2022 (10) TMI 535 - AT - Income Tax

Addition u/s 68 - unexplained cash credits of share capital and security premium received - identity, creditworthiness and genuineness of the transaction proved or not? - HELD THAT - After providing sufficient opportunity no submission was made either before the AO and ld. CIT(A) nor before us in this regard. The assessee was asked to explain the cash credits received by it during the year. The assessee failed to file necessary details to explain the source of alleged cash credit and also unable to prove identity, creditworthiness of the cash creditors as well as genuineness of the transaction as per section 68 - The assessee company has miserably failed to explain the source of alleged cash credit. If the assessee had sufficient details to explain the alleged sum, it could have certainly filed those details. Consistently escaping from appearing before the ld. AO and the appellate authority (ld. CIT-A) indicates that the assessee has no plausible explanation to explain the source of alleged sum of share capital and security premium. If the assessee is unable to explain the alleged cash credit and consistent escaped, the provisions of section 68 of the Act are attracted. Thus, it is held that the assessee has routed its unaccounted income in the books of account in the form of share capital and security premium by arranging bogus share capital and share premium through accommodation entry provider. Under these facts and circumstances, we find no infirmity in the finding of the ld. CIT(A) confirming the addition made u/s. 68 of the Act and the same is confirmed. Thus, grounds of appeal raised by the assessee are dismissed.

Issues Involved:
1. Addition of share premium as cash credit under section 68 of the Income Tax Act.
2. Treatment of share premium as income.
3. Disallowance of expenses under section 14A.

Analysis:

Issue 1: Addition of share premium as cash credit under section 68 of the Income Tax Act
The case involved the assessment year 2012-13 where the assessee, a private limited company, received a substantial amount as share subscription. The assessing officer (AO) raised concerns regarding the identity, creditworthiness, and genuineness of the transaction related to the share capital and share premium received. Despite multiple notices and opportunities, the alleged creditors did not appear before the AO, leading to the assessment being completed under section 143(3) of the Act. The AO was not satisfied with the explanations provided by the assessee and made an addition under section 68 for unexplained cash credit. The Commissioner of Income-tax (Appeals) upheld the addition as the assessee failed to provide further evidence to support its claim, resulting in the confirmation of the addition.

Issue 2: Treatment of share premium as income
The assessee contended that the share premium, being a capital receipt, should not be treated as income merely due to the lack of significant earnings per share or book value. However, the tribunal noted that the assessee had declared minimal income for the year but managed to procure a substantial amount as share capital and premium. Despite statutory notices and opportunities to explain the source of the cash credits, the assessee failed to provide necessary details to establish the identity, creditworthiness, and genuineness of the transaction. The tribunal concluded that the assessee had not satisfactorily explained the source of the alleged cash credit and had likely routed unaccounted income through bogus share capital and premium, resulting in the confirmation of the addition under section 68.

Issue 3: Disallowance of expenses under section 14A
The tribunal did not delve into this issue as the primary focus was on the addition of share premium as cash credit under section 68 of the Act. The assessee's failure to provide substantial evidence and explanations regarding the cash credits overshadowed any potential consideration of disallowance of expenses under section 14A.

In conclusion, the tribunal found no infirmity in the Commissioner's decision to confirm the addition under section 68 of the Act, dismissing the grounds of appeal raised by the assessee and ultimately dismissing the appeal.

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