2023 (8) TMI 982 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - share applicant/subscriber companies lacked identity, genuineness, and creditworthiness - assessee failed to discharge the primary onus that was cast upon it u/s 68 - HELD THAT - Once the assessee has submitted the documents relating to identity, genuineness of the transaction and creditworthiness, then the A.O. must conduct an inquiry, and call for more details. It was further observed that if the assessee is not able to provide a satisfactory explanation of the nature and source of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. The Hon'ble Apex Court in NRA IRON STEEL PVT. LTD. 2019 (3) TMI 323 - SUPREME COURT had further observed that the Department is obligated to carry out careful scrutiny of a private placement of shares, and the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., and failure of the same would justify the addition of the said amount to the income of the assessee. Also, the Hon'ble Apex Court had not found favour with the view taken by the lower appellate authorities, wherein they had observed that as the assessee company had filed all the documentary evidence in the course of assessment proceedings, therefore, the onus that was cast upon it to establish the creditworthiness of the investor companies stood discharged. Rebutting the aforesaid view taken by the lower authorities, the Hon'ble Apex Court had observed that the lower appellate authorities, while so concluding, had not even adverted to the field inquiry conducted by the A.O., which revealed that in several cases, the investor companies were found to be non-existent, and thus the onus to establish the identity of the investor companies was not discharged by the assessee. Considering the principles which the Hon'ble Supreme Court had laid down in the case of Pr. CIT, Circle-1 Vs. NRA Iron Steel Pvt. Ltd. (supra), we find that the facts involved in the present case before us fall within four corners of the same. The claim of the assessee company of having received share application money from the 41 share applicant/subscriber companies did further cast an obligation upon it to mandatorily supplement the same with the explanations of the respective investor companies about the nature and source of such sum credited against their names in the books of account of the assessee company. However, we find that in the present case before us, not only the assessee company had failed to substantiate to the hilt the nature and source of the amount credited in its books of account based on any clinching documentary evidence, but also, there is no whisper in the orders of the lower authorities about any explanation of the respective investor companies about the nature and source of such sum so credited against their names in the books of account of the assessee company. As in the case of the present assessee company before us, we find that as it had failed to discharge the onus that was cast upon it as regards proving the authenticity of its claim of having received share application money from the share applicant/subscriber companies by satisfying the set of conditions envisaged u/s 68 of the Act, i.e. (i). proving the identity and creditworthiness of the share applicant/subscriber companies, and establishing the genuineness of the transactions under consideration based on irrefutable documentary evidence; and (ii). explanation of the share applicant /subscriber companies about the nature and source of the sum recorded against their name in the books of the assessee company. Because the assessee company had grossly failed to discharge the onus that was cast upon it as regards proving the authenticity of its claim of having raised genuine share application money from the 41 investor companies, i.e., by satisfying the double facet conditions contemplated in the aforesaid statutory provision, i.e., Sec. 68 of the Act (postamended), viz. (i) explanation about the nature and source of the credit in its books of account; and (ii) explanation by the investor companies as regards the nature and source of the sum so credited against their name in the books of account of the assessee company - therefore, finding no infirmity in the view taken by the lower authorities who had rightly held the entire amount as unexplained cash credit u/s. 68 - Decided against assessee.

Summary

Issues Involved:
1. Whether the CIT(Appeals) erred in dismissing the appeal without allowing a reasonable opportunity of being heard.
2. Whether the CIT(Appeals) erred in confirming the addition of Rs.1,12,37,50,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961.

Summary:

Issue 1: Reasonable Opportunity of Being Heard
The assessee company contended that the CIT(Appeals) erred in dismissing the appeal without allowing a reasonable opportunity of being heard. However, the Tribunal noted that the assessee was represented by its Chartered Accountant during the proceedings before the CIT(Appeals), who argued the matter and filed written submissions. The CIT(Appeals) had duly considered these submissions and passed a speaking order. Thus, the Tribunal found no merit in the assessee's claim and dismissed this ground of appeal.

Issue 2: Addition under Section 68 of the Income Tax Act, 1961
The primary contention was whether the CIT(Appeals) erred in confirming the addition of Rs.1,12,37,50,000/- made by the Assessing Officer (A.O.) under section 68 of the Income Tax Act, 1961. The Tribunal examined the following points:

1. Identity and Creditworthiness of Share Applicants:
- The A.O. observed that the assessee company received share application money from 41 Kolkata-based companies, which had doubtful credentials.
- The DDIT (Inv.), Unit-4(1), Kolkata, reported that these companies lacked identity, genuineness, and creditworthiness.
- The assessee company failed to produce the directors of these companies for examination, instead filing documents like PAN, returns of income, audit reports, and bank statements, which the A.O. found insufficient to establish the identity and creditworthiness of the share applicants.

2. Genuineness of Transactions:
- The A.O. noted that the share applicant companies had negligible worth and no fixed assets, and their financial status did not support their investment capacity.
- The financial statements revealed that these companies were not involved in any real business activities, indicating they were shell companies used for laundering unaccounted money.

3. Legal Precedents and Onus of Proof:
- The Tribunal referred to the judgment of the Hon'ble Supreme Court in the case of Pr. CIT, Circle-1 Vs. NRA Iron & Steel Pvt. Ltd., which emphasized that the assessee must prove the identity, creditworthiness, and genuineness of the transactions.
- The Tribunal noted that the assessee failed to discharge the onus cast upon it under the amended Section 68, which requires not only explaining the source of the share application money but also the source of funds from the investor companies.

4. Adverse Inferences:
- The Tribunal concurred with the A.O. that the evasive approach of the assessee and the non-compliance of the share applicant companies to the summons issued u/s 131 of the Act justified drawing adverse inferences.
- The Tribunal upheld the view that the share application money was nothing but the assessee's unaccounted money routed back through shell companies.

Conclusion:
The Tribunal upheld the addition of Rs.1,12,37,50,000/- under section 68 of the Act, agreeing with the lower authorities that the assessee failed to prove the identity, creditworthiness, and genuineness of the share applicants. The appeal was dismissed in its entirety.