(Case Brief) Pratik Syntex Pvt. Ltd v/s ITO, 2018 – ITAT Mumbai

CasePratik Syntex Pvt. Ltd vs ITO
Case NumberI.T.A. No.6690/Mum/2016
Court/TribunalITAT- Mumbai
Author of the orderShri RAMIT KOCHAR
Date of the order May 11, 2018
Relevant Act/SectionsFinance Act, 2002- Sections 2(24)(xvi), 56(2)(viib), 68
Author of the case briefSaloni Gupta

Brief facts and procedural history-

The assessee is a dealer in textiles yarn and is also a commission agent. The assessee raised new share capital for which he was asked by the Assessing Officer (AO) to prove identity and creditworthiness of all the new shareholders as well as the genuineness of transaction of raising share capital.  In the process, the genuineness and creditworthiness of three shareholders who had invested a total of Rs 3 crores could not be proved by the assessee. This amount, of Rs 3 Crores, was treated as unexplained and chargeable to tax within deeming fiction of Section 68 by the AO, which led to additions amounting to Rs 3 crores in the hands of the assessee. The CIT also dismissed the assessee’s appeal as the three shareholders could not be located at their addresses.

The issue before the tribunal-

Whether the CIT erred in law in confirming the addition made by the AO amounting to Rs 3 crores being share capital and premium by invoking Section 68 of the IT Act?

Arguments advanced-

Contentions of the appellant

  • There is an amendment to Section 68 by Finance Act, 2012, with effect from 01.04.2013 and the said amendment is not applicable to the assessee as the year under consideration is Assessing Year (AY) 2012-13 which is prior to the amendment by Finance Act, 2012. Thus, it was submitted that the Revenue cannot ask for the source of investments made by three new shareholders.
  • Appellant also submitted financial statements of the shareholders and Form No. 2 which was executed by the assessee and duly filed with the Ministry of Corporate Affairs.

Contentions of the respondent

  • The three companies are conduit/shell companies used to launder money by way of hawala transactions towards share capital.
  • The assessee was unable to give current addresses of the parties and thus he failed to discharge an onus cast upon him by virtue of Section 68 of the act.
  • The three shareholders who invested as much as 89% of capital in the assessee company have been allotted only 14% of the company’s shares, for which no cogent reason has been given by the assessee.

The ratio and decision of the Tribunal-

The burden/onus is cast on the assessee under Section 68 to satisfy the AO about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction. Even though Section 56(2)(viib) of the 1961 Act read with Section 2(24)(xvi) are placed in the statute by Finance Act, 2012, w.e.f. 01-04-2013 and the impugned AY under consideration is AY 2012-13 but when the genuineness of the transaction of raising of share capital at huge valuations is itself in question then parameters of Section 68 are to be compulsorily fulfilled. Merely submission of the name and address of the share subscriber, balance sheet of affairs and bank statement of the share subscribers is not sufficient. The three new shareholders in this instant case are not traceable and their whereabouts are not known. Thus, the order of CIT was upheld and the appeal was dismissed.