2024 (7) TMI 495 - AT - Income Tax

Unexplained cash credit u/s 68 - assessee had received share application money and premium from a company who admitted to providing accommodation entries - As argued non-appearance of the director should not be considered as sufficient for rejecting the claim of the assessee - HELD THAT - These are only theoretical submissions on the jurisprudence as to how share application money issues are to be dealt with. All these propositions are relevant for the purpose of the case decided in those judgments. The assessee has nowhere rebutted the finding of the AO that in response to the information called for by him u/s 133(6) of the Act the share applicant company has itself submitted that it has received cash from M/s. Gopikar Supply Pvt. Ltd. and transferred to the assessee company. The statement of Accomodation enrty provider/Mr. Jagdish Prasad Purohit is not being treated as an incriminating statement in the case of the assessee. It is a statement which is being used for the corroboration purposes for initiating the assessment machinery into motion that transactions conducted through the companies managed by him are not free from doubt. AO has not accepted this stand of assessee submitting with the help of procedural evidence i.e. PAN card, registration certificate of the share applicant company and bank details. The enquiry of the AO is to demonstrate as to how a newly incorporated company can command a premium of Rs. 390/- per share. In order to dispel this belief of the AO, assessee was required to submit details of its assets and future business prospective but the assessee failed to do so. It is also observed that assessee did not produce the share applicant company s directors because from them it could be unearthed as to how they decided to make investment in the assessee company. Therefore, both the authorities have examined the issue with an analytical mind and recorded a specific finding that this investment in the assessee company is a bogus one and it deserves to be considered as unexplained cash credit u/s 68 of the Act. Accordingly, appeal of the assessee is dismissed.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Addition of Rs. 35,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
3. Penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of Reopening the Assessment:

The Assessing Officer (AO) reopened the assessment based on information received from the DDIT (Inv.-II), Jodhpur, indicating that the assessee had received share application money and premium from M/s. Matrix Systel Pvt. Ltd., a company managed by Mr. Jagdish Prasad Purohit, who admitted to providing accommodation entries. The AO recorded reasons for reopening the assessment and issued a show cause notice under Sections 143(2) and 142(1) of the Income Tax Act, 1961. The assessee's representative submitted various documents, including computation of income, return copies, audited accounts, and bank statements. The AO conducted a detailed inquiry and concluded that the assessee failed to prove the genuineness of the transactions and the creditworthiness of the transacting party.

2. Addition of Rs. 35,00,000/- as Unexplained Cash Credit:

The AO observed that the assessee, a newly incorporated company, received a share premium of Rs. 390/- per share against a face value of Rs. 10/-, which was improbable without demonstrating assets or future plans. The AO added Rs. 35,00,000/- to the total income of the assessee, treating it as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The AO's findings were based on the fact that the share application money was received from a company managed by an entry provider, and the assessee failed to produce the directors for verification. The AO also noted that the assessee transferred an identical amount immediately, indicating money rotation without actual business.

The CIT(A) concurred with the AO's findings, emphasizing the lack of substantial business, assets, or renowned directors in the assessee company. The CIT(A) highlighted the circumstantial evidence pointing towards collusion between the assessee and Mr. Jagdish Prasad Purohit. The assessee's submissions, including the identity proof, address proof, bank statements, and income tax returns of the share applicants, were not sufficient to establish the genuineness of the transactions.

The Tribunal noted that the assessee's theoretical submissions on the jurisprudence of share application money issues were not sufficient to rebut the AO's findings. The Tribunal emphasized that the assessee failed to provide details of its assets and future business prospects, and did not produce the share applicant company's directors. The Tribunal upheld the addition of Rs. 35,00,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

3. Penalty Proceedings under Section 271(1)(c):

The AO initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961, for concealing particulars of income. The Tribunal did not provide a detailed analysis of the penalty proceedings, but the initiation of penalty proceedings was noted in the AO's order.

Conclusion:

The Tribunal dismissed the appeal filed by the assessee, upholding the reopening of the assessment, the addition of Rs. 35,00,000/- as unexplained cash credit under Section 68, and the initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961. The Tribunal emphasized the lack of evidence to support the genuineness of the share application money and the failure of the assessee to produce the directors of the share applicant company for verification.

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