2022 (7) TMI 892 - AT - Income Tax

Appellate tribunal upholds Assessing Officer's findings on unexplained credits under Income Tax Act

The appellate tribunal upheld the Assessing Officer's findings in a case involving additions of share capital, short-term borrowings, and trade payables ... Addition u/s 68 - share application money with premium was received in cash - As per AO creditworthiness of the share applicants and genuineness of the transactions not proved - primary onus of establishing the identity, genuineness and creditworthiness of the investors - CIT-A deleted the addition - HELD THAT:- A comprehensive understanding of the remand reports clearly establish that through the second remand report, the learned AO did not dispute the identity of the parties - their creditworthiness and genuineness of the transaction were still under fire. AO did not mince many words to say that the creditworthiness of the share applicants and genuineness of the transactions were far from being established. At no place did the AO say that any of the share applicants had any sufficient means to make such huge investments. Althrough his contention has been that neither all the share applicants were produced nor the books of accounts are available for his perusal. He dealt with the creditworthiness of S/Shri S.V.Kishore Reddy, Y. Venkatrami Reddy, Y. Surendra Kumar Reddy, S. Rama Krishna Reddy and Smt. Pushpa Latha, Y. Preethi Reddy, Manasa Reddy and Asha in extenso. With facts and figures, learned Assessing Officer disputed their financial capacity to make the investments. Absolutely there is no acceptable explanation from the assessee as to why the share application money with premium was received in cash. It is also not in dispute that Shri Y. Venkat Rami Reddy was a former member of Union Public Service Commission and it is not open for the learned AR to canvas that these people do not know that such huge amounts cannot be received in cash. Further, there is no dispute that the prospectus issued inviting the shares mandates the payment of share application money through banking channels. The grave doubt entertained by the learned Assessing Officer in the assessee issuing the shares on rights basis without informing and offering the same to the existing shareholders is not at all addressed on behalf of the assessee. The facts recorded by the learned Assessing Officer as to the discrepancies in the share application forms produced on various occasions are beyond any dispute. Further the discussion made as to the capacity of the eight persons in the remand reports also remains unimpeached. On the face of this voluminous material against the assessee, we find it difficult to agree with the Ld. CIT(A) in his observations that the assessee had discharged its primary onus of establishing the identity, genuineness and creditworthiness of the investors. Such a finding has no basis in the facts. Absolutely there is no clinching evidence from any independent source in this matter to show that the alleged share applicants were the persons who really contributed for the share application money or that the alleged payments were made on the dates on which they are said to have been made. On the face of the discrepancies and the inherent contradictions pointed out by the learned Assessing Officer, the plea set up by the assessee has no legs to stand. Case of the assessee did not pass through the scrutiny laid in the decisions reported in PCIT vs. NRA Iron and Steel (P) Ltd [2019 (3) TMI 323 - SUPREME COURT] and CIT Vs. NR Portfolio Private Limited [2012 (12) TMI 762 - DELHI HIGH COURT] In these circumstances, the irresistible conclusion that flows from the investigation made in this matter is that the assessee miserably failed to bring home the creditworthiness of the share applicants or the genuineness of the transaction. So also in respect of the short term borrowings and trade payables. Appreciation of the material made available before the Ld. CIT(A) is not at all satisfactory and the findings consequently reached by the Ld. CIT(A) do not inspire confidence in our mind to accept the same. Since there is no material on record to disturb the findings and the consequent additions made by the learned Assessing Officer, we are of the considered opinion that the same cannot be interfered with. We, accordingly, set aside the orders of the Ld. CIT(A) and uphold the findings of the learned Assessing Officer. - Decided in favour of revenue. Issues Involved:1. Addition of share capital as unexplained credits under Section 68 of the Income Tax Act.2. Addition of short-term borrowings and trade payables as unexplained credits under Section 68 of the Income Tax Act.3. Evaluation of the identity, creditworthiness, and genuineness of the transactions related to share applicants and creditors.Issue-wise Detailed Analysis:1. Addition of Share Capital as Unexplained Credits:The assessee, a private limited company, raised funds through share capital and unsecured loans. During a survey under Section 133A, it was found that the assessee did not declare certain amounts in its original returns. The Assessing Officer (AO) added these amounts as unexplained credits under Section 68, doubting the creditworthiness of the share applicants and the genuineness of the transactions. The AO noted discrepancies in share application forms, non-compliance with the requirement to receive share application money through banking channels, and the inability of the assessee to produce books of accounts or valid share applications. The AO also highlighted the improbability of the share applicants accumulating the necessary funds given their declared incomes and financial activities.2. Addition of Short-term Borrowings and Trade Payables:The AO added amounts under short-term borrowings and trade payables as unexplained credits due to insufficient evidence. The AO found discrepancies in confirmations from creditors and noted that some payments were made to different persons than those listed as creditors. The AO also pointed out that the assessee failed to explain the reasons for such payments and did not provide sufficient evidence to substantiate the claims.3. Evaluation of Identity, Creditworthiness, and Genuineness:The CIT(A) accepted additional evidence submitted by the assessee, including affidavits, confirmation letters, and income tax returns. However, the AO, in his remand reports, reiterated doubts about the creditworthiness of the share applicants and the genuineness of the transactions. The AO examined the financial capacity of several share applicants and found significant discrepancies between their declared incomes and the amounts invested. The AO also noted that many share applicants were related to the assessee, and the investments appeared to be an attempt to camouflage the real investors. The AO's findings were detailed and included specific instances where the declared sources of funds were not substantiated by evidence.Conclusion:The appellate tribunal found that the CIT(A)'s acceptance of the assessee's evidence was not satisfactory and did not inspire confidence. The tribunal upheld the AO's findings, noting the lack of clinching evidence to establish the identity, creditworthiness, and genuineness of the share applicants and the transactions. The tribunal concluded that the assessee failed to discharge its primary onus under Section 68 and set aside the CIT(A)'s orders, restoring the AO's additions.Judgment:The appeals of the Revenue were allowed, and the cross-objections preferred by the assessee were dismissed. The tribunal upheld the AO's additions of share capital, short-term borrowings, and trade payables as unexplained credits under Section 68 of the Income Tax Act.