2016 (4) TMI 1228 - AT - Income Tax

Tribunal validates Section 68 additions, rejects appeals. Share subscription genuineness not proven.

M/s Royal Rich Developers Pvt. Ltd. Versus D.C.I.T. – OSD – II, Mumbai

M/s Royal Rich Developers Pvt. Ltd. Versus D.C.I.T. – OSD – II, Mumbai - Tmi Issues Involved:1. Addition of amounts as unexplained cash credit under Section 68 of the Income Tax Act, 1961.2. Validity of reopening of assessment under Section 147/148 of the Income Tax Act.3. Examination of the genuineness of share subscription transactions.4. Onus of proof regarding the identity, creditworthiness of shareholders, and genuineness of transactions.5. Applicability of amended Section 68 and its retrospective effect.Detailed Analysis:1. Addition of Amounts as Unexplained Cash Credit under Section 68:The assessee company challenged the addition of Rs. 1.60 crores for AY 2006-07 and Rs. 3.75 crores for AY 2007-08 as unexplained cash credit under Section 68. The Assessing Officer (AO) found that the share subscription credited in the assessee's books was bogus, supported by incriminating documents and statements from the directors admitting the accommodation entries. The AO concluded that the share subscription was unexplained cash credit.2. Validity of Reopening of Assessment under Section 147/148:The assessment was reopened under Section 147 of the Act as the AO had reasons to believe that income had escaped assessment. The notice under Section 148 was issued within four years from the end of the assessment year, and the original assessment was not framed under Section 143(3). The assessee did not challenge the reopening of the assessment.3. Examination of the Genuineness of Share Subscription Transactions:During the survey, various incriminating documents were found, including share application forms, blank transfer forms, and bank passbooks showing cash deposits before issuing cheques to the assessee. The directors admitted that the share subscriptions were accommodation entries. The AO and CIT(A) found that the transactions were not genuine, supported by the lack of business activities and the improbability of earning such amounts within a short period.4. Onus of Proof Regarding the Identity, Creditworthiness of Shareholders, and Genuineness of Transactions:The assessee provided details such as names, addresses, PANs, and bank statements of the shareholders. However, the AO and CIT(A) found that the shareholders did not have the financial capacity to make such investments and failed to appear before the AO despite summons. The assessee failed to discharge the onus of proving the identity and creditworthiness of the shareholders and the genuineness of the transactions.5. Applicability of Amended Section 68 and Its Retrospective Effect:The CIT(A) referred to the amended Section 68, which requires the assessee to prove the source of the source of share subscription. The amendment was held to be clarificatory and retrospective by the Kolkata Tribunal in Subhlakshmi Vanijya (P.) Ltd. v. CIT. The Tribunal upheld the addition, noting that the assessee failed to produce shareholders and justify the premium charged on shares.Conclusion:The Tribunal dismissed the appeals, upholding the additions made by the AO under Section 68 for both assessment years. The assessee failed to prove the genuineness of the share subscriptions and the creditworthiness of the shareholders, and the reopening of the assessment was valid. The amended Section 68 was applicable retrospectively, and the assessee did not meet the burden of proof required under the section.