Issue- The addition of share application money received amounting to Rs 8,13,29,600 invoking section 68 of the Act, in proceedings u/s 147/148. CIT(A) deleted the addition however, the Hon’ble ITAT vacate the relief granted by the learned CIT(A) and restore the impugned additions made by the Assessing Officer.

In this case the assessment was reopened on the basis of information received from the investigation wing that the assessee has received monies, in the form of share application money, from an entity..but that money, though subjected to routing through several layers, ultimately has its source in of huge cash deposits in one of the branches of ICICI Bank in different entities called layer 1A, then layer 2, then layer 3 etc. When bank accounts of these Layer A3/B3 companies were examined further, it was found that these amounts were finally credited to the accounts of Layer A 4 or B4 companies- all of which were ultimate beneficiaries, and one of these beneficiary, at item no. 8 of that list, is the assessee before us. The assessee was asked to “prove identity, capacity and genuineness.The Assessing Officer also issued notice under section 133(6) to Rohini Vyapar Pvt Ltd. The assessee was then asked as to why the amounts so received from Rohini Vyapar Pvt Ltd not be brought to tax, in his hands, under section 68 of the Act. Assessee furnished detailed submission but failed to satisfy the AO thus proceeded to treat the entire share capital subscription aggregating to Rs 8,13,29,600, as unexplained credit under section 68. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The stand of the Assessing Officer was reversed by the learned CIT(A).

In appeal before ITAT by the department the DR submitted that besides vehement reliance on the order of the Assessing Officer, is that the assessee has failed to prove the bonafides of the share application money received by the assessee.

The Hon’ble Tribunal after considering the arguments of both the parties and dubmission documents, Assessment order and findings of the CIT(A) observed that we are urged to take a call on the bonafides of the transaction in the light of the glaring facts of the case:

IMP Paras of observations:

17. There is not even whisper of an idea about who are the persons behind RVPL and other associated companies constituting this complex web of companies, in different tiers, and transferring monies from one company to another manner in almost a mechanical manner. There is complete opacity so far as the individuals behind this funding and the complex web of companies are concerned. The entities involved in the transactions only provide different layers to the transaction and de facto hide the true investor. Lets not forget that the investments are in private companies, these investments are substantial vis-à-vis the size of the companies, are at huge premiums and without any management participation in the entities in which investments are made. These features are, by any standard, most unusual in real life business situations- and more so, as we will see a little later, when justifications for share premium are absolutely untenable.

22. The valuation report submitted before us does not inspire any faith and even a simple cross reference to the financial statements of the assessee company would show that cash inflows are exaggerated by 13,000% and then discounted accordingly. The assumption in the valuation report are unrealistic, and the base figure itself, being 250% increase over
immediately preceding year, is doubtful.

24. Undoubtedly, the company investing in the assessee company, i.e. RVPL, itself is owned by some other entities and the actual investors are thus not known in a transparent manner. The assessee does not throw any light beyond submitting the financial statements of the company investing shares. The genuineness of investment is far from established for this reason as well.

32. In view of our this understanding of the situation, we are unable to accept the plea of the assessee that the transaction is a bonafide transaction. In view of these discussions, as bearing in mind peculiar facts of this case, we reject the explanation of the assessee with respect to genuineness of this transactions of investment by MCPL as well.

50. In view of the above discussions, as also bearing in mind entirety of the case, we vacate the relief granted by the learned CIT(A) and restore the impugned additions made by the Assessing Officer. As we do so, however, we once again reiterate that the onus is on the assessee to prove genuineness of the transaction to the satisfaction of a fact finding authoritysomething which he has miserably failed in, to justify the huge share premium received by the assessee- something which the material on record does not justify, and to demonstrate that the facts and circumstances of the transaction as whole must point towards the impugned transaction being a regular transaction in the normal course of business- something which is clearly missing. Quite to the contrary, the assessee has proceeded on the basis as if the onus is on the Assessing Officer to demonstrate that the share subscriptions in question are malafide and cooked up and that the assessee has introduced his own unaccounted money by way of these share subscriptions; that is certainly incorrect. The burden is thus on the assessee to prove the nature and source of credits in his books of accounts, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee……………….

Allowed the appeal of the department.