2019 (12) TMI 573 - AT - Income Tax

Tribunal upholds Revenue's appeal, emphasizes scrutiny of transactions. Section 68 ITA invoked.

The ACIT, Circle-2, Patna Versus M/s Ridhi Sidhi Fincon Pvt. Ltd.

The ACIT, Circle-2, Patna Versus M/s Ridhi Sidhi Fincon Pvt. Ltd. - TMI Issues Involved:1. Whether the CIT(A) erred in allowing relief to the assessee on account of Share Capital and Share Premium amounting to Rs. 13,95,00,000/-.2. Whether the assessee discharged its onus under Section 68 of the Income Tax Act, 1961.3. Whether the transactions with shareholders were genuine and the shareholders had the creditworthiness.Issue-wise Detailed Analysis:1. Whether the CIT(A) erred in allowing relief to the assessee on account of Share Capital and Share Premium amounting to Rs. 13,95,00,000/-:The CIT(A) deleted the addition made by the AO under Section 68 of the Income Tax Act, 1961, which was based on the AO's conclusion that the identity, creditworthiness of the shareholders, and genuineness of the transactions could not be verified. The CIT(A) held that the AO had not brought any cogent material on record to substantiate the claim of bogus transactions and had failed to spell out his dissatisfaction about the compliance with the requirements of Section 68. The CIT(A) emphasized that the AO's actions fell into the category of conjecture, suspicion, and surmises, which have not found favor with the Apex Court, various High Courts, and Benches of the Tribunal.2. Whether the assessee discharged its onus under Section 68 of the Income Tax Act, 1961:The assessee argued that during the assessment proceedings, notices under Section 133(6) were duly complied with, and the AO had drawn satisfaction regarding the existence, genuineness, and creditworthiness of the share applicants based on preliminary documents like acknowledgment of return of income, copy of accounts, and bank statements. The assessee also contended that the AO had not pursued the matter further after issuing notices under Section 131 and that the onus under Section 68 had been discharged through compliance with notices under Section 133(6) and the submission of necessary documents.3. Whether the transactions with shareholders were genuine and the shareholders had the creditworthiness:The AO made the addition on the grounds that the shareholders did not appear personally to verify their identity and creditworthiness, and the assessee failed to produce the subscribers. The CIT(A) held that the AO did not establish any laundering of cash through layers of bank accounts for subscription into share capital at a premium. The CIT(A) also noted that the directors of the appellant-company and the subscribing companies had not been examined, which was crucial to understand the modus operandi of the business and to establish the genuineness of the transactions and the creditworthiness of the subscribing companies.The Tribunal, after considering the submissions and the material on record, found that the assessee had failed to satisfy the vital ingredients of Section 68, particularly in respect of creditworthiness and genuineness of the transaction. The Tribunal noted that the share applicant companies had meager or nil income and that there was no evidence of genuine business activities. The Tribunal also emphasized the importance of surrounding circumstances and the preponderance of probabilities in determining the true nature of the transactions, as laid down by the Hon'ble Supreme Court in the cases of Sumati Dayal and Durga Prasad More.The Tribunal concluded that the assessee had not discharged its onus to prove the creditworthiness of the shareholders and the genuineness of the transactions. The Tribunal also noted that the creditworthiness of the share applicants was not established, and the transactions appeared to be merely an attempt to introduce unaccounted money into the company. Consequently, the Tribunal set aside the order of the CIT(A) and restored the addition made by the AO under Section 68.Conclusion:The Tribunal allowed the Revenue's appeal, holding that the assessee failed to prove the creditworthiness of the shareholders and the genuineness of the transactions. The Tribunal emphasized the importance of examining the surrounding circumstances and the preponderance of probabilities in determining the true nature of the transactions. The Tribunal set aside the order of the CIT(A) and restored the addition made by the AO under Section 68 of the Income Tax Act, 1961.