2012 (9) TMI 579 - AT - Income Tax

Tribunal upholds Rs. 28 lakh addition under Income Tax Act due to lack of shareholder proof

The Tribunal upheld the addition of Rs. 28,00,000/- under Section 68 of the Income Tax Act, 1961, as the assessee failed to prove the identity, ... Addition u/s 68 on account of Share application money – Investor's company invested money in assessee’s share at a premium - Same were bought back by the promoters/director of assessee in the very next year at a 90% discount – Detailed inquiry has been made by the AO – Sending letters u/s 133(6) and personally visited on given address of investors – AO come to conclusion that they were just paper companies and did not exist in reality - Held that:- As no sign board was hang on the premises , neighbor told that office is closed long back and not listen the name of investor company. On an enquiry made from investor’s bank reveals that cash was deposited immediately prior to issue of cheque to the assessee and the account of these companies was closed immediately after transfer of funds. It seems there was no genuine transaction of share capital, the companies were not existed at all. Assessee himself routed his funds through these companies. Assessee could not rebut the same by bringing any positive material on record to substantiate the identity and authenticity of investors. Therefore, confirm the action of AO & CIT (A) for applying provisions of Sec 68 in respect of share capital received from company as well as individual investors. Appeal decides in favour of revenue. Issues Involved:1. Addition of Rs. 28,00,000/- made by the Assessing Officer under Section 68 of the Income Tax Act, 1961, in respect of share application money received by the petitioner.Detailed Analysis:Issue 1: Addition of Rs. 28,00,000/- under Section 68The assessee appealed against the order of the CIT(A) which upheld the addition of Rs. 28,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO observed discrepancies in the share application money received by the assessee company, which was in its first year of business. The AO scrutinized the balance sheet and found that the assessee had shown a share capital of Rs. 3,80,000/- and reserve and surplus of Rs. 25,40,998/-, with unsecured loans amounting to Rs. 3,33,09,596/-. The entire share application money was received during the year and shares were allotted at a premium of Rs. 90 per share, despite the company not having conducted any business or created goodwill.During the assessment, the AO raised queries regarding the share application money, reserve and surplus, and unsecured loans. The assessee provided details and confirmation letters from shareholders and loan providers. However, upon further investigation, the AO found that the share application money was managed through dubious means. Statements from one of the directors indicated that the money was received through cheques from known parties without any broker's involvement.The AO issued notices under Section 133(6) of the Income Tax Act to verify the allotment of shares on premium from the concerned parties. The notices sent to the addresses of the alleged shareholders were returned unserved with remarks indicating that the parties had either left or were unknown at the given addresses. The AO made personal visits to the addresses in Kolkata and found no signboards or offices of the alleged companies, confirming that these companies did not exist at the given addresses.Further inquiries revealed that the transactions of share money were routed through ABN Amro Bank at Kolkata, with accounts opened and closed within a short period. The AO found that the deposits received in the accounts of these companies were through cheques issued by other companies that had deposited cash in their accounts shortly before issuing the cheques. This indicated that the assessee had managed the share money by rotating funds through various companies, showing share application money in the name of the assessee company.The AO concluded that the assessee had not proved the identity, genuineness, and creditworthiness of the shareholders, leading to the addition of the entire amount under Section 68. The CIT(A) confirmed the addition, noting that the findings of the AO were not rebutted by the assessee. The CIT(A) observed that the share capital contribution was an arranged affair, with the shares repurchased by the directors at a fraction of the price within a short period.The CIT(A) referred to various judicial decisions to support the addition under Section 68, emphasizing the need to prove the identity, capacity, and genuineness of the transaction. The CIT(A) noted that the assessee had failed to discharge the burden of proof, and the detailed inquiries made by the AO established that the share application money was not genuine.The Tribunal, after considering the submissions and evidence, upheld the findings of the lower authorities. The Tribunal noted that the assessee could not substantiate the identity and authenticity of the investors, and the detailed inquiries by the AO confirmed that the alleged investors were bogus and did not exist. The Tribunal concluded that the share capital transaction was not genuine and confirmed the addition under Section 68.Conclusion:The appeal of the assessee was dismissed, and the addition of Rs. 28,00,000/- under Section 68 of the Income Tax Act, 1961, was upheld. The Tribunal confirmed that the assessee failed to prove the identity, genuineness, and creditworthiness of the shareholders, and the detailed inquiries by the AO established that the share application money was not genuine.