ITAT confirms Addition since Share Applicant Entities were Paper Entities [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has confirmed an addition under Section 68 of the Income Tax Act since the share applicant entities were paper entities for providing entries to the assessee.

While concluding the assessment proceedings against the assessee, the Assessing Officer observed that there is an increase in the share capital of amount of Rs. 4,85,58, 000/- including share premium during the year under consideration. The officer made addition in respect of the same in view of no evidences with regard to creditworthiness or genuineness of the transaction required to be established by the assessee in terms of section 68 of the Act.

Before the authorities, the assessee submitted the documents including balance sheet and bank statement for the period from 01/12/2005 to 05.01.2010 alongwith list of signatories etc. downloaded from the Ministry of Company Affairs Portal.

Rejecting the above, the Tribunal noted that these are only documents in the form of paper trail of the alleged shareholders, which do not establish in any manner the creditworthiness or genuineness of the transaction.

Considering the facts and evidences, the Tribunal noted that the companies are not having creditworthiness for making such huge investment and genuineness of the transaction is also not getting established from the documentary evidences in respect of these companies.

“Merely presenting of documents of incorporation of the company and making payment for application of the shares through bank in itself or appearance by current director before the Assessing Officer and admitting the fact of share application made, is in itself not sufficient to justify the genuineness of the transaction. Assessee company for the year under consideration has shown losses of Rs. 9,903/-and in the immediately preceding year there was a small profit of Rs. 985/-. It is against the human probability that anyone will invest and pay share premium of Rs. 50/- per share without having any net worth of the company or any future prospectus of earning by the company. The current directors have not been able to justify, why the shares were purchased at high premium, without corresponding valuation of the company, which was having meagre income. It is impossible that directors of these nine companies are having either of the two addresses of the Paharganj area of New Delhi. In normal circumstances it is not possible until unless all these companies are being controlled remotely by one person. All the circumstances manifests that these are all paper companies not having sufficient worth and created for providing entries of share application money or share capital or loans by way of accommodation entries,” the Tribunal said.

Following the Delhi High Court decision in the case of NDR Promoters Pvt. Ltd, the Tribunal held that share applicant entities are paper entities created by some individuals for providing entries to the persons including the assessee, not having tax paid capital for promoting their ventures.

“As the entries of credit are appearing in the books of the assessee, it was the onus of the assessee to explain satisfactorily the nature and source of those credits. As the assessee failed to discharge its onus of explaining source and nature of the credit received and failed to establish creditworthiness and genuineness of the transaction as required u/s 68 of the Act, the assessee is liable for addition under section 68 of the Act,” the Tribunal said.