2024 (9) TMI 1264 - AT - Income Tax

Unexplained cash credit u/s 68 - onus not discharged - bogus share capital including premium receipts - HELD THAT - Once proceedings u/s 263 of the Act were initiated then the assessee was put on notice regarding his duty to prove the transactions which involved very substantial amounts as share premium. It is not understood how a closely held company which has minimal commercial activity as is evidenced by the profit and loss account filed with the paper book could attract abnormally high share premiums. Mere filing of confirmations and the income tax details etc. are not enough to justify payment of monies as share premium when the financial aspects of the recipient company would not merit such investments under any kind of prudent consideration. In the present case while 4 out of 11 share applicants were not traceable on given addresses and one more did not respond to the summons, it is evident that even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted would normally paint a grim picture to any prudent investor, however, in this case it seems to have encouraged 11 entities to transfer huge sums of money by way of share premium. Considering the case laws cited the financial health of the assessee and the inadequate discharge of onus, we hold this case to be a fit case for application of Section 68 of the Act and thereby confirm the impugned addition. Appeal filed by the assessee is dismissed.

Issues Involved:

1. Addition of Rs. 50 Crores as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Onus of proving the identity, creditworthiness, and genuineness of share capital transactions.
3. Justification of high share premium in a closely held company with minimal commercial activity.
4. Discrepancies in documents submitted by the assessee.

Detailed Analysis:

1. Addition of Rs. 50 Crores as Unexplained Cash Credit:

The appellant filed a return of income declaring a total loss of Rs. 10,893/-. Initially, the assessment was completed at a total income of Rs. 1,26,350/-. However, this assessment was set aside under Section 263 by the Pr. Commissioner of Income Tax (Pr. CIT) for inquiries into the share capital received by the assessee. The assessee had issued 10,000 equity shares at a premium of Rs. 490 per share, totaling Rs. 50 Crores. The Assessing Officer (AO) added this amount under Section 68 after concluding that the identity, creditworthiness, and genuineness of the share subscribers were not established. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition, noting that the onus to prove the transaction was not discharged by the assessee.

2. Onus of Proving the Identity, Creditworthiness, and Genuineness of Transactions:

The CIT(A) rejected the assessee's claim that the initial AO was satisfied with the documentation provided. The CIT(A) relied on various authorities to demonstrate that the onus to prove the transaction was on the assessee, which was not fulfilled. During the second assessment, summons were issued to 11 shareholders, but only a few responded, and some could not be located. The appellant argued that they had provided necessary documents like bank statements and balance sheets to prove the genuineness of the transactions. However, the AO found discrepancies in the documents submitted.

3. Justification of High Share Premium in a Closely Held Company:

The AO and CIT(A) questioned the justification of a high share premium in a closely held company with minimal commercial activity. The profit and loss account showed minimal revenue, which did not justify a premium of Rs. 490 on a share with a face value of Rs. 10. The Tribunal referenced the case of PCIT vs. BST Infratech Ltd., where the Calcutta High Court upheld the addition under Section 68 for similar reasons. The Tribunal also cited the Supreme Court case of PCIT vs. NRA Iron & Steel (P.) Ltd., which emphasized the need for the assessee to prove the genuineness and creditworthiness of the transactions.

4. Discrepancies in Documents Submitted by the Assessee:

The AO found that some documents claimed to be filed were not present in the assessment records. This discrepancy raised questions about the assessee's conduct and the authenticity of the documents submitted. The Tribunal noted that the voluminous paper book contained documents not before the authorities below, further complicating the case.

Conclusion:

The Tribunal concluded that the assessee failed to discharge the onus of proving the genuineness of the transactions and the creditworthiness of the investors. The financial health of the assessee did not justify the high share premium, and the discrepancies in the documents submitted further weakened the assessee's case. The appeal was dismissed, and the addition of Rs. 50 Crores under Section 68 was confirmed.

Order:

The appeal filed by the assessee is dismissed. Order pronounced in the open Court on 26th July, 2024.

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