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2018 (5) TMI 849 - AT - Income TaxAddition being share capital and premium by invoking the provisions of 68 - no proof of identity and creditworthiness of all the new shareholders as well genuineness of transaction of raising share capital - Held that - The perusal of the financial statements does not reveal that these companies are into any organised business of certain magnitude while perusal of the financial statements typically reveals and points towards peculiarity of being typical a shell companies which instead of doing any genuine business are undertaking huge voluminous movement of money from one entity to another entity. The assessee is not able to prove creditworthiness of these three investing companies and genuineness of these transactions of issuing share capital of ₹ 300 lacs( inclusive of share premium )by the assessee company could also not be proved and the additions were rightly made by the AO within deeming fiction of Provisions of Section 68 of the Act. Merely saying that return of allotment in form no 2 was filed with the Ministry of Corporate Affairs or Resolutions were passed by the assessee or these companies have Corporate Identification Numbers is not sufficient as these are merely ministerial/administrative functions which needs to be done in any case by all the companies allotting shares but the moot question is as to the creditworthiness of these three new share holders to invest such a huge amount of ₹ 300 lacs in assessee company as well whether these share transactions raising ₹ 300 lacs from these three new shareholders at huge valuation/share premium were genuine and justified which we have wide detailed reasoning above held otherwise. Additions confirmed - Decided against assessee.
Issues Involved:
1. Addition of ?3 Crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961. Detailed Analysis: 1. Addition of ?3 Crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961: The brief facts of the case are that the assessee, a dealer in textiles yarn and commission agent, raised new share capital during the assessment year 2012-13. The Assessing Officer (AO) observed that the assessee raised ?3 Crores from three new shareholders: Motivate Financial Services Pvt. Ltd, Tej Corporate Services Pvt. Ltd, and Anumeeta Corporate Services Pvt. Ltd. The AO required the assessee to prove the identity, creditworthiness, and genuineness of these shareholders. The assessee submitted confirmations and bank statements, but the AO noted that all confirmations were signed by one Shri. Pradeep Kumar, and the Inspector's field inquiries revealed that the shareholders were not available at the given addresses. The AO concluded that the assessee failed to prove the genuineness and creditworthiness of these shareholders and added ?3 Crores to the assessee's income under Section 68. Aggrieved, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision. The CIT(A) observed that the assessee could not provide the whereabouts of the shareholders and failed to substantiate the charge of a high share premium of ?490 per share against a face value of ?10. The CIT(A) relied on various judicial precedents to confirm the addition under Section 68. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT). The counsel for the assessee argued that the amendment to Section 68 by the Finance Act, 2012, effective from 01.04.2013, was not applicable to the assessment year 2012-13. The counsel submitted confirmations, bank statements, and financial statements of two shareholders, and relied on several judicial decisions to argue that the addition under Section 68 was unwarranted. The Departmental Representative (DR) countered that the Inspector's report showed the shareholders were untraceable, and the assessee failed to discharge the onus under Section 68. The ITAT considered the rival contentions and the material on record. It noted that the assessee raised ?3 Crores from three new shareholders who were not traceable, and the assessee failed to justify the high share premium. The ITAT observed that the financial statements of the shareholders did not reveal substantial income or financial strength to justify the investment. The ITAT distinguished the case laws relied upon by the assessee, noting that in those cases, the identity, creditworthiness, and genuineness of the shareholders were proved, which was not the case here. The ITAT upheld the addition under Section 68, concluding that the assessee failed to prove the creditworthiness of the shareholders and the genuineness of the transactions. In summary, the ITAT dismissed the appeal of the assessee, sustaining the addition of ?3 Crores under Section 68 as unexplained cash credit.
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