2024 (7) TMI 714 - AT - Income Tax

Addition u/s 68 - unverified share premium amount added as unexplained cash credit - CIT(A) deleted addition - revenue argued that CIT(A) erred in not considering the financial profiles of investor companies - HELD THAT - The financial situation of the appellant does not justify any premium whatsoever and this only strengthens the assumption that the genuineness of impugned transaction is not proved. There is a finding by the AO that an analysis of the details of income of the Appellant Company revealed that there was no business activity carried out during the year under consideration. This further led to the finding that no prudent investor would pay a massive premium of Rs 190 per share of a Company which had no business activity worth the name and also there was no indication of appropriate business activity which could have a bright commercial future. A combined reading of the Ld. AO s order and the order u/s 263 of the Act reveals that there were efforts made to investigate the genuineness of the impugned transactions because of sub-par business credentials, prima facie visible in the Appellant s case. Thus there is no hesitation in holding that the findings in the authorities cited supra, especially the case of BST Infratech 2024 (4) TMI 989 - CALCUTTA HIGH COURT , would apply in the assessee s case and it deserves to be held that the Appellant was not able to prove the genuineness of the transaction. Applicability of the principles of the amended provisions u/s 68 of the Act would apply to the present case, since as discussed in para 27 of the BST Infratech case (supra), the said amendments merely codified the position of law as earlier expounded in various case laws. Thus, it is held that the assessee has not been able to discharge the burden of proof cast upon him by the provisions of Section 68 of the Act. Accordingly, the ground raised by the Revenue is allowed.

Issues Involved:
1. Deletion of addition of Rs. 4,63,00,000/- on account of allegedly unverified share premium amount added as unexplained cash credit.
2. Non-appearance of the assessee despite multiple notices.
3. Compliance with the provisions of Section 68 of the Income Tax Act, 1961.
4. Applicability of judicial pronouncements and amendments to Section 68.

Detailed Analysis:

1. Deletion of Addition of Rs. 4,63,00,000/- on Account of Allegedly Unverified Share Premium Amount Added as Unexplained Cash Credit:

The primary issue in this case revolves around the deletion of an addition of Rs. 4,63,00,000/- by the Commissioner of Income Tax (Appeals) [CIT(A)], which was originally added by the Assessing Officer (AO) as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The AO had issued a detailed questionnaire to the assessee to elicit responses regarding the share capital and directed the directors to make a personal appearance to explain the genuineness of the transactions. The AO recorded that the assessee raised fresh share capital by issuing 2,31,500 shares of Rs. 10/- face value with a premium of Rs. 190/-, totaling Rs. 4,63,00,000/-. The AO noted that the assessee company had no business activities during the year under consideration, and the investment did not make prudent business sense. Consequently, the AO added the amount as unexplained cash credit.

2. Non-Appearance of the Assessee Despite Multiple Notices:

The case had an unusual history of hearings, with multiple attempts made to serve notices to the assessee, all of which failed. Notices sent through registered post were returned with the remark 'left', and attempts to serve notices through the Income Tax Department were also unsuccessful. Despite these efforts, the assessee did not appear, leading to the case being proceeded ex parte.

3. Compliance with the Provisions of Section 68 of the Income Tax Act, 1961:

The CIT(A) deleted the addition made by the AO, stating that the assessee had fully explained the nature and source of the share application received and discharged its onus to prove the identity, creditworthiness, and genuineness of the share applicants. However, the Revenue challenged this action, arguing that the financial profiles of the investor companies were not considered. The Revenue contended that the assessee failed to establish the creditworthiness of the investor companies and relied on several judicial pronouncements to support their point.

4. Applicability of Judicial Pronouncements and Amendments to Section 68:

The judgment extensively discussed various judicial pronouncements relevant to the case:

- PCIT vs. NRA Iron & Steel (P.) Ltd.: The Supreme Court held that the AO was justified in making additions under Section 68 when the assessee failed to establish the creditworthiness of the investor companies, even if confirmations from investor companies were filed.
- Neelkantha Commosales (P.) Ltd. vs. ITO: The Calcutta High Court held that an Income Tax Officer could make an enquiry about the true nature and source of any sum credited in the books of the assessee, even if credited as share application money.
- Bal Gopal Merchants (P.) Ltd. vs. PCIT: The Calcutta High Court upheld the addition made under Section 68 when the assessee failed to comply with summons and had no noticeable business activity.
- PCIT vs. BST Infratech Ltd.: The Calcutta High Court held that transactions through banking channels or the fact that investor companies were income tax assessees were insufficient to discharge the onus under Section 68. The court emphasized the need for the assessee to prove the source of money in the hands of the shareholders.

The judgment also referred to amendments to Section 68 by the Finance Act, 2012, which clarified that the onus of proving the creditworthiness of the investors and the genuineness of the transaction lies with the assessee, even for closely held companies. The Tribunal relied on earlier judgments to conclude that the amendment was clarificatory and retrospective in nature.

Conclusion:

In light of the above discussion, the Tribunal held that the assessee failed to discharge the burden of proof under Section 68 of the Income Tax Act. The appeal filed by the Revenue was allowed, and the addition of Rs. 4,63,00,000/- was sustained. The judgment emphasized the importance of proving the creditworthiness of investors and the genuineness of transactions, especially in cases involving closely held companies.

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