TaxTMI 
TaxTMI 
2016 (6) TMI 837
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....3 declaring loss of Rs. 6,43,754/-, however, income of Rs. 1,09,561/- has been declared u/s 115JB of the Income Tax Act, 1961 (hereinafter referred as Act). The return was processed u/s 143(1) of the Act on 5.2.2004. Thereafter, the case was selected for scrutiny as per norms. Accordingly, notices u/s 143(2) of the Act dated 13.10.2004 was issued. Further notices u/s. 142(2) and 142(1) of the Act alongwith questionnaire were issued. In response thereto, Ld. Authorised Representative of the Assessee attended the assessment proceedings and filed partial details. The AO observed that no books of accounts were produced in spite of the repeated requisition / opportunities. The AO has raised several contentions in the assessment order but all those contentions point out to this aspect that the assessee has not established the creditworthiness of the shareholders. AO relied on various case laws for the proposition that since assessee could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of Rs. 27 crores was treated as unexplained cash credit u/s. 68 of the Act on the following accounts:- i) Increase in share capital by allotment of 20 lac....
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....ment of shares. Rs. 10,00,00,000/- iii) Increase in share capital by allotment of 1.5 crores equity shares of Rs. 10/- each to eleven parties against their outstanding trade credit balances Rs. 15,00,00,000/- Total Rs. 27,00,00,000/- 5.1 In respect of first category, shares were issued to four promoters as under: No. of shares i) M/s Avisha Credit Capital Limited 500000 ii) M/s Master Finlease Limited 500000 iii) Smt. Shubha 500000 iv) Smt. Angoori Devi 500000 2000000 During the course of assessment proceedings, appellant filed the confirmation letters, bank accounts and income tax returns of the aforesaid four creditors showing that entire payments from where the amounts were paid by cheques to the appellant company on behalf of Smt. Shubha and Smt. Angoori Devi. However the Assessing Officer did not accept the creditworthiness of these two lady creditors for the reason that the income shown in their return of income did not justify their creditworthiness. AO also did not accept the creditworthiness of the other two creditor companies - M/s. Avisha Credit Capital Lim....
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....not satisfied with the explanation and evidences filled by the appellant. According to him, the appellant has raised the share capital in respect of which though the assessee filed evidences but those evidences fail to establish the creditworthiness of the shareholders. Though assessing officer has raised several contentions in the assessment order but all those contentions point out to this aspect that the assessee has not established the creditworthiness of the shareholders. Assessing Officer relied on various case laws for the proposition that since appellant could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of Rs. 27,00,00,000/- is to be treated as unexplained cash credits u/s 68 of the IT Act. 5.5 During the appeal proceedings, the appellant has filed very comprehensive written submissions contending that the appellant has submitted all what was required and what was essential to discharge the burden cast u/s 68. Appellant filed a paper book too containing the evidences filed in assessment proceeding to drive home its view point that not only identity of the shareholder was proved but also genuineness of transa....
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....opers and Builders Pvt. Ltd. which could not be filed before AO as nothing was asked by him during the course of assessment proceedings regarding the source of Rs. 50 lacs in the hands of M/s Virasat Developers Pvt. Ltd. It is further seen that the additional evidences are showing the source of Rs. 30 Lacs in the hands of Mr. Vijay Jhindal which were given to M/s Vital Communications Ltd. by him on behalf of Smt. Shubha. Further evidences are showing the bank statements of M/s Avisha Credit Capital Ltd. and source of funds in their hands. Petition contains the evidences showing the bank statements of M/s Master Finlease Ltd. and source of funds in their hands and further evidence to show the source of Rs. 20 lacs in the hands of M/s Master Finlease, Ltd. which was given to by M/s Master Finlease Ltd. Thus, when adequate opportunity of hearing was not given, it is incumbent for the appellate authority to admit the evidences. After considering all the facts and circumstances of the case and after considering the replies filed on behalf of the parties, additional evidences filed by the assessee are admitted for the above stated reason and also the same were found necessary to....
