2023 (2) TMI 698 - AT - Income Tax

Assessee's Appeal Dismissed for Unexplained Share Application Money

Dhanwan Leasing and Finance Company Ltd. Versus ITO, Ward 2 (2), Indore.

The Tribunal dismissed the appeal filed by the assessee as they failed to prove the identity, creditworthiness, and genuineness of transactions related to ... Addition u/s 68 - unexplained share application money - establishing a factum of conduit company - HELD THAT:- In present case that the 40 investor companies, who invested the amount in the assessee company as share application money are not part of Keti Construction group of companies and in this situation, the onus lay upon the shoulders of the assessee cannot be held discharged in absence of substantiating the factum of capacity and credit worthiness of the investor companies and genuineness of the transaction. As in the present case, the assessee cannot be held as conduit company because capacity and credit worthiness of 40 companies who invested share application money in the assessee company and genuineness of transaction has not been established. Assessee cannot be held as intermediary company because the assessee has not successfully established that the source companies are also group companies and it is working merely as middleman entity and a conduit company. Therefore, the benefit of the judgements relied on by the assessee in the case of Omni Farms Pvt. Ltd. [2015 (1) TMI 1119 - ITAT DELHI], Vijay Conductors India Pvt. Ltd. [2015 (9) TMI 1519 - DELHI HIGH COURT] and AGM Holdings Ltd. [2016 (3) TMI 1449 - ITAT DELHI] is not available for the assessee in the present case having distinct and dissimilar facts as the assessee could not substantiate the fact that it is a conduit company of Keti group of companies. Therefore, we are inclined to hold that since the assessee company has not discharged the onus lay on the shoulders of it that it is a conduit company and also has not successfully proved and established the identity, capacity and credit worthiness of 40 investor companies and genuineness of the transaction, therefore, the AO was right in making addition in the hands of the assessee u/s 68 of the Act and the ld.CIT(A) was also correct in confirming the same. Decided against assessee. Issues Involved:1. Reopening of Assessment under Section 148 of the Income Tax Act.2. Addition under Section 68 for unexplained share application money.3. Addition under Section 69 for unexplained investment.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 148 of the Income Tax Act:The assessee did not press this ground, and thus it was dismissed as 'not pressed.'2. Addition under Section 68 for Unexplained Share Application Money:The assessee argued that the CIT(A) erred in confirming the addition made by the AO without properly appreciating the submissions and contentions. The assessee received share application money of Rs. 24,14,75,000 from 40 entities and invested Rs. 24,09,50,000 in Keti Constructions Ltd. The assessee claimed that the money was merely transferred as share application money within group companies, and no addition should be made. The CIT-DR countered that the assessee failed to prove the identity, genuineness, and creditworthiness of the 40 share applicants. The Tribunal noted that the assessee did not furnish sufficient documentary evidence to establish the identity, capacity, and creditworthiness of the investor companies. The Tribunal held that the assessee could not be considered a conduit company as it failed to establish the necessary facts. Thus, the AO's addition under Section 68 was upheld.3. Addition under Section 69 for Unexplained Investment:The assessee argued that the CIT(A) erred in confirming the addition of Rs. 70,00,000 on account of alleged commission paid. However, the Tribunal did not provide a separate detailed analysis for this ground, implying that the focus remained on the primary issue under Section 68.Conclusion:The Tribunal dismissed the appeal filed by the assessee. The assessee failed to discharge the onus of proving the identity, creditworthiness, and genuineness of the transactions related to the share application money. The Tribunal upheld the AO's addition under Section 68 and confirmed the CIT(A)'s order. The appeal was pronounced dismissed on 10.02.2023.