2017 (3) TMI 206 - AT - Income Tax

Tribunal scrutinizes shell company claims, stresses evidence in tax cases

The Tribunal upheld the addition of Rs. 18,00,000 for Cap Vanijya Pvt. Ltd. as a shell company. For Newjet Trexim Pvt. Ltd. and Sadasukh Dealers Pvt. ... Addition u/s 68 - addition as share capital receiver from shell/paper company - Held that:- As regards Cap Vanijya (P) Ltd. revenue is believed to prove that the activities undertaken by the alleged company are not meeting commercial prudence and the working of this company is merely to provide accommodation entries. Against the counter evidence of the Department proving the company to be a paper company, assessee miserably failed to bring any strong evidence to justify its plea of genuineness and creditworthiness of the alleged cash credit of ₹ 18,00,000/-. We are, therefore, of the firm view that ld. Commissioner of Income Tax(A) has rightly confirmed the addition u/s 68 of the Act of ₹ 18,00,000/- received as share capital and premium from Cap Vanijya (P) Ltd. which is a shell/paper company. As regards remaining two companies namely Newjet Trexim (P) Ltd. and Sadasukh Dealers (P) Ltd. the issue relating to share capital/premium received needs to be remitted back to the file of Assessing Officer for making further investigation with the help of well equipped Govt. machinery and the power to make commission to the counter part in the city where the alleged companies are existing so as to substantiate its plea that the alleged two companies are paper companies and also to find out the actual modus operandi of these companies qua investments in share capitals of other companies qua their business operation qua the income earned during the year. Needless to mention that assessee will have a proper opportunity of being heard for putting forth its arguments and submissions against the information collected by the Revenue authorities. - Decided partly in favour of assessee for statistical purposes. Issues Involved:1. Addition of Rs. 61,00,000 under Section 68 of the Income-tax Act, 1961.2. Miscellaneous grounds of appeal.Detailed Analysis:1. Addition of Rs. 61,00,000 under Section 68:The primary issue revolves around the addition of Rs. 61,00,000 to the assessee's income under Section 68 of the Income-tax Act, 1961, which pertains to unexplained cash credits. The amount in question includes Rs. 11,00,000 as share capital and Rs. 50,00,000 as share premium received from three companies: Newjet Trexim Pvt. Ltd., Cap Vanijya Pvt. Ltd., and Sadasukh Dealers Pvt. Ltd.Assessee's Arguments:- The assessee argued that the identity, genuineness, and creditworthiness of the share applicants were established through PAN, confirmation letters, audited accounts, and bank statements.- The assessee contended that if the investing companies were bogus, proceedings should be initiated against those companies, citing the Supreme Court's decision in Lovely Export Pvt. Ltd.- It was argued that share capital is a capital receipt and should not be added as income.Assessing Officer's Findings:- The Assessing Officer (AO) observed that the three companies appeared to be paper/shell companies with no real business activities, based on their financial statements and bank transactions.- Statements from the directors of Cap Vanijya Pvt. Ltd. and Mr. Manohar Lal Nangalia, who controlled the companies, confirmed that these were shell companies.- The AO noted that the bank statements showed only transfer entries with no signs of regular business activities, indicating that these companies were conduits for funds.Commissioner of Income Tax (Appeals) [CIT(A)] Findings:- The CIT(A) confirmed the AO's addition, stating that the companies were shell companies and the transactions were not genuine.- The CIT(A) relied on judicial pronouncements and observed that the assessee failed to provide sufficient evidence to prove the genuineness and creditworthiness of the transactions.Tribunal's Analysis:- The Tribunal noted that the assessee provided necessary documents like PAN, confirmation letters, and bank statements, but these were not sufficient to prove the genuineness and creditworthiness of the transactions.- The Tribunal observed that the financial statements of the three companies showed no real business activities, with significant amounts of money being transferred in and out of their bank accounts without any substantial income or fixed assets.- The Tribunal cited various judicial decisions, emphasizing that mere furnishing of PAN and other documents is not enough to establish the genuineness and creditworthiness of the transactions.Decision:- For Cap Vanijya Pvt. Ltd., the Tribunal upheld the addition of Rs. 18,00,000 as the company was proven to be a shell company through statements and investigation reports.- For Newjet Trexim Pvt. Ltd. and Sadasukh Dealers Pvt. Ltd., the Tribunal remitted the matter back to the AO for further investigation, noting that the initial evidence provided by the assessee was not sufficient, but there was no direct evidence proving these companies to be shell companies.2. Miscellaneous Grounds of Appeal:The appellant sought the liberty to add, alter, or vary any of the grounds of appeal. However, the Tribunal's decision primarily focused on the main issue of unexplained cash credits under Section 68.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, confirming the addition for Cap Vanijya Pvt. Ltd. and remitting the cases of Newjet Trexim Pvt. Ltd. and Sadasukh Dealers Pvt. Ltd. back to the AO for further investigation. The decision underscores the importance of proving the genuineness and creditworthiness of transactions, especially in cases involving significant amounts of share capital and premium.