No Addition u/s 68 of Income Tax Act can be Made if Investor of the Assessee Company proves its Source of Investment: ITAT [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that If investor prove its source of investment, then no addition can be made in the hands of assessee company and the addition made under Section 68 of the Income Tax Act,1961 amounting to Rs. 23, 07, 50,000/- is treated as unwarranted. Hence, the amount of addition is directed to be deleted.

The assessee company Mystic Electronics Ltd. filed its return of income declaring total income of Rs. 31,51,330/-, a revised return was filed by declaring the income at Rs. 35, 48,140/-. The case of the assessee was selected for scrutiny and a notice under Section 143(2) of the Income Tax Act.

In a search and seizure under Section 132 of the Income Tax Act of the Raj Kumar Kedia Group for the allegation of bogus LTCG (Long Term Capital Gain) by pre-arranged trading in shares of various non-descript listed companies, which are under the control and management of the syndicate of entry operators, the assessee was centralized to the charge of DCIT (Deputy Commissioner of Income Tax).

During the scrutiny R.K kedia, admitted that the assessee  company is under the control and management of Krishan Kumar Khadaria who is in the same business of providing accommodation entries and booking for bogus prearranged LTCG was done through the scrip of Assessee Company.

 Manish Arora(employee who keeps records of unaccounted transactions) and Natwar Lal Daga (Entry operator based in Mumbai and is, helping Shri Raj Kumar Kedia) further admitted the relation of assessee company with Raj Kumar Kedia Group.

AO concluded that assessee is a listed company and involved in generating illicit LTCG /short term capital loss, further added back an amount of Rs. 23,07,50,000/- under Section 68 of the Income Tax Act received by the company under the head share capital during the year under assessment on the premise that preferential share allotment /warrants is merely a paper transaction and capital is being subscribed by dubious persons.

Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)], which partly allowed the appeal, thus further aggrieved the assessee filed an appeal before the Tribunal.

The Bench comprising of Amit Shukla, Judicial Member and Gagan Goyal, Accountant Member observed that Assessee Company is a listed entity on the stock exchange and it is established fact that the entity was involved in the rigging/manipulation of share price.

Tribunal stated that unexplained income has to be taxed in the hands of beneficiaries consisting of amount of capital gains and if require the amount of investment made in the shares of assessee company.

It is observed that in this case, the only addition which is warranted in the hands of Assessee Company is amount of commission earned on arranging long term capital gains /short term capital losses. If investor in such type of company is able to prove its source of investment, then no addition can be made in the hands of assessee company being genuine transaction as identity, genuineness and creditworthiness is automatically established and in vice-versa position also amount of investment is taxable in the hands of investor, then also not taxable in the hands of assessee company, being double taxation.

The addition made under Section 68 of the Income Tax Act amounting to Rs. 23, 07, 50,000/- is unwarranted. Hence, this amount of addition is directed to be deleted minus addition already, deleted by  CIT (A) amounting to Rs. 18,10,62,500/-.

Hence the ground of the appeal by the assessee is allowed.

To Read the full text of the Order CLICK HERE

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