2019 (7) TMI 1372 - HC - Income Tax

Addition u/s 68 - bogus investments - Blank receipts were obtained from the share holders - non discharge of initial burden envisaged u/s 68 - HELD THAT - The entire issue is based on appreciation of evidence and record and does not give rise to any substantial question of law. We notice that during the original assessment as well as the remand proceedings, the assessee was given ample opportunities to produce the share investors which the assessee failed to do. AO thereupon issued the summons to the share purchasers calling upon them to supply necessary details and documents. Only some of them have responded to such notice. Even they did not or could not supply necessary details and documents to establish their genuine investment in the assessee company. AO recorded that there was no reason for high premium of ₹ 30 per share being paid by the investors. The assessee company had carried out no business during the entire period, except for collection of share application money. The responding investors also could not explain the source of their investments. It was noticed that before issuance of payment by them, deposits were made in their bank accounts and immediately the investments in purchase of the assessee's shares were made. The investors could not provide photocopies of the share certificate issued by the Company and did not submit the share numbers which were allotted to them. During the search action against the Directors of the Company, the statement of Mr. Faria was recorded which showed that he was the main person actively involved in the Company. He admitted that the entire investment was bogus. Blank receipts were obtained from the share holders. Their signatures were obtained on blank transfer forms. There was no evidence to show that such share certificates were issued. He also admitted that the share subscription is nothing but the book entries obtained from various persons against cash payments. Such a statement was never retracted. When two Revenue authorities and the Tribunal concurrently came to the conclusion that the assessee failed to discharge the initial burden envisaged under Section 68 of the Act and that therefore, it is a fit case where the additions should be confirmed, we do not find any perversity in such findings - Decided against assessee.

Summary

Issues:
Challenge to judgment of Income Tax Appellate Tribunal regarding additions made under Section 68 of the Income Tax Act.

Issue 1: Addition under Section 68 of the Act
The Appellant, a Private Limited Company, issued shares at a premium leading to a total collection of ?3.75 crores. The assessing officer treated this as unexplained cash credit, making additions under Section 68. Despite opportunities, the assessee failed to produce necessary evidence of share investors. The investors could not explain the high premium paid, and deposits were made in their bank accounts before investing in the company. During a search action, a director admitted the investments were bogus, with blank receipts and no evidence of share certificates issued. The Tribunal and two Revenue authorities concluded that the initial burden under Section 68 was not discharged, justifying the additions.

Analysis:
The primary issue revolves around the correctness of additions made under Section 68 of the Income Tax Act in the hands of the Appellant-Assessee. The Appellant, a Private Limited Company, raised funds through the issuance of shares at a premium, resulting in a substantial collection. However, the assessing officer deemed this as unexplained cash credit, leading to additions under Section 68. The crux of the matter lies in the failure of the assessee to provide adequate evidence regarding the share investors, despite repeated opportunities. The investors' inability to justify the high premium paid, coupled with suspicious deposit patterns before share investments, raised red flags regarding the legitimacy of the transactions.

Moreover, during a search action against a director of the company, damning revelations surfaced, with admissions of bogus investments, blank receipts, and lack of evidence for share certificates issued. These revelations further weakened the assessee's position and bolstered the authorities' stance on confirming the additions under Section 68. The consistent findings of the Tribunal and Revenue authorities, supported by concrete evidence and admissions, reinforced the conclusion that the initial burden required by Section 68 was not met by the assessee. Therefore, the decision to uphold the additions was deemed justified, with no legal question warranting intervention. Ultimately, the Appeals challenging the Tribunal's judgment were dismissed based on the comprehensive analysis of the evidence and legal provisions governing unexplained cash credits under Section 68 of the Income Tax Act.