2023 (2) TMI 847 - AT - Income Tax

Addition u/s 68 - sources of fund introduced in the nature of share capital and share premium unexplained - AO remained to be unsatisfied with the identity, creditworthiness and genuineness - HELD THAT - Firstly the financials of the assessee company itself are so poor that by no stretch of imagination the assessee company can attract the investors to invest in its share capital and pay a huge premium of Rs. 9,990/- without having certainty of the return on such investments since there is hardly any future prospect of the assessee company giving rise to profitability. This fact itself shows that the genuineness of the transaction is in doubt. As far as identity of the share applicants is concerned, there cannot be any doubt because they all are registered with the Registrar of Companies having PAN number and regularly filing the income tax return. So far as the creditworthiness of the share applicants is concerned, we notice that there is a common pattern that in all such companies the income is very meagre and in comparison, of such income in the present as well as in the past period do not carry a weight and is beyond human probability to venture for a huge investment in the assessee company which itself has poor financials. All the transactions involving the issuing of share capital on the equity shares of face value of Rs. 10/- and share premium of Rs. 9,990/- as well as the huge investments by alleged shareholders neither prove the genuineness of the transaction nor prove the creditworthiness of such shareholders. Therefore, we fail to find any infirmity in the finding of ld. CIT(A) and the same is confirmed. Accordingly, the addition made by ld. AO u/s 68 of the Act stands confirmed. Decided against assessee.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Validity of share capital and share premium addition.
3. Compliance with judicial precedents and financial guidelines.

Issue-wise
Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
The primary issue revolves around the addition of Rs. 25,04,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO was not satisfied with the identity, creditworthiness, and genuineness of the sources of funds introduced as share capital and share premium. Consequently, the AO concluded that the amount represented undisclosed income and added it back to the total income of the assessee.

2. Validity of Share Capital and Share Premium Addition:
The assessee argued that the addition was made on irrelevant considerations and arbitrary grounds, and that sufficient details were provided to prove the identity and creditworthiness of the share applicants and the genuineness of the transactions. The assessee submitted various documents, including proof of identity, IT returns, bank statements, and justifications for the large share premium. Despite these submissions, the AO and the Commissioner of Income-tax (Appeals) [CIT(A)] found that the share capital was received from shell and paper companies with no regular business activity, thus confirming the addition.

The Tribunal noted that the assessee company issued equity shares at a premium of Rs. 9,990/- per share, which was almost 100 times the face value of Rs. 10/-. The company had a meager income, no fixed assets, and no substantial business activity. The Tribunal found no concrete justification for such a high premium and concluded that the transactions lacked genuineness.

3. Compliance with Judicial Precedents and Financial Guidelines:
The Tribunal examined the financials of the share applicant companies and observed that they had no significant business operations or taxable income. The companies were involved in circular routing of funds, with negligible bank balances before and after transactions. The Tribunal noted that neither the assessee nor the share applicants followed any guidelines for determining the share premium, and the transactions appeared arbitrary and devoid of financial rationale.

The Tribunal referred to various judicial precedents, including the judgments of the Hon'ble Apex Court in CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, which emphasized the need to establish the identity, creditworthiness, and genuineness of transactions. The Tribunal found that the assessee failed to discharge this onus and upheld the addition made by the AO and CIT(A).

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, confirming the addition of Rs. 25,04,00,000/- under Section 68 of the Income Tax Act, 1961. The Tribunal concluded that the transactions involving the issuance of share capital and share premium were not genuine and lacked creditworthiness. The financials of the assessee company and the share applicants did not support the high premium charged, and the transactions were deemed to be accommodation entries. The appeal was dismissed on the grounds that the assessee failed to prove the genuineness and creditworthiness of the share capital and share premium transactions.

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