M/s Sanmin Trading & Holding Pvt. Ltd., Kolkata Vs I.T.O.,Ward-9(4), Kolkata

This case involves M/s. Sanmin Trading & Holding Pvt. Ltd. appealing an Income Tax Appellate Tribunal (ITAT) decision regarding an addition made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The AO added ₹1.57 crores received as share capital with a significant premium, deeming the credit not genuine. The AO's grounds included the assessee company's meagre income, the premium being disproportionate to its status, and concerns about the investing company's lack of genuine business activity and the creditworthiness of its directors.

IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA ‘C’ BENCH, KOLKATA
(Virtual Court)

(Before Sri J. Sudhakar Reddy, Accountant Member & Ms. Madhumita Roy, Judicial Member)

I.T.A. No. 2020/Kol/2019
Assessment Year: 2010-11

M/s. Sanmin Trading & Holding Pvt. Ltd.……Appellant
[PAN: AADCS 7072 G]

Vs.

ITO, Ward-9(4), Kolkata...Respondent

Appearances by:
Sh. Soumitra Choudhury, Adv., appeared on behalf of the Assessee.
Sh. Supriyo Pal, Addl. CIT, appeared on behalf of the Revenue.

Date of concluding the hearing : November 3rd, 2020
Date of pronouncing the order : November 13th, 2020

ORDER

Per J. Sudhakar Reddy, AM:

This is an appeal filed by the assessee directed against the order of the Commissioner of the Income Tax (Appeals)-23, Kolkata [hereinafter the ‘CIT(A)’] dated 06.08.2019 passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’), for the Assessment Year 2010-11.

2. The assessee is a company and filed its return of income electronically on 09.02.2011 declaring the total income of ₹1,76,015/-. During the year, the assessee received share capital along with share premium of ₹1.57 crores. The shares were issued at the face value of ₹10/-. Shares were at a premium of ₹90/- per share. The entire share capital was subscribed by only one company M/s. Mahakal Shoppers (P) Ltd. The AO made an addition u/s 68 of the Act on the ground that the share capital received is seen not a genuine credit. All the grounds of the additions have been summarised by the AO at para 3.17 of the assessment order. These are extracted for ready reference:

i) The Assessee Company is having a meagre income of Rs. 1,76,015 /- during the year and has not declared any dividend till date. However, the Assessee Company claims to have receivedhuge amount of share capital from Company based in Kolkata at a whopping premium of Rs. 90/- per share which can only be commanded by blue chip quoted Companies or Companies floated by big and established business houses. The Assessee Company dearly fails the theory ofpreponderance of human probability as pronounced by the Hon. Apex Court in the cases of CIT k Durga Prasad More [1971] 82 ITR 540 and Sumati Dayal vs. CIT [1995] 80 Taxman 89/214ITR 801 (SC).

ii) It appears that the Directors of the Companies from whom share application money is claimed to have been received are not actively involved in the business affairs of the company.

iii) On verification of the final accounts of the investing Company, it is clearly evident that the said Company does not have any activity as such and have purely been formed to provide entries to other such paper company for 'layering' of the transaction or directly to the beneficiary like the Assessee Company as loan or share capital. In aH the cases it was found that there is no real activity in the said Companies, their income is very nominal in all the cases, no balance is lying in their bank account and the source of the share application money is fromsale of shares of another such paper Company which has been done either on the same day or immediate earlier day. It has been held by the Hon. Indore Bench of ITAT in case of Agrawal Coal Corpn. (Pvt) Ltd. Vs. Asstt. CIT 63 DTR 20 that merely because the companies were registered with ROC, were filling return of income, having PANs/bank accounts, share application forms were submitted, but the same did not establish their identity as these companies might have been existing on papers or in real sense at the time of registration but were specifically found to be non-existent.

iv) The Directors of the Company are directors in a number of Companies. However, they are actually Persons of very limited means, do not have sufficient source of income and therefore do not have the creditworthiness to invest such a huge amount. In CIT vs. Frostair (P.) Ltd. [2012] 26 taxmann.com 11 (Delhi), it was held that the assessee was under a burden to explain nature and source of share application money received in a given case and he had to establish shareholder's identity; genuineness of transaction; and creditworthiness of shareholders. The Assessee Company has clearly failed to discharge this onus.

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