2023 (2) TMI 563 - AT - Income Tax

Addition u/s 68 - Assessee received premium of Rs.499/- against the value of share at Rs.1/- - submission before us was that in order to avoid registration fees, the assessee had received the share capital in cash - HELD THAT - In response to our question about the financial health, the ld. Counsel for the assessee submitted that this is the first year of the Company and, therefore, it s not having any taxable income, however, when we ask him the source of funds, how it contemplates to run its business, what are the project reports and what circumstance an share applicant would infuse his money in a start-up company, but nothing is available on the record. Neither the share applicant companies have any financial strength as noticed by the ld. CIT(Appeals). They have not given any explanation of the source of money in their hands for making payments to the assessee as share application money in cash. Therefore, revenue authorities have rightly treated it as bogus and sham transactions. AO has rightly made the addition - Decided against assessee.

Summary

Issues:
Appeal against order of ld. Commissioner of Income Tax (Appeals)-5, Kolkata for A.Y. 2012-13. Addition of Rs.1,43,50,000/- under section 68 of the Income Tax Act.

Analysis:
The appellant, an assessee, contested the addition of Rs.1,43,50,000/- made by the ld. Assessing Officer under section 68 of the Income Tax Act. The appellant filed its return of income declaring total income at NIL, but scrutiny revealed receipt of share capital with a substantial premium per share. The ld. Assessing Officer sought explanations regarding transaction genuineness and creditworthiness of share applicants, but unsatisfactory responses led to the addition. The ld. CIT(Appeals) affirmed the addition, emphasizing the need to establish identity, creditworthiness, and transaction genuineness of share applicants. The share premium, significantly higher than share value, raised doubts about the transactions' authenticity. The appellant's financial health and lack of taxable income were insufficient to justify the high premium. The absence of substantial financial details from both the appellant and share applicant companies supported the revenue authorities' decision to treat the transactions as bogus and sham. The Tribunal dismissed the appeal, upholding the addition.

The ld. CIT(Appeals) referenced various case laws and decisions to support the addition under section 68 of the Act due to unjustified high premiums and doubts regarding transaction authenticity. The Tribunal concurred with the revenue authorities, highlighting the lack of financial strength or credible sources of funds from the share applicant companies. The absence of concrete evidence or financial viability to support the high premium indicated potential money laundering motives, further reinforcing the decision to treat the transactions as sham. The appellant's failure to provide substantial financial details or business plans raised serious doubts about the legitimacy of the transactions, leading to the dismissal of the appeal.

The Tribunal's decision underscored the importance of substantiating share transactions with credible financial information and justifying high premiums based on company fundamentals. The appellant's inability to provide satisfactory explanations or financial evidence, coupled with the suspicious nature of the transactions, supported the revenue authorities' stance on treating the transactions as bogus. The Tribunal's analysis emphasized the need for transparency and financial credibility in share transactions to prevent potential misuse and tax evasion. The dismissal of the appeal highlighted the Tribunal's commitment to upholding the integrity of financial transactions and preventing illicit activities in the realm of income tax assessments.