2024 (10) TMI 585 - AT - Income Tax

Assessee fails to prove identity, creditworthiness and genuineness of share transactions under Section 68, credits treated as taxable income

RKG Finvest Ltd. Versus ACIT, Circle-20 (2) New Delhi

ITAT Delhi dismissed the appeal where the assessee failed to prove identity, creditworthiness and genuineness of share transactions under Section 68. The ... Unexplained credits u/s 68 - sham/bogus share transactions - identity, creditworthiness and genuineness of transactions not proved - HELD THAT:- As appellant/assessee did not furnish any material to controvert the findings of the Ld. CIT(A) - According to the Section 68 where any sum is found credited in the books of account of assessee, the assessee offers no explanation about the nature and source of the same or explanation offered by him is not found satisfactory in the opinion of the AO, the sum credited may be charged to tax as the income of the assessee of the relevant year. All three limbs of section 68 of the Act; the identity, creditworthiness and genuineness of transactions have not been explained by the appellant/assessee not only before the lower authorities but also before us. Nothing has been brought on the record to controvert the finding of the Ld. CIT(A). In the present case, the creditworthiness/financial strength of the shareholders and genuineness of such credits have not been established by the appellant/assessee as the burden of proof of these is on the appellant/assessee. Following the ratio laid down by the Hon’ble Supreme Court in the case of N. R. Iron and Steel Pvt. Ltd. [2019 (3) TMI 323 - SUPREME COURT] and Oasis Hospitalities Pvt. Ltd. [2011 (1) TMI 194 - DELHI HIGH COURT] it is hereby held that the appellant/assessee has failed to prove and establish the creditworthiness and genuineness of transaction which resulted credits in the books of account of the appellant/assessee. In view of the above, we decline to interfere with the finding of the Ld. CIT(A). Appeal of the assessee is dismissed. Issues Involved:1. Whether the loss on the sale of shares amounting to Rs. 20,59,93,500/- was a sham transaction.2. Whether the sale consideration of Rs. 1,85,68,96,500/- should be treated as unexplained credits under Section 68 of the Income Tax Act, 1961.3. Allegations regarding the appellant being a conduit company for providing accommodation entries.4. Use of adverse material without providing the appellant an opportunity to rebut.5. Rejection of legally tenable documentary evidence by the Assessing Officer.Issue-wise Detailed Analysis:1. Sham Transaction on Sale of Shares:The appellant challenged the disallowance of loss amounting to Rs. 20,59,93,500/-, arguing that the loss on the sale of shares was genuine. However, the Tribunal upheld the findings of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)], which concluded that the transactions were sham. The shares were purchased at a high premium from companies with negative net worth, raising suspicion about the genuineness of these transactions. The AO and CIT(A) determined these companies were paper companies used for laundering unaccounted money, with dummy directors controlled by S.K. Jain and V.K. Jain, who were involved in providing accommodation entries. The appellant failed to provide details of the persons from whom the shares were purchased, thereby failing to prove the genuineness of the purchase cost.2. Unexplained Credits under Section 68:The Tribunal confirmed the addition of Rs. 1,85,68,96,500/- as unexplained credits under Section 68 of the Income Tax Act, 1961. The appellant was unable to demonstrate the creditworthiness and genuineness of the transactions. The AO found that the companies involved in the share transactions were bogus, and the appellant did not furnish any material to counter these findings. The Tribunal noted that the appellant failed to establish the identity, creditworthiness, and genuineness of the transactions, as required under Section 68, and thus, the addition made by the AO was upheld.3. Allegations of Being a Conduit Company:The appellant was alleged to be a conduit company for the S.K. Jain group, providing accommodation entries. The Tribunal found that the appellant did not demonstrate the chain of transactions or prove the credits in its books. The Tribunal referred to previous findings by the ITAT and the Income Tax Settlement Commission, which had established that S.K. Jain and V.K. Jain were involved in providing accommodation entries. The Tribunal noted that the appellant's major shareholder was S.K. Jain, and the appellant failed to discharge its onus to prove otherwise.4. Use of Adverse Material Without Rebuttal Opportunity:The appellant contended that adverse material was used against it without providing an opportunity to rebut. The Tribunal found that the appellant consistently failed to attend hearings or provide evidence to counter the findings of the AO and CIT(A). The Tribunal emphasized that the burden of proof was on the appellant to demonstrate the genuineness of the transactions, which it failed to do.5. Rejection of Documentary Evidence:The appellant argued that legally tenable documentary evidence was rejected without cogent grounds. The Tribunal, however, found no merit in this argument, as the appellant did not provide sufficient evidence to establish the genuineness of the transactions. The Tribunal noted that the appellant failed to demonstrate the creditworthiness and genuineness of the transactions, as required under the Income Tax Act.Conclusion:The Tribunal dismissed the appeal, affirming the findings of the CIT(A) and AO. It held that the appellant failed to prove the genuineness of the transactions and the creditworthiness of the parties involved. The Tribunal emphasized the appellant's failure to discharge its burden of proof and upheld the additions made under Section 68 of the Income Tax Act. The appeal was dismissed, and the order was pronounced in open court on 27 September 2024.