‘Clear-Cut Case of Concealment’: ITAT Upholds Penalty Under Section 271(1)(c) for Rs 2.65 Crore Bogus Share Capital [Reaed Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has upheld a penalty of Rs. 95,10,463 imposed under Section 271(1)(c) of the Income Tax Act, 1961, on the assessee, UGS Finance Pvt. Ltd. for concealing income through bogus share capital transactions amounting to

Rs. 2.65 crore by observing that it was a clear-cut case of concealment.

For the assessment year 2004-05, the Assessing Officer (AO) reopened proceedings under Section 148 based on information from the Central Economic Intelligence Bureau (CEIB) that the assessee had issued shares at a premium of Rs. 90 per share (face value Rs. 10), but investigations revealed that the transactions were conducted to route unaccounted money. 

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During the assessment proceedings, the assessee failed to prove the genuineness of the share capital, including the identity, creditworthiness, and legitimacy of the investor companies. The AO treated the entire Rs. 2.65 crore as unexplained cash credit under Section 68 of the Income Tax Act and added it to the assessee’s income.

 The CIT(A) upheld this addition by observing that the money was routed through a single bank account with cash deposits, which were then transferred to the seven investor companies. These companies, in turn, immediately forwarded the funds to UGS Finance as share application money. The CIT(A) concluded that the investor companies existed only on paper and were used to funnel black money. 

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In penalty proceedings, the assessee repeatedly failed to appear or provide substantive defences despite multiple opportunities. The CIT(A) confirmed the penalty, noting deliberate evasion by the assessee, including non-production of directors ' books of accounts and other critical evidence.

The ITAT comprising of Annapurna Gupta (Accountant Member) and Madhumita Roy held that the CIT(A) had rightly upheld the addition of Rs. 2.65 crores in the hands of the assessee as bogus and upheld the penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, by observing that it was a ‘clear-cut case of concealment of income.’

In conclusion, the assessee’s appeal was dismissed by the bench.

To Read the full text of the Order CLICK HERE

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