DCIT v. Leena Power Tech Engineers Pvt. Ltd (ITAT Mumbai)

S.68: Cash credits-Share application money-Shell company-The DCF method adopted is incorrect and fallacious-the two investing companies held to fit the description of a shell company-The burden is on the assessee to prove the identity, capacity and genuineness and nature and source of credits in his books of accounts, to the satisfaction of the Assessing Officer even if confirmations are filed and the persons are assessed to tax-Theory of human probability applied – Addition as cash credits is held to be justified on the facts of the case-Reassessment is held to be justified. [S. 133(6), 143(3), 147, 148, Rule 27 ITAT Rules, 1963]
The assesse is a private limited company. As per the information received from the investigation wing, the assesse received indicated that the assesse has received monies, in the form of share application money, subjected to routing through several layers.
The facts of the case cannot be considered in isolation from the ground realities. The assesse has received share application money through a complex web of shell entities and multiple layering of the transfers from one company to another. The only thing which sets it apart a shell company from a genuine business entity is lack of genuineness in its actual operations. Further, on perusal of the share valuation report, the cash flow shown in the valuation report is overstated by 13,000% vis-à-vis the actual facts of the case. Thus, the DCF method adopted is incorrect and fallacious. Therefore, the two investing companies held to fit the description of a shell company.Addition as cash credits held to be justified.
On the issue of reopening it was held that merely because the matter has been examined in the original assessment proceedings, it cannot be said that the reassessment proceedings cannot be initiated. Where the transaction itself on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be a disclosure of the ‘true’ and ‘full’ facts in the case and the Assessing Officer would have the jurisdiction to reopen the concluded assessment in such a case. All case laws on the subject are discussed in details.