2023 (5) TMI 218 - AT - Income Tax

Unexplained cash credit u/s 68 - identity and creditworthiness of the share applicants and genuineness of the transaction not proved - HELD THAT - Section 68 of the Act is invoked if any sum is found credited in the books of an assessee for which the assessee either does not offer any explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the AO. In the given case, though the assessee has given the explanation by filing the financial statements of the share applicants but they are in itself not sufficient to satisfy ld. AO as well as ld. CIT(A) and even we are also not satisfied with the nature and source of the alleged credit. Genuineness of the transaction is in serious doubt because why some private limited companies would invest a huge sum into the share capital of a company having no regular business activity and no concrete plan for any expansion. The assessee has failed to discharge its onus to explain the genuineness of the transaction as to why the share applicants have paid a share premium of Rs. 190/- on the equity shares having face value of Rs. 10/- of a company which has poor track record of earning profits as well as poor turnover. Where the assessee has failed to discharge its primary onus casted upon it to explain the genuineness of the transaction and the explanations offered by the assessee are not sufficient to prove the genuineness of the receipt of share capital and share premium, we are not inclined to make any interference in the well-reasoned finding of ld. CIT(A) confirming the addition made u/s 68 - effective grounds of appeal raised by the assessee are dismissed.

Summary

Issues Involved:
1. Addition of Share Capital and Share Premium under Section 68 of the Income Tax Act, 1961.
2. Legality, fairness, and reasonableness of the appellate order by CIT(A).

Summary:

1. Addition of Share Capital and Share Premium under Section 68:
The assessee, a private limited company, appealed against the addition of Rs. 4.88 Cr made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO observed that the assessee received share capital and premium totaling Rs. 4.88 Cr for issuing 2,94,500 equity shares at a premium of Rs. 157 per share. The AO was not satisfied with the explanations provided by the assessee regarding the nature and source of the share capital and premium. The AO noted that the assessee failed to produce the managing directors of the share applicant companies and did not provide sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. Consequently, the AO added the amount to the assessee's income under Section 68.

2. Legality, Fairness, and Reasonableness of the Appellate Order by CIT(A):
The assessee's appeal to the Commissioner of Income-tax (Appeals) [CIT(A)] was dismissed, with the CIT(A) upholding the AO's addition. The CIT(A) emphasized that merely furnishing documents in a routine manner does not explain the source or creditworthiness of the parties. The CIT(A) further noted that the assessee failed to justify the premium charged on the shares and did not make efforts to substantiate the financial statements. The CIT(A) relied on various judicial precedents, including the ITAT Kolkata decision in M/s. Blessings Commercial Pvt. Ltd. and the Delhi High Court decision in Pr.CIT-6, New Delhi vs NDR Promoters Pvt. Ltd, to support the addition under Section 68.

Tribunal's Decision:
The Tribunal examined the findings of the CIT(A) and the details provided by the assessee. It observed that the assessee had a meager turnover and poor financial track record, which did not justify the substantial share premium received. The Tribunal noted that the assessee failed to discharge its onus to prove the genuineness of the transactions and the creditworthiness of the share applicants. The Tribunal upheld the CIT(A)'s decision, confirming the addition of Rs. 4.88 Cr under Section 68, and dismissed the assessee's appeal.

Conclusion:
The appeal filed by the assessee was dismissed, with the Tribunal confirming the addition of Rs. 4.88 Cr under Section 68 of the Income Tax Act, 1961, due to the failure of the assessee to prove the genuineness of the transactions and the creditworthiness of the share applicants.