2023 (10) TMI 326 - AT - Income Tax

Addition u/s 68 - Assessee invested cash towards purchase of share capital /premium of the closely held company directors of which were their relatives - CIT(A) deleted the said addition on the ground that the assessee had filed confirmation from investor companies to show that the entire amount had been paid through normal banking channels and hence discharged initial onus under section 68 for establishing creditability and identity of share holders - HELD THAT - We are inclined to agree that the legislative intent has always been that in the case of closely held companies like that of the assessee before us heavier obligation is cast upon it to prove the receipt of share application money/premium etc. to the satisfaction of the AO. It may be stated that law has to be applied to the facts of the given case. In our humble opinion, the legal propositions and case laws in support of them canvassed by AR before us are inapplicable to the facts of the assessee s case available on the records. On Revenue s petition before the Hon ble Supreme Court in their decision in Principal CIT vs. NRA Iron Steel (P) Ltd. 2019 (3) TMI 323 - SUPREME COURT their Lordships held that the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and creditworthiness of the investors who should have financial capacity to make the investment in question to the satisfaction of the AO, so as to discharge the primary onus. AO is duty bound to investigate into the creditworthiness of the creditor/subscriber, verify the identity of the subscribers and ascertain whether the transaction is genuine or those are bogus entries of name-lenders. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by section 68. It may be reiterated that in the case before us, despite the availability of banking facilities to the two investors, they invested cash towards purchase of share capital /premium of the closely held company directors of which were their relatives. On the facts and in the circumstances of the case and following the decision in NRA Iron Steel (P) Ltd. (supra) of the Hon ble Supreme Court we uphold the impugned order of the Ld. CIT(A) and reject ground of the assessee.

Summary

Issues Involved:
1. Sufficient opportunity to present the case before the Assessing Officer.
2. Addition of Rs. 36,00,000 under section 68 of the Income Tax Act, 1961.
3. Charging of interest under section 234B and 234C of the Income Tax Act, 1961.

Summary:

Issue 1: Sufficient Opportunity to Present the Case
- This ground was not pressed by the assessee and thus dismissed as not pressed.

Issue 2: Addition of Rs. 36,00,000 under Section 68 of the Income Tax Act, 1961
- The assessee, a private limited company engaged in real estate, raised share application money/share premium from six parties, including Late Shri Arvind Mittal and Avdesh Mittal, who subscribed in cash.
- The Assessing Officer (AO) was not satisfied with the evidence and explanation provided by these two parties, leading to an addition of Rs. 36,00,000 to the income of the company under section 68.
- The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the addition, noting discrepancies and lack of convincing evidence regarding the sources of the cash investments.
- The CIT(A) highlighted that the sources of investments were not entirely explained, and the genuineness and creditworthiness of the transactions were not established.
- The CIT(A) also noted that the share application forms, the form no. 2 filed with ROC, and the ledger account of shareholders were not provided, raising doubts about the nature and source of the share capital received.
- The CIT(A) referenced several judicial precedents, including the Supreme Court's interpretation of section 68, emphasizing the burden on the assessee to provide a proper, reasonable, and acceptable explanation for the credit entries.
- The CIT(A) concluded that the proviso to section 68, inserted by the Finance Act, 2012, was clarificatory and retrospective, applying to the assessment year 2012-13.
- The Tribunal upheld the CIT(A)'s order, agreeing that the legislative intent was always to cast a heavier obligation on closely held companies to prove the receipt of share application money/premium to the satisfaction of the AO.
- The Tribunal noted that despite the availability of banking facilities, the investors made substantial cash investments, and the assessee failed to satisfactorily explain the sources of these funds.

Issue 3: Charging of Interest under Section 234B and 234C of the Income Tax Act, 1961
- This ground was consequential in nature and not specifically addressed in detail.

Conclusion:
- The appeal of the assessee was dismissed, with the Tribunal confirming the addition of Rs. 36,00,000 under section 68 and the consequential charging of interest under sections 234B and 234C. The Tribunal emphasized the need for closely held companies to provide credible evidence of the creditworthiness and genuineness of transactions involving share application money/premium.