2017 (12) TMI 108 - AT - Income Tax

Adding net profit and share premium sum under section 68 - discharge of onus by assessee - Held that - We bear in mind that there can be no straitjacket formula for determining share premium which depends upon current strength and future potential of an enterprise. The assessee s act and conduct herein in having received such a high share premium purportedly towards share capital and premium in showing continuing inability to furnish the requisite information citing subsequent financial difficulties leading to its premises being seized therefore does not inspire confidence. The above explanation supporting non-production of evidence despite the Tribunal s clearcut observations is highly unpalpable and improbable. There is no explanation much less a justifiable one in support of its non-co-operation adopted in the second round of assessment before the Assessing Officer taken up in furtherance to this Tribunal s directions. The assessee admittedly did not undertake even a single step to prove identity, capacity and genuineness/ creditworthiness of its 13 share premium paying applicants. We repeat that this is not the assessee s case of having not being afforded adequate opportunity of hearing in the instant consequential proceedings. The same factual position continued in the three remand proceedings as well wherein it would file only photocopy of the confirmations in some of the cases. All the above 13 parties seem to be based in Ahmedabad only. The assessee still could not produce even one of the 13 parties in question We notice from the case record that all the above photocopy confirmations are dated September 1, 1995 i.e. well before this Tribunal s remand direction dated June 12, 2009. Rather the same is well before the Commissioner of Income-tax (Appeals) s former order dated September 14, 2005 (supra). All this reflects the assessee s lack of explanation despite getting its matter remanded back to the Assessing Officer. We further observe that the assessee s act and conduct in not being able to file even a single original confirmation and its subsequent action in submitting all 4 photocopies of the same date indicates a very serious genuineness issue. - Decided in favour of revenue

Summary

Issues Involved:
1. Net profit addition of ?79,85,090.
2. Share premium addition of ?5,31,00,000 under section 68 of the Income-tax Act, 1961.

Detailed Analysis:

1. Net Profit Addition of ?79,85,090:
The assessee, a private limited company manufacturing PVC pipes, reported a loss of ?60,56,640 for the assessment year 2002-03. The turnover was ?33,48,51,667 with other income of ?49,37,686, resulting in a net profit of ?95,17,392, a decline from 4.94% to 2.35% compared to the previous year. The Assessing Officer (AO) issued notices under section 142(1) of the Act, but the assessee failed to produce the necessary books, claiming they were sealed by creditors. Consequently, the AO rejected the books under section 145 and adopted a net profit rate of 4.94%, resulting in an addition of ?79,85,090.

The Tribunal remanded the case back to the AO, directing proper verification of the books, which were claimed to be released. However, in the second round, the assessee again failed to produce the books, citing a court order sealing the premises. The AO reiterated the addition in the second round of assessment.

The Commissioner of Income-tax (Appeals) upheld the addition, noting the assessee's non-cooperation and failure to produce relevant vouchers. The Tribunal rejected the assessee's plea, emphasizing the finality of the earlier observation that the books were released and the lack of evidence justifying the increased interest and depreciation expenses. Thus, the net profit addition of ?79,85,090 was upheld.

2. Share Premium Addition of ?5,31,00,000:
The AO added ?5,31,00,000 under section 68 of the Act, as the assessee failed to provide details of the share premium paying parties. The Commissioner of Income-tax (Appeals) rejected additional evidence submitted by the assessee, noting inconsistencies in dates and confirming the addition.

In the second round, the assessee submitted details of share premium applicants, but the AO's remand reports rejected the explanation due to failure in proving identity, genuineness, and creditworthiness. The Tribunal noted that despite multiple opportunities, the assessee failed to produce original confirmations or substantiate the share premium's genuineness.

The Tribunal emphasized the importance of proving the intrinsic value of shares and the nexus between the premium and the company's potential. The assessee's inability to produce evidence or explain the high share premium led to the conclusion that the addition under section 68 was justified.

The Tribunal also rejected the technical plea that part of the share premium was received in the preceding year, noting the lack of evidence proving genuineness in that year. The argument that the Commissioner of Income-tax (Appeals) order was non-speaking was also dismissed, as the remand reports were considered in detail.

Conclusion:
The Tribunal dismissed the assessee's appeal, upholding the additions of ?79,85,090 for net profit and ?5,31,00,000 for share premium under section 68 of the Income-tax Act, 1961. The decision emphasized the assessee's failure to produce necessary evidence and cooperate in the assessment proceedings.