Until now, many companies that have received large, obscure investments from obscure shell companies have escaped the taxman’s glare unless they can prove that the remittance entity exists, file tax returns, and access funds through banking channels. transferred through.
Things will be less simple from now on, thanks for this decision Mumbai The Income Tax Appellate Tribunal (ITAT) bench questioned the investment received by a company on the ground that it was the beneficiary of a sophisticated laundering racket involving investors and layers of companies with bank accounts in multiple banks.
In its judgment, the ITAT bench comprising Pramod Kumar (Vice-Chairman) and Vikas Awasthi (Judicial Member) said, “… it would be a superficial approach to examine the claim of the assessee on the basis of the documents filed only and to clarify the abnormal.” Pattern in the documents filed by the assessee and the pretense of being oblivious to the ground reality.”
Assessee Leena Power Tech Engineers secured an investment of ₹8 crore by issuing shares at a high premium to investors, which the Tribunal believes are shell entities and are part of a web of fund movements of over ₹240 crore, which Started with depositing less than ₹ 10 lakhs. Multiple accounts of a private bank. The case pertains to the assessment year 2011-12.
“The Tribunal has categorically held that once the creditworthiness of a transaction is in doubt, the entire responsibility to prove the transaction genuine and compliant shifts to the assessee. This is an interesting development in the overall scheme of things. In which substance is given form reliance on form. It will be interesting to see how the high courts approach this point and similar rulings,” said Ashish Mehta, partner, Khaitan & Co.
ITAT, a quasi-judicial authority, is the last fact finding authority in the hierarchy of income tax appeals. “In this case, ITAT has made some very strong comments regarding the use of shell companies. It was further observed that a huge premium is paid to acquire minority stake in small private limited companies without any share in management and control. The payment was made and such action is highly unusual,” Mehta said.
The judgment also questions the justification of the share premium by the assessee, who had contended that the companies which have subscribed to its shares cannot be treated as ‘shell companies’ or as shortfalls of actual as The government had not notified these companies as shells. companies. Although a shell entity according to the tribunal is without any significant trading, manufacturing or service activity, it has high volume, low margin transactions that give it the color of a normal business entity, and serves as a vehicle for various financial maneuvers. is used in. .
Over 2.3 lakh shell companies have been identified by the authorities in the last three years. After demonetisation, about 3 lakh shell companies involved in hawala transactions were exposed in data mining.