2023 (12) TMI 808 - AT - Income Tax

Addition u/s 68 - Bogus share capital - addition made as identity of source was not established - onus to prove - CIT(A) confirming the addition made by the AO as Identity, creditworthiness and genuineness of transaction not proved - HELD THAT - CIT(A) has correctly held that the assessee has not been able to establish the genuineness of the transaction and the identity and the creditworthiness of the share applicant company. We observe that the assessee was incorporated on 22.09.2012 and during the year, the total revenue of the company was Rs. 43,700/- as against this, the assessee company had received share capital of Rs. 40.34 crores for 40,340 shares issued at a premium of Rs. 9,990/- per share. Accordingly, we are of the view that the assessee has not been able to give any basis as to why the assessee company would command such a huge premium for issuance of share capital given the negligible operations carried out by the company. As creditworthiness of the share applicant company M/s. Attentive Share Trading Pvt. Ltd. has also not been established by the assessee. Further, so far as the genuineness of the transaction is concerned, no justifiable reason has been furnished as to how and on what basis the valuation of share premium of Rs. 9,990/- per share was arrived at. Therefore, looking into the instant facts we find no infirmity in the order of Ld. CIT(A) in holding that the genuineness of the transaction and identity and creditworthiness of the parties has not been established in the instant facts and accordingly, we uphold the order passed by Ld. CIT(A). We need to further mention that simply because a transaction has been carried out through banking channels or confirmation of the parties has been furnished would not make a non-genuine transaction into genuine one, and all the concerning facts of the case to be looked into in totality. Courts have taken a consistent position that the assessee is expected to establish proof of identity of creditors, capacity of creditors and genuineness of creditors in order to discharge onus cast on assessee. Mere production of party or confirmation from party will not suffice, unless the assessee is also able to substantiate their creditworthiness i.e. ability to advance the sum to the assessee. The Hon'ble Supreme Court in the case of Pr. CIT v NRA Iron Steel (P.) 2019 (3) TMI 323 - SUPREME COURT held that that where assessee received share capital/premium, however there was failure of assessee to establish creditworthiness of investor companies, Assessing Officer was justified in passing assessment order making additions under section 68 for share capital / premium received by assessee company. The High Court of Allahabad in the case of Sagittraious Builders Colonisers 2011 (12) TMI 240 - ALLAHABAD HIGH COURT held that not only the identity of parties, but their creditworthiness also needs to be established by the assessee. In the case of Sanjay Waman Co. 2001 (11) TMI 273 - ITAT PUNE held that it is part of the duty of the assessee to furnish evidence regarding the creditworthiness of the creditors. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Validity of the show-cause notice.
2. Legitimacy of the addition of Rs. 40,34,00,000 under Section 68 of the Income Tax Act.
3. Confirmation of the addition by the Commissioner of Income Tax (Appeals).

Summary of Judgment:

1. Validity of the Show-Cause Notice:
The assessee argued that the show-cause notice dated 19.12.2014 was invalid as it was affixed at the registered office instead of the correspondence address. However, the Tribunal observed that the notice was served at the address mentioned in the Permanent Account Number and the last correspondence with the Assessing Officer. Thus, there was no violation of natural justice, and the additional ground was dismissed.

2. Legitimacy of the Addition of Rs. 40,34,00,000 under Section 68:
The assessee received share capital and premium from M/s. Attentive Share Trading Pvt. Ltd. The Assessing Officer added Rs. 40,34,00,000 as unexplained cash credit under Section 68, noting the lack of genuine business operations and the inability to verify the identity and creditworthiness of the share applicant. The Tribunal upheld this addition, emphasizing that the assessee failed to justify the high share premium and establish the genuineness of the transaction and the creditworthiness of the investor.

3. Confirmation of the Addition by the Commissioner of Income Tax (Appeals):
The CIT(A) confirmed the addition, observing that the assessee could not establish the identity, genuineness, and creditworthiness of the transaction. The Tribunal supported this view, citing various judicial precedents that require the assessee to prove the identity, creditworthiness, and genuineness of the creditors. The Tribunal noted that merely furnishing confirmations or conducting transactions through banking channels does not suffice to prove genuineness.

Conclusion:
The Tribunal dismissed the appeal, affirming that the assessee failed to discharge the onus of proving the genuineness of the share capital and premium received. The principles of identity, creditworthiness, and genuineness were not satisfied, justifying the addition under Section 68.