2024 (9) TMI 1450 - AT - Income Tax

ITAT upholds Section 68 additions for bogus share capital transactions with Rs. 499 premium on Rs. 1 shares

M/s. Toplink Commerce Limited Versus Income Tax Officer, Ward-10 (2), Kolkata

ITAT dismissed the appeal and upheld additions under Section 68 for bogus share capital and premium transactions. The assessee failed to establish ... Addition u/s 68 - addition of share capital and share premium as bogus - identity of shareholders, creditworthiness of the shareholder and genuineness of the transaction not proved - HELD THAT:- Except for filing paper documents, which are in the nature of self-serving recitals but could not justify the genuineness of the transactions for investing in a newly formed company with no past history nor having any plausible business model, that too at a huge premium of Rs. 499/- for shares of the face value of Rs. 1, the assessee could not establish the genuineness of the transactions and the creditworthiness of the share applicants. The factors which militate against the assessee and question the genuineness of the entirely dubious and unjustified transactions for receipt of share capital along with huge share premium from corporate entities. Since neither the identity, nor the creditworthiness, nor the genuineness of the transition could be established and the whole arrangement was dubious and a smokescreen to camouflage the real transactions, as is rightly held by the Ld. AO and the Ld. CIT(A), therefore, the Ld. AO was justified in adding the amount to the income of the assessee as unexplained cash credits, which additions has been rightly confirmed by the Ld. CIT(A). Appeal of the assessee is dismissed. Issues Involved:1. Legitimacy of addition of share capital and share premium under section 68 of the Income Tax Act, 1961.2. Compliance with notices issued under sections 131 and 133(6) of the Income Tax Act, 1961.3. Establishment of identity, creditworthiness, and genuineness of transactions by the assessee.Issue-Wise Detailed Analysis:1. Legitimacy of Addition of Share Capital and Share Premium under Section 68 of the Income Tax Act, 1961:The assessee company raised equity share capital of Rs. 1,04,40,000/- and share premium of Rs. 16,96,60,000/- during the financial year relevant to AY 2012-13. The Assessing Officer (AO) found it unusual for a newly incorporated company to receive such a large share premium and questioned the genuineness and creditworthiness of the investors. Despite receiving responses to notices issued under sections 142(1) and 133(6), the AO concluded that the identity and creditworthiness of the investors were not properly verifiable. The AO issued summons under section 131 to the director of the company for personal deposition and to produce various documents, but there was non-compliance. Consequently, the AO added the sum of Rs. 18,03,30,000/- shown as share capital contribution under section 68 of the Act, relying on several judicial pronouncements that emphasize the need for the assessee to prove the identity, creditworthiness, and genuineness of the transactions.2. Compliance with Notices Issued Under Sections 131 and 133(6) of the Income Tax Act, 1961:The AO issued notices under section 133(6) to the share applicants and received replies confirming the transactions. However, the AO found that the identity and creditworthiness of the investors were not verifiable from the documents provided. Summons under section 131 were issued to the director of the company for personal deposition, which was not complied with. The assessee claimed that the directors appeared before the AO, but their attendance was not accepted. The Ld. CIT(A) also noted non-compliance with the summons under section 131, which led to the confirmation of the addition made by the AO.3. Establishment of Identity, Creditworthiness, and Genuineness of Transactions by the Assessee:The assessee submitted various documents, including board resolutions, master data, ITR acknowledgments, audited balance sheets, share application forms, allotment letters, and bank statements, to substantiate the identity, creditworthiness, and genuineness of the transactions. The AO and Ld. CIT(A) found these documents insufficient to establish the three ingredients required under section 68. The Ld. CIT(A) emphasized that merely establishing the identity of the investors and the manner of payment by account payee cheque is not sufficient. The AO and Ld. CIT(A) relied on judicial pronouncements that stress the need for deeper scrutiny to establish the genuineness and creditworthiness of the transactions.The Tribunal, after considering the submissions and judicial precedents, concluded that the assessee failed to justify the huge premium charged and could not establish the genuineness of the transactions and the creditworthiness of the investors. The Tribunal noted that the assessee did not provide any valuation report to justify the premium and that the financial health of the assessee did not support such investments. The Tribunal upheld the addition made by the AO and confirmed by the Ld. CIT(A), dismissing the appeal of the assessee.Conclusion:The Tribunal dismissed the appeal, upholding the addition of Rs. 18,03,30,000/- under section 68 of the Income Tax Act, 1961. The Tribunal emphasized the need for the assessee to establish the identity, creditworthiness, and genuineness of the transactions, which were not satisfactorily demonstrated. The decision was based on the failure of the assessee to comply with the summons under section 131, the lack of supporting valuation for the premium charged, and the overall dubious nature of the transactions.