2023 (2) TMI 847 - AT - Income Tax

Tribunal Upholds Addition Under Income Tax Act for Lack of Genuineness and Creditworthiness

Tribhuvan Dealtrade Pvt. Ltd. Versus ITO, Ward-9 (1), Kolkata

Tribhuvan Dealtrade Pvt. Ltd. Versus ITO, Ward-9 (1), Kolkata - TMI Issues Involved:1. Addition under Section 68 of the Income Tax Act, 1961.2. Validity of share capital and share premium addition.3. Compliance with judicial precedents and financial guidelines.Issue-wise Detailed Analysis:1. Addition under Section 68 of the Income Tax Act, 1961:The primary issue revolves around the addition of Rs. 25,04,00,000/- made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. The AO was not satisfied with the identity, creditworthiness, and genuineness of the sources of funds introduced as share capital and share premium. Consequently, the AO concluded that the amount represented undisclosed income and added it back to the total income of the assessee.2. Validity of Share Capital and Share Premium Addition:The assessee argued that the addition was made on irrelevant considerations and arbitrary grounds, and that sufficient details were provided to prove the identity and creditworthiness of the share applicants and the genuineness of the transactions. The assessee submitted various documents, including proof of identity, IT returns, bank statements, and justifications for the large share premium. Despite these submissions, the AO and the Commissioner of Income-tax (Appeals) [CIT(A)] found that the share capital was received from shell and paper companies with no regular business activity, thus confirming the addition.The Tribunal noted that the assessee company issued equity shares at a premium of Rs. 9,990/- per share, which was almost 100 times the face value of Rs. 10/-. The company had a meager income, no fixed assets, and no substantial business activity. The Tribunal found no concrete justification for such a high premium and concluded that the transactions lacked genuineness.3. Compliance with Judicial Precedents and Financial Guidelines:The Tribunal examined the financials of the share applicant companies and observed that they had no significant business operations or taxable income. The companies were involved in circular routing of funds, with negligible bank balances before and after transactions. The Tribunal noted that neither the assessee nor the share applicants followed any guidelines for determining the share premium, and the transactions appeared arbitrary and devoid of financial rationale.The Tribunal referred to various judicial precedents, including the judgments of the Hon'ble Apex Court in CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, which emphasized the need to establish the identity, creditworthiness, and genuineness of transactions. The Tribunal found that the assessee failed to discharge this onus and upheld the addition made by the AO and CIT(A).Conclusion:The Tribunal dismissed the appeal filed by the assessee, confirming the addition of Rs. 25,04,00,000/- under Section 68 of the Income Tax Act, 1961. The Tribunal concluded that the transactions involving the issuance of share capital and share premium were not genuine and lacked creditworthiness. The financials of the assessee company and the share applicants did not support the high premium charged, and the transactions were deemed to be accommodation entries. The appeal was dismissed on the grounds that the assessee failed to prove the genuineness and creditworthiness of the share capital and share premium transactions.