2020 (8) TMI 117 - AT - Income Tax

Addition u/s 68 - share application money share premium received from Bharosemand Commodities Pvt Ltd u/s 68, treating the same as not genuine from undisclosed source - HELD THAT - Share application money has been received from 16 parties. In case of one party in this case there is no proof at all about the existence of the said party which had contributed the said share premium and share application amount. We note that assessing officer has made the necessary enquiry through income tax office Kolkata. The said party was found to be not at all existing at the said address. The enquiry from the nearby persons also indicated that no such company operated from the said address. CIT(A) is quite correct in observing that in case of a private limited company if a person is contributing so much money in share application and share premium the assessee company was obliged to give the correct whereabouts of the said company. We find ourselves fully in agreement with the above findings. When it has been categorically proved that there is no physical existence of the said company at the given address the submission of the assessee that his submissions regarding papers submitted in this regard should be given precedence over the actual fact about the non-existence of the said party is absolutely unsustainable. It is settled law that revenue authorities are not supposed to put on blinkers. See SUMATI DAYAL VERSUS COMMISSIONER OF INCOME-TAX 1995 (3) TMI 3 - SUPREME COURT - Decided against assessee.

Summary

Issues:
Confirmation of addition under section 68 of ?45,00,000 on account of share application money and share premium received.

Analysis:
The appeal pertains to the confirmation of addition under section 68 of ?45,00,000 on account of share application money and share premium received from a specific party, M/s. Bharosemand Commodities Pvt. Limited, Kolkata. The assessing officer, during the assessment, found discrepancies regarding the existence of the said company at the provided address. Despite requests for clarification, the assessee failed to provide concrete evidence to establish the genuineness of the transaction. The assessing officer required details such as identity of persons, proof of transaction, share application form, basis of valuation, and justification for the premium charged. The assessing officer's findings highlighted the lack of substantiation from the assessee, leading to the addition of the sum as unexplained cash credit under section 68 of the IT Act.

The learned CIT(A) upheld the assessing officer's decision, emphasizing that the onus shifted to the assessee to prove the existence of the company in question. The CIT(A) noted that the appellant's arguments regarding share premium as a capital receipt were not convincing, citing various judicial authorities where additions on account of monies received as share premium were confirmed. The CIT(A) stressed that the appellant needed to establish the identity, creditworthiness, and genuineness of the transaction to overcome the addition under section 68. The CIT(A) pointed out that the appellant's reliance on case laws was insufficient without concrete evidence to prove the legitimacy of the transaction.

Upon appeal, the ITAT Mumbai considered the submissions of both parties. The tribunal observed that while the assessee provided documentation for several parties, there was a lack of proof regarding the existence of the party associated with the disputed share application money and share premium. Referring to legal precedents, including the Supreme Court's decision in PCIT vs. NRA Iron & Steel Pvt. Ltd, the tribunal held that in cases where the parties in question were found non-existent at the given address, additions under section 68 were justified. The tribunal found the case laws cited by the assessee's counsel inapplicable to the present scenario, ultimately upholding the CIT(A)'s order and dismissing the appeal.

In conclusion, the tribunal upheld the addition of ?45,00,000 under section 68, emphasizing the importance of establishing the veracity of transactions and the existence of involved parties in cases of share application money and share premium. The decision underscored the necessity for concrete evidence to support claims and the consequences of failing to meet the burden of proof in such matters.