Tribunal Partly Allows Appeal, Deletes Rs. 3.30 Crore Addition Under Section 68; Fictitious Share Entries Uncovered

The Appellate Tribunal addressed an appeal concerning the addition of Rs. 3.30 crores under section 68 of the Income Tax Act, 1961. The appellant challenged the addition, arguing it was based on fictitious share capital and share premium entries. The Tribunal found the alleged share subscribers untraceable and the entries false. While expressing disapproval of the appellant's manipulation of financial statements for credit facilities, the Tribunal deleted the Rs. 3.30 crore addition. Other appeal grounds were dismissed due to lack of submissions. The Tribunal partly allowed the appeal, ruling in favor of the appellant regarding the disputed addition.

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The appeal before the Appellate Tribunal concerned the addition of Rs. 3.30 crores under section 68 of the Income Tax Act, 1961, for the assessment year 2012-13. The issues raised in the appeal included the addition of share capital and share premium, cash deposits in cash credit loan account, alleged difference in loan account, and disallowance of depreciation on plant & machinery. The appellant contested the addition of Rs. 3.30 crores, arguing that it was made on account of bogus share capital and share premium received from various persons, which were merely book entries to window dress the balance sheet for obtaining higher credit facilities from the bank.The appellant's representative, Dr. Rakesh Gupta, contended that the addition should not have been made as no actual share capital was received, and the alleged transactions were fictitious. The appellant's auditor and managing director admitted to the falsity of the entries. The appellant claimed that since the claim of depreciation on non-existing plant and machinery was disallowed, no addition on account of share capital and share premium was warranted. Dr. Gupta relied on precedents to support the argument that where balance sheets were manipulated for banking purposes, no additions should be made under the Act.On the other hand, the department's representative, Shri Amar Pal Singh, supported the CIT(A) and AO's decision, emphasizing the increase in share capital and share premium as per the audited balance sheet. The department argued that the appellant's explanations were afterthoughts and urged the Tribunal to uphold the impugned order.The Tribunal considered the facts and submissions from both sides. It noted that the alleged subscribers of share were untraceable, and confirmations from banks and subscribers were found to be false. The CIT(A) accepted the deletion of the depreciation claim but confirmed the addition of the bogus share capital and share premium. The Tribunal observed that if there were bogus entries on the asset side, the corresponding effect on the liability side should also be acknowledged. Therefore, considering the entirety of the case, the Tribunal deleted the addition of Rs. 3.30 crores made on account of bogus share capital and share premium under section 68 of the Act.The Tribunal expressed disapproval of the appellant's unethical conduct in manipulating the balance sheet to obtain higher credit facilities. However, it ultimately ruled in favor of the appellant regarding the disputed addition. The Tribunal dismissed the other grounds of appeal as no submissions were made by the appellant's counsel.In conclusion, the Tribunal partly allowed the appeal, deleting the addition of Rs. 3.30 crores related to bogus share capital and share premium while expressing censure for the appellant's deceptive practices. The order was pronounced on February 21, 2025.

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