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Facts
The assessee filed an appeal against the order of the CIT(A) who dismissed their appeal against an assessment order. The assessment order computed income at Rs. 77,73,450/- against a declared loss. The primary issue revolves around the genuineness and creditworthiness of investors who provided funds for share premium.
Held
The Tribunal held that the assessee failed to discharge the onus under Section 68 of the Act to prove the genuineness and creditworthiness of the investors. The evidence provided was insufficient, and no proper explanation was offered for the high premium.
Key Issues
Whether the assessee has provided sufficient evidence to prove the genuineness and creditworthiness of the share premium received from investors as required under Section 68 of the Income Tax Act.
Sections Cited
143(3), 133(6), 68
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Income Tax Appellate Tribunal, DELHI
Ischolar Education Services Vs. DCIT Pvt. Ltd. Circle-12(2) Flat No. 257, Cycle Market, New Delhi Jhandewalan Extension, New Delhi PAN: AADCI1807R Appellant Respondent Assessee by None Revenue by Sh. Om Prakash, Sr. DR Date of Hearing 07/04/2025 Date of Pronouncement 09/04/2025 ORDER
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the order of the Commissioner of Income Tax [Appeals]-4, New Delhi [‘Ld. CIT(A)’ for short] dated 14/08/2019 pertaining to Assessment Year 2015-16.
Brief facts of the case are that, an assessment order came to be passed on 22/12/2017 u/s 143(3) of the Income Tax Act, 1961 (‘Act’ for short) by computing the income of the Assessee at Rs. 77,73,450/- as against declared loss of Rs. -1,46,26,547/-. Aggrieved by the assessment order dated 22/12/2017, the Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 14/08/2019, dismissed the Appeal filed by the Assessee. As against the order of the Ld. CIT(A), the Assessee preferred the present Appeal.
None appeared for the Assessee. Ongoing through the order sheet, it is found that the Assessee has been remained absent continuously and not adduced any arguments. Considering the above facts and circumstances, we deem it fit to decide the Appeal after hearing the Department's Representative.
The Department's Representative vehemently submitted that none of the shareholders have independently replied, the details of premium of Rs. 330/- share charged in the present case is also not explained by the Assessee, no details pertaining to valuation has been furnished and no relevant details of shareholders are furnished to establish the identity and creditworthiness of the transaction. Thus, relying on the order of the Ld. CIT(A) sought for dismissal of the Appeal.
We have heard the Department's Representative and perused the material available on record. The Ld. CIT(A) while dismissing the Appeal held as under:-
“5.9 Before me the appellant only submitted the copy of confirmation of accounts, bank statement and ITR of only one shareholder i.e. Sumathi Vutukuri. No such detailed documents and confirmation pertaining to other shareholders is placed on record. It is also noted that no document whatsoever pertaining to Mr. Hari Pawan Vellanki which prove the identity, creditworthiness and genuineness of the transaction are furnished on record. 5.10 In this backdrop, I have taken note of the income tax return of SumathiVutukari. Though, she is one of the largest shareholder/ investor, investing an amount of Rs.1,12,79,900/-, however she only earns a meagre income of Rs.4,13,965/-. It is not understood as to how she could invest such a huge amount having such a meagre income. Furthermore, the appellant submitted that the funds for investment by her is taken as a loan from Sh. Mr. Hari Pawan Vellanki. It is noted that Sh. Hari Pawan Vellanki is another major shareholder investing an amount of Rs. Rs. 50,65,000/- and Rs. 4,00,00/-, however, neither his ITR, Confirmation, Bank Statement, etc. is furnished on record to prove the identity, creditworthiness and genuineness of the transaction. Furthermore, there is no document on record, which provides approval of Mr. Hari Pawan Vellanki to allow the company to issue shares to Ms. Sumathi Vutukari and Mr. Nagavalli Vellanki for the amount directly transferred by him to the company.
5.11 Furthermore, the reliance of the appellant on the petition filed before the Hon'ble NCLT is also not of much help. It, at the best, proves the identity of the petitioners in that petition i.e. HariPavanVellanki and NagavalliVellanki, however, does not provide any assistance in proving the genuineness of the transaction and the creditworthiness.
5.12 There is nothing on record to substantiate the genuineness of the transaction and the creditworthiness of the investors, which, all the more, becomes important in view of the fact that none of the shareholders replied in terms of the provisions of Section 133(6) of the Act and the fact that one shareholder investing Rs.1,12,79,900/- has a meager income of Rs.4,13,965/-only. Also, non compliance by the appellant by not furnishing the details of valuations of the shares, also suggest the whole transaction to be non- genuine.
5.13 Here, reliance is placed on the decision of the Hon'ble Supreme Court in the case of NRA Iron and Steel (P) Ltd. v. PCIT (SLP (Civil) No. 29855 of 2018), wherein Hon'ble Court by its judgment dated 5th March, 2019 restored the order of Assessing Officer by confirming the addition to the taxable income made under Section 68 of Income Tax Act, 1961 (and thus liable to Income Tax at applicable rates). It was held that "in the case of private placement of shares, higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee.
5.14 Hon'ble Supreme Court noted as under: i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest huge funds. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at such a high premium. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act. 5.15 Even in the present case, none of the shareholders independently replied, the details of premium of Rs. 330/- share charged in the present case is also not explained by the appellant. No details pertaining to the valuation is furnished on record, even when specifically sought by the AO. Furthermore, no relevant details of the shareholders are furnished on record, to justify and establish their identity, creditworthiness and genuineness. The meager income of one shareholder Ms. Sumathi Vutukari, itself suggests lack of creditworthiness.
5.16 Thus, in view of the above, the addition made by the AO is sustained and the ground of appeal of the assessee is dismissed.
In the result, appeal is dismissed.”
6. It is seen from the above, the Ld. CIT(A) specifically observed that the Assessee has failed to discharge the onus as required u/s 68 of the Act. Considering the fact that the Assessee has failed to prove the genuineness of the transaction and the creditworthiness of the investors before the Lower Authorities and before the Tribunal as well, we find no reason to interfere with the findings of the Ld. CIT(A).Finding no merits in the Grounds of Appeal of the Assessee, the Grounds of Appeal of the Assessee are dismissed.
In the result, the Appeal of the Assessee is dismissed.
Order pronounced in the open court on 09th April, 2025