2017 (1) TMI 1294 - AT - Income Tax

Undisclosed cash credit - Held that - It is well-settled law that onus of substantiating the facts, as alleged by assessee, squarely lies on assessee and not on Assessing Officer. It was for the assessee to substantiate its claim that the shares were worth so much that it could fetch premium of ₹ 900/-. Moreover, it was for the assessee to establish that the two companies had sufficient net worth to acquire shares. Since assessee has failed on all fours, therefore, mere filing of confirmation from these two parties was of little significance. Ld. counsel has submitted that shares were issued at premium to other concerns also for which Assessing Officer had not made any addition. In this regard, it may point out that in the second round of proceedings Tribunal has to examine the issue in the light of observations made in first round of proceedings. Moreover, it is not necessary that because Assessing Officer accepted the credit worthiness in case of other shareholder-companies, he should have accepted in case of the two impugned shareholders also. Therefore, do not find any force in this submission of assessee. - Decided against assessee

Summary

Issues:
Appeal against order u/s 143(3)/147 of the Income Tax Act, 1961 for A.Y. 2004-05 regarding undisclosed cash credit, share premium, and non-compliance with summons.

Detailed Analysis:

1. Undisclosed Cash Credit Issue:
The Assessing Officer reopened the assessment due to unaccounted money introduced in the books by the assessee company. The company failed to prove the identity, creditworthiness, and genuineness of transactions with M/s Basant Agencies Pvt. Ltd. and M/s Right Choice Construction Pvt. Ltd. The ITAT directed fresh assessment to verify share premium receipts and made inquiries with ROC. Despite the company's efforts, non-compliance with summons and lack of information from ROC led to the addition of undisclosed cash credit. The CIT(A) upheld the addition citing lack of clarity from Ministry of Corporate Affairs and failure to produce directors of the companies.

2. Share Premium Issue:
The company defended the share premium receipts citing legal provisions allowing shares to be issued at a premium. However, the Assessing Officer, supported by legal precedents, emphasized the onus on the company to substantiate the business activity of the shareholders. The company's reliance on the case of Lovely Exports Ltd. and Devine Leasing & Finance Ltd. was not sufficient to counter the addition of cash credit. The company's inability to produce directors and lack of substantial evidence regarding the source of funds raised doubts on the legitimacy of the share premium.

3. Non-Compliance with Summons Issue:
The failure to produce directors of the concerned companies, coupled with discrepancies in addresses and lack of bank statements, raised suspicions regarding the authenticity of the transactions. The Inspector's report highlighted the absence of commercial activity at the provided addresses. The company's argument about the companies being struck off by ROC and the time gap further complicated the verification process. The Tribunal emphasized the company's failure to meet the onus of proof, leading to the dismissal of the appeal.

In conclusion, the ITAT upheld the addition of undisclosed cash credit and dismissed the appeal due to the company's inability to substantiate the share premium receipts and non-compliance with summons, highlighting the importance of fulfilling the onus of proof in such cases.