Delhi HC Upholds ITAT Order Upholding Income Tax Addition Treating Increase in Share Capital as Sham Transaction [Read Order]

The High Court of Delhi upheld the Income Tax Appellate Tribunal (ITAT) order upholding income tax addition and treating increase in share capital as sham transaction. It was found that the assessee has not carried on any business activities during the year and has received share application money with a huge premium which has been invested again on the same date as share application money in various companies.

Quartz Commecial Pvt Ltd, the appellant assessee has filed the present appeal under Section 260A of the Income Tax Act, 1961, inter alia, praying to allow the appeal or to remand back the same for fresh decision in accordance with law laid down by the Courts, in the interest of natural justice and the grounds in the present appeal may please be considered by the Assessing Officer for AY 2007-08, and in view of the Judgment passed by the Court in PR. Commissioner of Income Tax (Central) Vs M/S Forum Sales Pvt. Ltd.

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The Assessee is aggrieved by the information received pursuant to application under Right to Information Act, 2015, whereby the Assessee became aware that the Assessing Officer (AO) had not resumed proceedings in respect of AY 2007-08. According to the Assessee, the AO was required to examine the Assessee’s books and decide afresh. The said assumption is premised on the basis that this court had remanded the matter to the AO by an order dated 9.02.2018 Quartz Commercial Private Limited v. Income Tax Officer in respect of AY 2007-08. The Revenue disputes that the matter was remanded to the AO in terms of the aforesaid order dated 09.02.2018. According to the Revenue the said order dismissed the Assesses appeal. 

The Income Tax Appellate Tribunal (ITAT) dismissed the appeal. The Assessee again approached the Assessing Officer (AO) on the assumption that the matter had been remanded to the AO for consideration. However, a plain reading of the order dated 09.02.2018 indicates that this court had not remanded the matter to the AO.  

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A show cause notice was given to the assessee. The Assessing Officer has asked the assessee to furnish the reply with supporting documentary evidence and also complete books of accounts along with complete bills, vouchers and also bank statements in, support of the assessee's claim. However, thereafter in the assessment order there is no mention about the aforesaid requisition made by the Assessing Officer. Under the circumstances we find that it remains to be verified whether the assessee has maintained proper books of accounts or not. Hence. The submissions of the assessee that the additions were not warranted as the assessee has maintained proper books of accounts, needs to be verified. 

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Subsequently the A.O. asked the assessee to produce books of accounts which were produced and duly examined by the A.O. The A.O. noted that the assessee did not have any operational income and expenses debited as ROC fee, audit fee etc. which were claimed as loss. The bank accounts maintained with Karnataka Bank Ltd revealed that after 1.4.2006 there were entries in respect of share application money on 21.3.2007 which was immediately transferred to another company as share application money. 

Increase in share capital of Rs.39,25,000/- besides share premium of Rs.15,30,75,000/- (being Rs.390 per share). Treating this as a sham transaction as discussed in the original assessment order the A.O. observed that the assessee is engaged in providing accommodation entries to various group companies.

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It was found that the assessee has not carried on any business activities during the year and has received share application money with a huge premium which has been invested again on the same date as share application money in various companies. This otherwise indicates that the assessee is doing only the business of entry operations. 

Since, the Assessee’s appeal against the impugned order dated 31.07.2017 passed by the  ITAT was dismissed, the bench of Acting Chief Justice Vibhu Bakhru and Justice Tushar Rao Gedela viewed that the question of any further proceedings before the AO did not arise. The issue sought to be raised in this appeal stood concluded with the dismissal of the appellant’s appeal Quartz Commercial Private Limited v. Income Tax Officer by the order dated 9.02.2018 passed by the court.  

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