2021 (12) TMI 977 - AT - Income Tax

Addition u/s 68 - Bogus share transactions - onus upon the assessee to justify the cash credit received - HELD THAT - The addition though has been made under the provisions of section 68 of the Act, but treating the same as sham transactions. Thus, the assessee cannot be given the benefit by taking the shelter that it has satisfied the conditions imposed under section 68 of the Act. It is equally not believable that a company whose fair market value stands at ₹47 but issuing the shares at a much higher premium. In simple words, no prudent businessman will acquire the shares more than its fair market value until and unless there are evidences suggesting/justify the higher value. For example, the assessee is in the process of expansion or it has been awarded some contract which will yield in future which can justify the value of the shares. But no such information is available on record. As such, the assessee has to satisfy based on the documentary evidence that the transactions involved in the given case is not a sham contract but to our understanding the assessee failed to do so. The contention of the assessee as raised in the ground of appeal that the statement furnished by Shri bagrecha was retracted on the later date cannot help the assessee. It is for the reason that there are many more circumstantial evidences, as discussed above, which are sufficient to hold that the transactions are sham business contracts. Accordingly, we don t find any reason to interfere in the order of learner CIT (A). Hence, the ground of appeal raised by the assessee is dismissed.

Issues Involved:
1. Whether the transaction involving the enhancement of share capital and collection of share premium is a sham transaction.
2. Whether the addition of ?4,11,00,000 to the total income of the appellant under section 68 of the Income Tax Act, 1961, is justified.

Detailed Analysis:

Issue 1: Sham Transaction Allegation
The primary contention raised by the assessee is that the enhancement of share capital and collection of share premium is genuine. The assessee argued that all necessary evidence was furnished to the Assessing Officer (AO), including copies of PAN, ledger, statement of income, income tax return, audited financial statements, and bank statements of the companies which subscribed to the share capital.

However, the AO observed that all the companies involved were controlled and managed by Shri Prakash Bagrecha, who admitted to being an entry provider. The shares were later transferred to M/s Silicon Infrapanel Ltd., which recorded the value of the shares significantly lower than the premium at which they were issued. Additionally, the fair market value (FMV) of the shares was ?47, whereas they were issued at ?400 per share. The AO concluded that the transactions were sham and added the share capital to the total income under section 68 of the Act.

The learned Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's decision, noting that the documents filed by the assessee could not be considered in isolation, especially given the circumstantial evidence suggesting the transactions were not genuine. The CIT (A) referred to the judgment of the Hon'ble Gujarat High Court in Pavankumar M. Sanghvi vs. ITO and found that similar facts and circumstances in the assessee's case for the preceding assessment year had been treated as bogus.

Issue 2: Addition under Section 68
The assessee contended that the statement of Shri Prakash Bagrecha, which was retracted later, should not be relied upon to treat the share capital as bogus. Additionally, the assessee argued that there are no guidelines prescribing that shares should be issued at FMV, and thus, the premium cannot be a criterion to decide the genuineness of the transaction.

The Tribunal noted that the onus was on the assessee to justify the cash credit received as share capital based on documentary evidence. Despite multiple opportunities, the assessee did not provide any reply or further evidence. The Tribunal emphasized that sham transactions are often arranged to appear genuine but are revealed as colorable devices when evaluated against circumstantial and surrounding evidence. The Tribunal cited the Supreme Court's observations in CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, which allow tax authorities to look into surrounding circumstances to find the reality of the transactions.

The Tribunal found that the circumstantial evidence strongly suggested that the transactions were sham and adopted to convert unaccounted money into accounted form. The Tribunal also referenced the case of Pavankumar M. Sanghvi vs. ITO, where similar transactions were held to be bogus, and this view was upheld by the Hon'ble Gujarat High Court and the Supreme Court.

The Tribunal concluded that despite the documentary evidence provided by the assessee, the transactions were sham. The Tribunal dismissed the assessee's appeal, upholding the CIT (A)'s decision to sustain the addition of ?4.11 crores under section 68 of the Act.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, affirming the CIT (A)'s order and sustaining the addition of ?4.11 crores to the total income under section 68 of the Income Tax Act, 1961. The Tribunal found that the transactions involving the enhancement of share capital and collection of share premium were sham and not genuine.

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