INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Receipt of share application money - Relevance of turnover and profits of share applicant entities when same proved to be shell companies

AO required assessee-company to prove the identity of companies from which share application money was claimed to have been received and to produce Principal Officers of those companies so that genuineness of documents and physical exisence of companies could be examined. Assessee furnished list of such companies along with their addresses. AO issued notices under section 133(6) to those parties and deputed officials of revenue to get confirmation of transaction shown by assessee. However, notices issued under section 133(6) were returned unserved and it was reported by the officials that none of the companies were found at given addresses. AO directed assessee to produce Principal Officer of all the companies along with ID Proof and ITR Balance Sheet, and Profit & Loss account of the last three years for recording of their statement but they were not been produced Documents had similar addresses which had already been verified and found to be incorrect. Accordingly AO treated share application money as unexplained credit under section 68. Assessee pleaded turnover and profits of share applicant companies gave credence to investments done with assessee company. Held: Assessee had miserably failed to give basic details like correct address of share applicant companies to AO. Assessee has submitted documentation like ITR of the share applicant companies, confirmations, ROC record, P&L and balance sheet of share applicant companies, copies of application for of equity shares which could not be primarily taken as sacrosanct when weighed against concrete evidences collected and confronted by revenue to assessee. Addresses have been proved wrong, notices under section 133(6) returned unserved, correct address of Directors was not provided. There had been change of Directors and a set of persons taken as Directors and different companies. Approximately, 15 concerns were floated or taken over by a set of persons having same addresses and common Directors/Proprietors. Also, Rotation of amount amongst inter-connected companies to provide share application money to each other had been clearly unraveled by AO. Turnover and profits of share applicant did not give any credence to investments done with assessee company was AO had brought on record all the evidences to prove that share applicant entities were in fact shell companies and therefore, addition made by AO under section 68 was confirmed.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2010-11

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