2024 (7) TMI 226 - HC - Income Tax

Share application money from bogus shell companies upheld as addition under Section 68 for failing identity genuineness requirements

The HC upheld addition under Section 68 for share application money received from bogus shell companies. The assessee failed to discharge the initial onus ... Addition u/s 68 - Share application money was received from bogus shell companies - initial onus to establish proof of identity of the creditors,capacity of creditors to advance money and genuineness of transaction - As argued original beneficiary was identified as Rashi Steels, appellant /assessee should not be subjected to the tax liability - HELD THAT:- The submission of the appellant that since the original beneficiary was held to be Rashi Steel, the present appellant cannot be assessed for the said tax liability do not impress us. If the notices were issued to Eagle Commotrade Pvt. Ltd. and M/s Krishnakali Distributors Pvt Ltd, they were found to be fake/non-existent, the appellant company could not fall back to say that Rashi Steels was the original beneficiary as has been held that the practice of conversion of unaccounted money through the cloak of share capital/premium must be subjected to careful scrutiny. The initial enquiry which came to fore revealed that on close scrutiny the investment which was made by the said two companies their proof of identity of creditors and the capacity of creditors to advance money and genuineness of transaction fell apart when the company was found to be non-existent. It is the first barrier, therefore, the onus of Section 68 of the Act, 1961 is to be discharged by the assessee and having failed to do so. Accordingly, no question of law appears to be arises for consideration. Issues:1. Appeal against order of Income Tax Appellate Tribunal upholding addition to income under Section 68 of the Income Tax Act, 1961.2. Verification of genuineness and creditworthiness of shareholding companies.3. Application of Section 68 of the Act and burden of proof on the assessee.4. Dismissal of appeal based on failure to discharge the onus under Section 68.Analysis:Issue 1:The appeal was filed against the order of the Income Tax Appellate Tribunal (ITAT) upholding the addition of Rs. 1,87,00,000 to the income of the appellant under Section 68 of the Income Tax Act, 1961. The case involved scrutiny of the original return filed by the appellant-company for the Financial Year 2013-14 and Assessment Year 2014-15.Issue 2:The respondent selected the case for complete scrutiny to verify the share premium received by the company. Notices were issued to Kolkata-based share companies, but they were found to be non-existent. The appellant argued that the ultimate beneficiary was another entity, Rashi Steels, and hence, the tax liability should not be imposed on them. However, the respondent contended that the appellant was part of the financial transaction and failed to establish the genuineness of the transaction.Issue 3:Section 68 of the Income Tax Act, 1961 was applied in this case, which deals with cash credits. The burden of proof is on the assessee to establish the genuineness of the transaction, including proof of identity of creditors, capacity of creditors to advance money, and genuineness of the transaction. The Supreme Court's judgment in a similar case emphasized the importance of the assessee proving the receipt of share capital/premium to the satisfaction of the Assessing Officer.Issue 4:The appellant's argument that since the original beneficiary was identified as Rashi Steels, they should not be subjected to the tax liability was dismissed. The Court held that the practice of converting unaccounted money through share capital must be scrutinized carefully. As the appellant failed to discharge the onus under Section 68, the appeal was dismissed, and no question of law arose for consideration.In conclusion, the Court upheld the ITAT's decision, emphasizing the importance of the assessee proving the genuineness of financial transactions to avoid tax liability under Section 68 of the Income Tax Act, 1961.