2019 (3) TMI 492 - AT - Income Tax

Tribunal upholds Rs. 36,33,000 addition under Income Tax Act Section 68, citing lack of evidence.

Ayaana Comtrade P. Ltd Versus ITO, Ward-1 (1) (4) Ambawadi Ahmedabad.

The Tribunal upheld the addition of Rs. 36,33,000/- under Section 68 of the Income Tax Act, dismissing the assessee's appeal. The Tribunal found that the ... Unexplained cash credit u/s 68 - Share applicants were not creditworthy - falure to produce share applicants - shares subscribed at such a higher premium - HELD THAT:- AO has specifically directed production of these share applicants. But the assessee failed to produce them. There is no justification at the end of the assessee to demonstrate that these shares could be subscribed at such a higher premium that too by a marginal person who has very nominal income. They are not family members, who have some interest in the company. The ld.CIT(A) has appreciated this aspect. It is also noted that in their accounts identical amount of deposits were made before issuance of cheques for share applications - decided against assessee. Issues Involved:1. Validity of addition under Section 68 of the Income Tax Act, 1961.2. Identity, genuineness, and creditworthiness of share applicants.3. Justification of share premium received by the assessee.Issue-wise Detailed Analysis:1. Validity of Addition under Section 68 of the Income Tax Act, 1961:The primary grievance of the assessee was the confirmation of the addition of Rs. 36,33,000/- by the CIT(A), which the AO had added as unexplained cash credit under Section 68. The assessee had issued share capital and received share premium during the year, which the AO scrutinized and found to be unexplained. The AO's conclusion was based on the fact that the share applicants did not appear to be creditworthy, and the transactions were not genuine.2. Identity, Genuineness, and Creditworthiness of Share Applicants:The assessee argued that they had provided confirmations from all share applicants, copies of their income tax returns, PAN cards, motor driving licenses, share application forms, share certificates, and communication with the Registrar of Companies. Despite these submissions, the AO found that the share applicants had very meager sources of income, and their financial capabilities to subscribe to shares at a premium were questionable. The AO specifically directed the assessee to produce the share applicants for verification, but the assessee failed to do so, leading to doubts about the genuineness of the transactions.The Tribunal noted that the basic principles under Section 68 require the assessee to establish the identity of the share applicants, the genuineness of the transaction, and the creditworthiness of the share applicants. The Tribunal emphasized that mere submission of documents like PAN cards and certificates of incorporation is not sufficient to prove the identity and genuineness of the transactions. The AO is entitled to examine the source of the money in the accounts of the applicants to form a belief about the genuineness of the transaction.3. Justification of Share Premium Received by the Assessee:The Tribunal observed that the share applicants had very low incomes, making it difficult to justify their investments in the assessee company at a hefty premium. The CIT(A) noted that all the share applicants had opened bank accounts in the same bank, and identical amounts were deposited before issuing cheques for share applications. This raised suspicions that the money was being channeled by the assessee itself to give it the appearance of investment.The Tribunal also referred to the audit reports, which showed very low earnings per share, making it improbable that individuals with nominal incomes would invest such significant amounts in the assessee company. The Tribunal concluded that the assessee failed to demonstrate the creditworthiness and genuineness of the transactions, and the AO's addition under Section 68 was justified.Conclusion:The Tribunal upheld the addition of Rs. 36,33,000/- made by the AO under Section 68, dismissing the appeal of the assessee. The Tribunal emphasized that the assessee failed to produce the share applicants for verification and did not provide sufficient evidence to prove the creditworthiness and genuineness of the transactions. The Tribunal's decision was based on a thorough analysis of the facts and circumstances, as well as relevant legal principles and authoritative pronouncements.