2019 (10) TMI 118 - AT - Income Tax

Revision u/s 263 - Unexplained cash credits - HELD THAT - CIT has held in very clear terms that the Assessing Officer had nowhere examined identity, genuineness and creditworthiness of the assessee s share application / premium neither in sec. 143(3) nor in re-assessment proceedings. We notice in this backdrop that the tribunal s co-ordinate bench s decision in Rajmindir Estate Pvt. Ltd. 2016 (5) TMI 801 - CALCUTTA HIGH COURT has decided the very issue in Revenue s favour as held Money allegedly received on account of share application can be roped in under Section 68 of the Income Tax Act if the source of the receipt is not satisfactorily established by the assessee. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine We therefore adopt the above extracted detailed discussion mutatis mutandis to affirm the CIT s action to a Assessing Officer treating the assessee s share application / premium as unexplained cash credits. - Decided against assessee Penalty u/s 271(1)(c ) - CIT s action holding it to have concealed the particulars of income of its unexplained cash credits in the nature of share application / premium - HELD THAT - The assessee did not appear in the lower proceedings as per para-3 of the CIT s order. Nor there is any discussion in the impugned penalty order as to whether it had filed any representation against the proposed penal action. We thus conclude that the CIT s has rightly imposed the impugned penalty forming subject-matter of the instant. - Decided against assessee

Summary

Issues Involved:

1. Validity of treating share capital/premium as unexplained cash credits.
2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of treating share capital/premium as unexplained cash credits:

The Principal Commissioner of Income Tax (CIT) scrutinized the assessee's financial records and identified substantial unexplained cash credits in the form of share capital and premium totaling ?14,61,29,455/-. The assessment was completed under Sections 143(3) and 147, with an assessed income of ?1,18,990/- against a returned income of ?2372/-. The CIT noted that the assessee received a share premium of ?12,64,29,455/- on a share capital of ?1,97,00,000/- during the year under consideration, despite minimal income-generating activities, suggesting a collusive transaction aimed at laundering unaccounted income.

The CIT emphasized that the Assessing Officer (AO) failed to examine the justification for the high share premium, the identity, genuineness, and creditworthiness of the investors, and the real source of the funds. The AO's limited inquiry did not verify whether the investors had the capacity to make the investments or whether the transactions were genuine. This lack of comprehensive inquiry led to severe prejudice to the revenue.

The CIT referenced the case of CIT Vs Motor General Finance Ltd (254 ITR 449 Del), which allows for adverse inference if the assessee fails to produce relevant material. The assessee did not respond to the notice, leading to the conclusion that the transactions were not genuine and the provisions of Section 68 of the Income Tax Act were applicable. The CIT directed the AO to enhance the assessed income and initiate penalty proceedings under Section 271(1)(c).

The tribunal upheld the CIT's decision, referencing the case of Rajmindir Estate Pvt. Ltd. vs. PCIT, where similar issues were decided in favor of the Revenue. The tribunal noted that the AO did not examine the identity, genuineness, and creditworthiness of the share application/premium, affirming the CIT's action of treating the share application/premium as unexplained cash credits.

2. Imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961:

The CIT imposed a penalty under Section 271(1)(c) for concealment of income related to the unexplained cash credits. The assessee did not appear during the lower proceedings, nor was there any representation against the proposed penal action. The tribunal concluded that the CIT rightly imposed the penalty, as the assessee failed to establish the creditworthiness and capacity of the investors, and the transactions were deemed non-genuine.

Conclusion:

The tribunal dismissed both appeals, affirming the CIT's actions of treating the share capital/premium as unexplained cash credits and imposing the corresponding penalty under Section 271(1)(c). The order was pronounced in the open court on 21/08/2019.