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2023 (11) TMI 118 - AT - Income TaxAddition u/s 68 - bogus LTCG - Transaction with shell companies - HELD THAT - CIT(A) held that in the assessment order the AO has relied upon the statement recorded by DDIT (Investigation), Kolkata on 11.04.2017 of Narendra Kumar Jain stated to be an entry operator who managed a net work of shell companies which provided accommodation entries. However, in the said statement there is no reference to the assessee or the company SMS ITS PL whose shares have been sold. In the said statement there is reference to SVPL i.e. the company who purchased the shares. However, there is no reference to the transaction of sale of shares of SMS ITS PL by the assessee to SVPL in the said statement. On examination of statement it was found to be in context with accommodation entries given by Narendra Kumar Jain to SESA group. There is no linkage between SESA group and assessee or and SMS ITS PL or SESA group and SVPL in the statement. AO has also given a finding that SVPL is a shell company. SVPL is a company who purchased the shares of SMS ITS PL from the assessee. No adverse inference can be drawn against the assessee on basis of doubtful credentials of SVPL as the assessee has parted away with a valuable asset i.e. shares of a company having prime immovable property at Hailey Road Delhi and in lieu thereof, the assessee had received sale consideration at market price/fair market value. Decided in favour of assessee.
Issues Involved:
1. Whether the addition of Rs. 2,78,20,000/- u/s 68 of the Act by the AO was justified. 2. Whether the company SMS IT Solutions Pvt. Ltd. (SMS ITS PL) is a shell company. 3. Whether the company Shreyans Vyapaar Pvt. Ltd. (SVPL) is a shell company. 4. Whether the valuation of shares of SMS ITS PL was correctly determined. 5. Whether the transaction of sale of shares by the assessee to SVPL was genuine. Summary: Issue 1: Addition u/s 68 of the Act The AO made an addition of Rs. 2,78,20,000/- u/s 68 of the Act, treating the Long-Term Capital Gains (LTCG) from the sale of shares of SMS ITS PL as unexplained credits. The AO held that the transaction was dubious and arranged to benefit from a lower rate of taxation under LTCG. The CIT(A) deleted the addition, and the Revenue appealed. Issue 2: SMS IT Solutions Pvt. Ltd. as a Shell Company The AO alleged that SMS ITS PL was a shell company based on its financial credentials and non-appearance of its directors. However, the CIT(A) found no supporting evidence for this claim. SMS ITS PL had been regularly filing its ITRs and annual returns with the ROC, and its status was 'Active'. The AO's reliance on the statement of Narender Kumar Jain, an entry provider, was not substantiated with evidence linking SMS ITS PL to shell company activities. Issue 3: Shreyans Vyapaar Pvt. Ltd. as a Shell Company The AO also alleged that SVPL, the buyer of the shares, was a shell company managed by Narender Kumar Jain. The CIT(A) held that no adverse inference could be drawn against the assessee based on the credentials of SVPL. The assessee had received the sale consideration at market price, and there was no evidence linking the transaction to shell company operations. Issue 4: Valuation of Shares The AO disputed the high valuation of shares of SMS ITS PL, arguing that it should be based on book value rather than market value. The CIT(A) found that the valuation was correctly determined considering the market value of the underlying asset'an immovable property at Hailey Road, Delhi. The AO had not disputed the market value of the property, and the valuation report was consistent with the market value. Issue 5: Genuineness of the Transaction The AO questioned the genuineness of the transaction, citing the involvement of shell companies and accommodation entries. The CIT(A) held that the assessee had provided sufficient documentation to support the transaction, including share certificates, transfer deeds, and sale bills. There was no reference to the assessee or the specific transaction in the statements of Narender Kumar Jain and Rajesh Kumar Jain. The CIT(A) concluded that the transaction was genuine, and the addition u/s 68 was not justified. Conclusion: The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 2,78,20,000/- u/s 68, finding no evidence to support the AO's claims that SMS ITS PL and SVPL were shell companies or that the transaction was not genuine. The appeal of the Revenue was dismissed.
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