2023 (9) TMI 794 - AT - Income Tax

Addition u/s 56(2)(vii) - shares of the company were purchased for a consideration which is less than the fair market value of the shares - year of purchases of the shares - facade to convert unaccounted money by way of shell companies and putting them into a series of transactions to give a legitimate colour of converting of unaccounted cash available with the individuals - HELD THAT - Appellant had nowhere contested the applicability of the provisions of sec.56(2)(vii)(b) of the Act to the transactions Challenge for year of transaction was rightly dislodged by the Ld. CIT(A) as well as the Assessing Officer by bringing the cogent material on record to show that the assessee-appellant had purchased the shares during the year under consideration. The assessee also had failed to controvert the findings of the lower authorities that it is a device adopted to bring into books the unaccounted money of the assessee-appellant. Thus, we do not see any reason to interfere with the orders of the lower authorities. Decided against assessee.

Summary

Issues Involved:
The judgment involves the assessment of the appellant for the assessment year 2011-12 under the Income Tax Act, 1961, specifically focusing on the applicability of sec. 56(2)(vii) regarding the purchase of shares of a company at a value lower than the fair market value.

Factual Matrix:
The appellant, an individual, filed the return of income for the assessment year 2011-12, declaring a total income of Rs. 65,390. Subsequently, a search and seizure action was conducted, revealing that the appellant had purchased shares of a company at a face value of Rs. 10 per share, while the Net Asset Value (NAV) of each share was significantly higher. The Assessing Officer concluded that the transaction fell under sec. 56(2)(vii) of the Act due to the difference in value, leading to the imposition of additional tax.

Decision of CIT(A):
The CIT(A) upheld the Assessing Officer's decision, emphasizing that the transaction appeared to be a means of converting unaccounted money into legitimate assets through shell companies. Relying on legal precedents, the CIT(A) applied the test of human probability to confirm the tax liability, as the appellant failed to contest the applicability of sec. 56(2)(vii)(b) to the transactions.

Tribunal's Analysis:
Despite the absence of the appellant during the appeal hearing, the Tribunal reviewed the lower authorities' orders and the available evidence. It was noted that the appellant did not challenge the application of sec. 56(2)(vii)(b) but only disputed the timing of the share purchases. The Tribunal agreed with the CIT(A) and the Assessing Officer that the transactions were a mechanism to introduce unaccounted funds into the books. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the appellant's appeal.

Conclusion:
The Tribunal confirmed the order of the CIT(A), thereby dismissing the appeal of the appellant regarding the assessment for the year 2011-12 under the Income Tax Act, 1961.