2024 (12) TMI 488 - AT - Income Tax

Addition u/s 68 - Bogus share capital - HELD THAT - Nothing is available on the record that there is any exchange of ownership of shares between this and the assessee. The finding of the AO in the scrutiny assessment of assessee s case is that it is a paper company not doing any business. It has also declared taxable income of Rs. 22,430/- only but gave a huge share premium to the assessee. The value of the shares is only Rs. 13,000/- and on each share, it paid a premium of Rs. 589/- and thus purchased the shares of assessee at Rs. 76,70,000/-. We are unable to understand what is the source of this premium and for what purpose, it has been given. Why investment is being made in a company, which has no business plan. We have minutely examined each and every assessment order placed before us including the details of the assessee and we arrived at a conclusion that these are only just make belief story on the basis of some sort of documents. The assessee has not produced Directors of any of the share applicant companies before the ld. Assessing Officer. He has not demonstrated as to how this company can command a huge share premium of Rs. 589/- per share having value of Rs. 1/- each. Therefore, we do not have any hesitation in holding that it is bogus share application money received by the assessee for the purpose of ulterior motive to system. Decided against assessee.

Summary

Issues Involved:

1. Whether the addition of Rs. 4,79,44,500/- as unexplained cash credit under Section 68 of the Income Tax Act was justified.
2. The admissibility of additional evidence submitted by the assessee.
3. The genuineness, identity, and creditworthiness of the share applicants.

Issue-wise Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act:

The primary issue in the appeal was whether the share capital and premium amounting to Rs. 4,79,44,500/- received by the assessee could be treated as unexplained cash credit under Section 68 of the Income Tax Act. The assessee argued that the conditions for the applicability of Section 68 were not satisfied as there was no cash credited in the books of accounts during the relevant year. The assessee contended that the share capital was received under a barter system and hence should not be added as unexplained credit. However, the Tribunal noted that the assessee failed to demonstrate the genuineness of the transactions and the creditworthiness of the share applicants. The Tribunal found that the assessee did not provide sufficient evidence to substantiate the source of the share capital and premium, nor did it adequately explain the high premium charged on shares. Consequently, the Tribunal held that the addition made by the Assessing Officer was justified.

2. Admissibility of Additional Evidence:

The assessee sought to introduce additional evidence in the form of assessment orders of the share applicants to establish their identity. The Tribunal considered Rule 29 of the Income Tax Appellate Tribunal Rules, 1963, which allows the Tribunal to admit additional evidence if it is essential for a just decision. The Tribunal decided to admit the additional evidence, reasoning that these assessment orders were genuine and would not require cross-verification by the Assessing Officer. Despite admitting the additional evidence, the Tribunal ultimately found that the evidence presented did not satisfactorily establish the genuineness of the transactions or the creditworthiness of the share applicants.

3. Genuineness, Identity, and Creditworthiness of Share Applicants:

The assessee provided details of the share applicants, including their PAN and addresses, and argued that all share applicants were assessed to income tax under Section 143(3). However, the Tribunal observed that the assessee did not produce the directors of the share applicant companies before the Assessing Officer. The Tribunal emphasized the necessity of fulfilling three conditions under Section 68: establishing the identity of the share applicants, the genuineness of the transaction, and the creditworthiness of the applicants. The Tribunal found that the assessee failed to demonstrate these elements satisfactorily. The Tribunal noted that the share applicants appeared to be paper companies with no substantial business activities, and the high premium charged on shares was not justified. The Tribunal concluded that the assessee's explanations were inadequate and upheld the addition as unexplained cash credit.

In conclusion, the Tribunal dismissed the appeal, affirming the addition made by the Assessing Officer under Section 68 of the Income Tax Act, as the assessee failed to establish the genuineness and creditworthiness of the share capital and premium received.