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2019 (5) TMI 946 - AT - Income TaxUnexplained share application money - Addition u/s 68 - scrutiny assessment followed by serving of notices u/s 143(2) and 142(1)(ii) - as per CIT-A the share applications were private placement, hence the applicants had full knowledge about the share applicants and was definitely in a position to produce the principle officers of the companies which he failed to do so. By not doing so the applicant failed to discharge its onus u/s 68 - HELD THAT - In the light of the judgment in the case of Principal Commissioner of Income Tax (Central)-1 V/s NRA Iron Steel Pvt. Ltd 2019 (3) TMI 323 - SUPREME COURT we find that the facts are almost similar so much so that the share application was received from two companies based at Indore and Kolkata. Apart from furnishing the financial statement, bank statements and income tax returns assessee could not produce any of the Principal Officer of the company. Detailed investigation was carried out by Ld. Assessing Officer giving no positive results favouring assessee. A perusal of the financial statement shows that in the case of BPO Finance Investments Pvt. Ltd there is no turnover during the year. Petty expenses of ₹ 57,531/- were incurred against NIL revenue and net loss of ₹ 57,531/- was carry forwarded. As against this picture of Profit Loss Account having NIL turnover and loss of ₹ 57,531/- there stands reserve and surplus of ₹ 125.38 crores on the liability side. Investment in other companies is at ₹ 127.31 crores on the asset side. Bank transactions in BPO Finance Investment Pvt. Ltd placed at page 10 11 shows that huge inflow and outflow of the huge amounts appearing round of the year but having no nexus with the regular business of the company for which it is incorporated. Genuineness of the transactions of the share application money has not proved and also the creditworthiness of both the share applicants namely Rolled Gold Industries and BPO Finance Investment Pvt. Ltd has not proved as they have no regular means to invest in the share capital of the assessee company. - A.O has justified in invoking the provisions of Section 68 of the Act making the addition for unexplained share application money - Decided against assessee
Issues Involved:
1. Addition of unexplained share application money under Section 68 of the Income Tax Act, 1961. 2. Disallowance under Section 14A of the Income Tax Act, 1961. Detailed Analysis: 1. Addition of Unexplained Share Application Money under Section 68: The primary issue in this case revolves around the addition of ?50,00,000/- as unexplained share application money received from two companies: Rolled Gold Industries Ltd. (?20,00,000/-) and BPO Finance & Investments Pvt. Ltd. (?30,00,000/-). The Assessing Officer (AO) questioned the identity, genuineness, and creditworthiness of these transactions. The AO noted several discrepancies: - Rolled Gold Industries Ltd.: The company had minimal fixed assets, no profit and loss account, and its directors did not appear in person despite summons. The bank transactions showed high inflows and outflows unrelated to business activities. - BPO Finance & Investments Pvt. Ltd.: The notice sent to the company was returned unserved due to an incorrect address. The company had no fixed assets, negligible bank balance, and its financial statements showed no substantial business activities. The AO concluded that both companies were merely accommodation providers, leading to an addition of ?50,00,000/- under Section 68. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision, emphasizing the lack of creditworthiness and genuineness of the share applicants. Upon further appeal to the Tribunal, the assessee argued that sufficient documents were provided to prove the identity, genuineness, and creditworthiness of the share applicants. These included balance sheets, bank statements, PAN numbers, and income tax returns. However, the Tribunal noted that the assessee failed to produce the principal officers of the companies and that the financial statements of the share applicants did not support their ability to invest such amounts. The Tribunal relied on the Supreme Court's judgment in the case of Principal Commissioner of Income Tax (Central)-1 vs. NRA Iron & Steel Pvt. Ltd., which established that the onus is on the assessee to prove the genuineness of the transaction, identity, and creditworthiness of the investors. The Tribunal found that the assessee did not discharge this onus satisfactorily. The Tribunal concluded that the AO was justified in making the addition under Section 68, as the assessee failed to prove the genuineness and creditworthiness of the share applicants. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal. 2. Disallowance under Section 14A: The AO initially made a disallowance of ?1,66,845/- under Section 14A of the Act. However, the CIT(A) deleted this disallowance, and there was no further contest on this issue in the Tribunal's order. Conclusion: The Tribunal dismissed the assessee's appeal, upholding the addition of ?50,00,000/- under Section 68 for unexplained share application money. The Tribunal found that the assessee failed to prove the genuineness and creditworthiness of the share applicants, aligning with the Supreme Court's principles in similar cases. The disallowance under Section 14A was deleted by the CIT(A) and was not contested further.
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