INCOME TAX ACT, 1961

Sections 68 & 69C

Income from undisclose sources - Addition under sections 68 and 69C - Three prime issues decided in assessee's favour - Burden of proof

Assessee company was engaged in the activities of investment in shares in various companies. On perusal of the balance sheet, AO noticed that during the year under consideration the company has received Rs. 4,35,00,000 as share capital and Rs. 69,15,00,000 as share premium by issue of Rs. 3 lac fully paid-up share at the face value of Rs. 10 each and a premium of Rs. 190 per share; and further Rs. 15 lakhs partly paid-up share converted into fully paid-up share @ Rs. 90 from certain parties. The primary addition in all the appeals pertain to additions under section 68 on the credits in the form of share capital/share premium and/or loan and advances appearing in the books of assessee companies in the assessment year 2012-13 in 15 cases; in assessment year 2013-14 in 3 cases; and assessment year 2014-15 in one case. AO treated the share capital/share premium and/or loans and advances as alleged introduction of unaccounted funds and added the same under section 68. The core contention of the assessee in a nutshell was that the funds have been channeled from the regular books of account of Bhushan Energy Ltd., which was a subsidiary of Bhushan Steel Ltd. into a maze of group companies in the form of share capital and/or loan and advances. Apart from that, commission expenses on notional basis under section 69C alleged to have been paid by assessee for availing such accommodation entries from the group companies had also been added by CIT(A) by way of enhancement. In majority of cases, CIT(A) had deleted the addition made under section 68 however the fresh addition (enhancement) was also made by the CIT(A) on account of alleged commission income @ 2% for providing facility to route the impugned financial transactions without introducing new source of income beyond record without issuing prior show cause notice under section 251(2). Held: In response to the show cause notice, AO required to prove the genuineness, identity and creditworthiness of the subscribers from whom the assessee company had received share capital and share premium aggregating to Rs. 73,50,00,000, the assessee vide reply dated 22-12-2014 submitted the details of address along with PAN, their confirmation letters and their bank statements highlighting the relevant entries. In order to verify the genuineness of the transaction, the AO sent notice(s) under section 133(6) dated 9-1-2015 to the subscriber company, namely, Bhushan Finance Pvt. Ltd. and NRA Iron and Steel Pvt. Ltd. and asked them also to furnish the details. The AO also further asked the assessee company to furnish details of business activities done by the company, year wise details of dividend received during the year and the last three years, year-wise break up of profit and loss account incurred by the assessee during the year and last three years, details of EPS and book value of shares, details of declaration of premium received during the year. In response, the assessee had filed its detailed reply vide Letter, dated 20-3-2015 as mentioned by the AO. Further, the assessee again was required to prove the identity, genuineness and creditworthiness of the subscribers in view of section 68 the assessee had filed confirmation and bank statement the gist of which have been reproduced in the assessment order. On the perusal of the bank statement AO observed that the subscriber company and individual investment did not have their own creditworthiness and they were just accommodation entries. He further observed that on perusal of the financials of the assessee company, it can be seen that it has not done any business activity and the major part of the turnover derived from the dividend and miscellaneous income. He has also analyzed the books profit of the assessee company before issue of share on premium as on 31-3-2011. CIT(A) though held that on the facts and circumstances of the case, addition under section 68 could not be made, but held that these companies must have charged 2% as commission on the total transaction as profit on such entries and in this case it was worked out at Rs. 1,47,00,000. Before the CIT(A), the assessee has filed the very elaborate submission containing all the details and information and also how the money has been routed through from the main company to through web of group companies and along with the cash flow chart. The detailed remand report of the AO has been incorporated from pages 21 to 28 of the appellate order. It was seen from the assessment order that appellant has not provided proper confirmation at the first instance, however, notices issued under section 133(6) to the investors, had been replied with. There is no financial capacity of various investors to subscribe share capital with high premium in the appellant company. The assessee company expressed their inability to produce the directors of the investor companies or the individuals. It is also seen by the AO that the amount has been received by the investors, just before subscribing the shares in the assessee company. The subscribers did not have their own creditworthiness as in most of the cases the amount has been received on transfer and there is hardly any business activity by those investors. Addition made by CIT(A) was beyond the scope of jurisdiction conferred upon CIT(A) under section 251 by introducing new source of income and that too, without giving any reasonable cause against enhancement.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2012-13 & 2013-14

INCOME TAX ACT, 1961

Section 14A Section 143(3)

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