2019 (1) TMI 1344 - HC - Income Tax

Addition of bogus share capital u/s 68 - rotation of money - rectification mistake - Held that - The bogus share capital received on different days amounted to ₹ 5.72crores. The amount paid was not returned and refunded. This being the position, we are not inclined to accept the contention of the appellant-assessee that there was rotation of money and only bogus share capital of ₹ 1.55 crore should have been added as undisclosed credit under Section 68. The appellant-assessee states that ₹ 62 lacs was added as undisclosed cash credit for Assessment Years 19992000 to 2002-03. It is stated that the appellant-assessee has filed an application under Section 254(2) of the Act before the Tribunal on the said aspect. We would on the said aspect give liberty to the appellant-assessee to file an appeal after disposal and decision of the application under Section 254(2) of the Act. This would not bar the appellant from filing an appeal against the decision of the aforesaid miscellaneous applications.

Summary

Issues Involved:
1. Addition of ?5.27 crores as bogus share capital under Section 68 of the Income Tax Act.
2. Rotation of money and the peak credit theory.
3. Liberty to file an appeal regarding the addition of ?62 lacs as undisclosed cash credit for Assessment Years 1999-2000 to 2002-03.

Detailed Analysis:

1. Addition of ?5.27 Crores as Bogus Share Capital under Section 68 of the Income Tax Act:

The appellant-assessee challenged the factual findings recorded by the Tribunal, which affirmed the addition of ?5.27 crores on account of bogus share capital under Section 68 of the Income Tax Act. This affirmation by the Tribunal reversed the findings of the Commissioner of Income Tax (Appeals) and upheld the order passed by the Assessing Officer. The Assessing Officer scrutinized seized documents and the register of share applications, noticing that various persons applied for shares of the company on different dates. The Managing Directors/partners of these companies/firms were examined on oath and admitted to being name lenders on a commission basis. Consequently, the share application money amounting to ?1.55 crores was treated as bogus, and the assessee could not furnish details for the remaining share applicants within the parameters of Section 68. The Assessing Officer, therefore, made an addition of ?5.72 crores as bogus share capital.

2. Rotation of Money and the Peak Credit Theory:

The appellant-assessee contended that the amount received was rotated and that the addition of bogus share capital should be restricted to ?1.55 crores. The assessee explained that the share application money was received in tranches and rotated, suggesting that only the peak of such credits should be added as undisclosed income. However, this explanation did not find favor with the Assessing Officer, who firmly believed that the entire share capital was bogus and that the benefit of peak credit could not be allowed. The Tribunal and the High Court did not accept the appellant-assessee's submission, noting that the bogus share capital received on different days amounted to ?5.72 crores and was not returned or refunded. Hence, the contention that only ?1.55 crores should have been added was rejected.

3. Liberty to File an Appeal Regarding the Addition of ?62 Lacs as Undisclosed Cash Credit:

At the hearing, the counsel for the appellant-assessee mentioned that ?62 lacs was added as undisclosed cash credit for Assessment Years 1999-2000 to 2002-03. The appellant-assessee had filed an application under Section 254(2) of the Act before the Tribunal on this aspect. The High Court granted liberty to the appellant-assessee to file an appeal after the disposal and decision of the application under Section 254(2). This liberty does not bar the appellant from filing an appeal against the decision of the miscellaneous applications.

Conclusion:

The High Court dismissed the present appeal concerning the first aspect of the addition of ?5.27 crores as bogus share capital. On the second aspect regarding the addition of ?62 lacs as undisclosed cash credit, the issue was left open to be decided if required and necessary. The appeal was dismissed without any order as to costs.