
Confirmation of addition of Rs. 25 lac made by the Assessing Officer u/s 68 of the Act.

Analysis:

Issue 1: Addition of Rs. 25 lac u/s 68 of the Act
- The assessee filed its return declaring an income of Rs. 11,09,260, which was processed u/s 143(1).
- The Assessing Officer issued notice u/s 148 based on information that the assessee obtained accommodation entries totaling Rs. 25 lac from an entry operator.
- The assessee claimed to have received Rs. 100 per share against the face value of Rs. 10 from five companies.
- The Assessing Officer made the addition u/s 68 as the paper trail furnished by the assessee was not convincing.
- The ld. CIT(A) sustained the addition, as the genuineness of the transactions was not proved.
- The burden under section 68 can be discharged by proving the identity, capacity, and genuineness of the transaction.
- The Hon’ble Delhi High Court cases emphasize that proving identity alone is not sufficient to discharge creditworthiness and genuineness of transactions.
- In the present case, the companies investing in the assessee had disproportionate assets compared to their income, indicating lack of genuine business activity.
- The premium of Rs. 90 per share without expected returns raised doubts on the genuineness of the transactions.
- The Tribunal upheld the addition, concluding that the assessee failed to prove the genuineness of the transactions.
- The ld. CIT(A) was justified in sustaining the addition, and the appeal was dismissed.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, legal precedents cited, and the final decision reached by the Tribunal regarding the addition made by the Assessing Officer under section 68 of the Income Tax Act.