2022 (11) TMI 355 - AT - Income Tax

Off-Market Share Transactions Deemed Bogus: Tribunal Upholds Revenue Authorities' Findings

The Tribunal upheld the revenue authorities' findings that off-market share transactions were bogus and share subscription money received was unexplained. ... Bogus share transaction - off-market share transactions as not genuine transactions - HELD THAT:- Entire case-records were confronted by the revenue authorities to the assessee and the modus of operation regarding these purchases and sales of shares through off-market trading but the assessee could not provide any answer. A.R before us also admitted that the share transactions entered into by the assessee were off-market transactions and not done through any recognized stock-exchange. A.R could not submit any reason why such off-market trading was resorted to when the share transactions could genuinely be done through recognized stock-exchange. Therefore, upon examination of the facts and circumstances of this case, we are in conformity with the submissions of the D.R that the modus of operations of the share transactions adopted by the assessee through off-market trading and the corresponding claim of loss and also the profit are fictitious, fabricated, false and bogus. We do not find any reasons to interfere with the findings of the CIT(A) and the same is upheld. Ground No. 1 of the appeal of the assessee is dismissed. Addition of share subscription money received - HELD THAT:- The assessee-company was under legal obligation to prove the genuineness of the transactions, identity and creditworthiness of the creditors and the investors and whether they have financial capacity to make the investments in question. This primary onus of the assessee has not been discharged as contemplated u/s 68 of the Act. A.O has done his duty by issuing summons and has done detailed examination of the facts and circumstances of the case. However, the assessee-company has not submitted any documentary evidences for ascertaining whether the transactions were genuine or not and neither have established through any materials/documents that the share subscription money received were not bogus or that they were not name-lending entries. In fact, the summons remained unanswered by these shareholders which were issued and served by the ld. A.O. We are therefore, of the considered view that the creditworthiness of the shareholders are not established, the genuineness of the transactions are also not established and in majority cases the identity of the creditors also not established by the assessee. Thus, there is no reason to interfere with the findings of the CIT(A) in this issue and the additions made by the ld. A.O of Rs. 2,55,00,000/- and as confirmed by the ld. CIT(A) is hereby upheld. Ground No. 2 of assessee’s appeal is dismissed. Issues Involved:1. Treatment of off-market share transactions as bogus.2. Addition of share subscription money received.Issue 1: Treatment of Off-Market Share Transactions as BogusThe assessee engaged in off-market transactions of shares with Mr. Suwalal C. Bafna, resulting in a claimed loss of Rs. 2,11,00,000/-. The Assessing Officer (AO) observed that these transactions were carried out on the same day, raising suspicions of their genuineness. The AO concluded that the transactions were managed to siphon funds and evade taxes, adding the loss to the assessee's income as a bogus claim.The CIT(A) noted that the assessee had similar transactions with other parties, resulting in a profit of Rs. 43,47,956/-, which was accepted by the AO. However, the CIT(A) held that all off-market transactions, including those with Mr. Suwalal C. Bafna and other parties, were fictitious and aimed at obtaining tax benefits. Consequently, both the profit and loss from these transactions were removed from the assessee's total income, and the speculative loss was not allowed to be carried forward.During the hearing, the assessee's representative failed to provide satisfactory explanations for the same-day purchase and sale transactions. The Tribunal agreed with the revenue authorities, concluding that the transactions were fabricated to derive illegal tax benefits. The appeal on this ground was dismissed.Issue 2: Addition of Share Subscription Money ReceivedThe assessee received Rs. 2.55 crores towards share capital, including Rs. 2.40 crores as share premium, from ten individuals. The AO found that these transactions were carried out in cash, and the assessee failed to substantiate the identity, creditworthiness, and genuineness of the transactions. The AO observed that the company was incurring heavy losses, had no business activities, and was involved in criminal cases, making it unlikely for prudent investors to invest at a high premium.The CIT(A) upheld the AO's findings, noting that the assessee could not establish the creditworthiness and genuineness of the transactions. The Tribunal also agreed with the CIT(A), emphasizing that the assessee failed to discharge the primary onus under section 68 of the Act. The appeal on this ground was dismissed.Conclusion:The Tribunal dismissed the appeal, upholding the findings of the revenue authorities that the off-market share transactions were bogus and the share subscription money received was unexplained. The assessee failed to establish the genuineness and creditworthiness of the transactions, leading to the confirmation of the additions made by the AO.