2023 (4) TMI 372 - AT - Income Tax

Addition u/s 68 - Onus to prove - amount received from investor company was reinvested in the shares of other company - identity and credit worthiness of the investor company and genuineness of the transactions - addition made in the hands of conduit companies - HELD THAT - In the present case, from the orders of the authorities below as well as from the paper book filed by the assessee before us, we are unable to see any document such as copies of PAN, return of income, balance sheet, confirmation, bank statements of investor company discharging the onus as per the requirement of section 68 of the Act. We also note that the assessee has successfully demonstrated that almost the entire amount received was invested in Rockland Hospitals Ltd. and the AO made addition u/s 68 of the Act in the hands of M/s Rockland Hospitals Ltd. on account of two investments including the investment made by the assessee. These documents only establish the use of amount received by the assessee, but, these facts are not capable to discharge the onus lay on the shoulders of the assessee in this regard under provisions of section 68. The theory of conduit company is not acceptable as, for being a conduit company, the assessee is duty bound to establish that the company from whom it received the amount and the company in which it invested the same amount were of the same group and it was merely an intermediary or conduit company. As assessee has miserably failed to substantiate the identity, capacity and credit worthiness of the investor company as well as the genuineness of the transaction. Except name, no details of PAN No., address, bank statement, ledger, confirmation and supporting copies of financial statements of investor company have been filed by the assessee. Decided against assessee.

Summary

Issues:
The judgment involves issues related to addition u/s 68 of the Income-tax Act, 1961, concerning the reinvestment of funds received from one company into shares of another company, and the burden of proof regarding the identity, creditworthiness, and genuineness of transactions.

Issue 1: Reinvestment of Funds and Addition u/s 68
The appellant claimed that the amount received from one company was reinvested in shares of another company, similar to previous cases where such additions were deleted by the Tribunal. The appellant argued that the addition made by the Assessing Officer (AO) and confirmed by the CIT(A) should be deleted based on precedents and the application of the law. However, the Senior Departmental Representative (DR) opposed this, emphasizing the onus on the appellant to prove the identity and creditworthiness of the investor company. The DR also highlighted the distinction from a previous case involving cash deposits. The Tribunal noted the lack of documentary evidence establishing the investor's details and the genuineness of the transaction, ultimately dismissing the appellant's contentions and upholding the addition.

Issue 2: Burden of Proof and Conduit Company Theory
The appellant contended that since the same amount was added in the hands of the ultimate beneficiary company, no addition should be made in the appellant's case as a conduit company. However, the appellant failed to provide information on the status of the addition in the beneficiary company's case. The Tribunal emphasized the appellant's failure to substantiate the investor's identity and creditworthiness, as well as the genuineness of the transaction. The lack of essential documents, such as PAN copies and bank statements, led to the rejection of the conduit company theory. The Tribunal concluded that the appellant did not discharge the onus under section 68 of the Act, and therefore, upheld the orders of the lower authorities, dismissing the appeal.

Final Decision:
The Tribunal dismissed the appeal filed by the assessee, upholding the addition made under section 68 of the Income-tax Act, 1961. The Tribunal found that the appellant failed to provide sufficient evidence to establish the identity, creditworthiness, and genuineness of the transaction, leading to the rejection of the conduit company theory. The decision was pronounced in the open court on 15th March 2023.