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....or assessee to produce shareholders before Assessing Officer - Held, yes - Whether therefore, Tribunal was justified in deleting addition made by Assessing Officer - Held, yes - CIT VS. MAKHNI & TYAGI (P) LTD. 136 TAXMAN 641 (DELHI). - Cash credits - Share application moneys received by assessee company - Finding that identify of creditors had been established - Tribunal justified in deleting addition to income - Income Tax Act, 1961 s. 68 - CIT V. DOWN TOWN HOSPITAL PVT.LTD. 267 ITR 460 (ALL). CASH CREDIT - Share application money-assessee - company having proved the existence of two companies which had paid share application money to it through cheques, it had discharged its onus of proving the identity and creditworthiness of both the creditors as well as the genuineness of the transaction and therefore, no addition could be made under section 68 - Asstt, CIT vs Antarctica Investment (p) Ltd. (Del) 78 TTJ 257 Affirmed in CIT vs Antarctica Investment Pvt. Ltd. 262 ITR 493(Del) Achal Investment Ltd vs CIT 268 ITR 211 (Del). Moreover, following decisions lay down that addition of share capital cannot be made in the hands of the company- assessee as was held by Hon....
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....rview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said additions made u/s 68 cannot be sustained on the legal grounds itself as discussed above, I proceed to deal the addition on merit also. I have seen the evidences filed in the paper book and also the evidences filed with application under rule 46A and I find that the impugned addition could not be made under any circumstances as all the necessary ingredients of section 68 have been satisfactorily complied by the appellant. It is evident that the necessary ingredients of this section i.e. identity and capacity of the shareholders and genuineness of the transactions in respect of the impugned credits stood met by the appellant with the help of overwhelming evidences which are discussed hereunder.- PB 50-51 is letter to A.O. in which details of new shareholders were furnished. PB 52 is the details of shareholders with their PAN No. furnished to Ld. A.O. showing allotment of shares against money and against consideration. It is seen that all these shareholders are income tax assessee whose PAN Numbers were furnished to Ld .A.O. PB 53-54 is an....
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.... these facts. PB 83 is fresh confirmation from Smt. Subha. PB 84 is her bank statement where from the payment was made to the appellant. PB is a letter from Master Finlease Limited to Smt. Shubha confirming the loan giving to her. PB 85, 86 are the evidences of Rs. 30,00,000/- investment made by Smt. Shubha by raising loan from Mr. Vijay Jhindal. PB 89 is an affidavit from Smt. Shubha deposing all these facts. PB 88 is acknowledgement of share capital from appellant to Smt. Shubha. PB 91-92 are the confirmations from M/s. Cosmo and M/s. Troop Track showing their PAN No. and place of assessment. PB 93-107 are the confirmations and evidences of further share capital from the parties mentioned at PB 52 showing PAN Number and place of assessment. 5.11 During the appellate proceedings, AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the appellant company were also demonstrated during the appellate proceedings on 26-2-2007 by the director of the appellant comp....
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....hnique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Id. AR. It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped. Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the appellant to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the appellant is unjustified and I therefore delete the addition of Rs. 27 crores. 5.15 It was rightly argued by the Ld. Counsel that onus to prove the source of the credits stood discharged in this case in terms of the following decisions with which I concur and there was thus no case for making any addition:- Sarogi Credit Corp. vs. CIT 103 ITR 344/345 (Pat.) I. Add!. CIT vs.Bahri Bros (P) Ltd. 154 ITR 244(Pat.) 2. CIT vs. Daulatram Rawatmal 87 ITR 349/350 (SC) 3. CIT VS. Ra....
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....rom M/s Virasat Developers and Builders Ltd. In that context, context, copy of the bank account of M/s Virasat Developers and Builders was filed before Assessing Officer. It is seen that nothing was asked by the AO regarding the source of funds in the hands of M/s Virasat Developers and Builders Ltd. and thus there was no occasion to explain the source in the hands of M/s Virasat Developers and Builders Ltd. In fact, in petition for additional evidence even the source in the hands of M/s Virasat stands explained by way of funds received by them from M/s Flare Finance India Ltd. and M/s Perfect Car Scanner Pvt. Ltd. Therefore the adverse observations of Assessing Officer about the Bank account of M/s Virasat, was not warranted. C. Assessing Officer has mentioned at page No. 5 of Assessment order that though Loan confirmation for M/s Master Finlease Ltd. to Smt. Shubha states that loan of Rs. 20 Lacs has been given to her but this amount is not reflected in her bank statement. It is seen that this allegation of Assessing Officer is factually incorrect. PB 84 may be in this regard referred and it is seen that this amount of Rs. 20 Lacs is very much appearing in her bank state....
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....objection in this regard. F. Assessing Officer has mentioned at Page 7 of Assessment order that originally the appellant stated the sources of Investment made by 11 Shareholders was against the loans already given to the assessee and later on appellant changed the stand and explained the source out of the money payable against bills raised by these parties. Thus, according to Assessing Officer, there was shifting of stand. I have considered this objection but find no merit in that because the ultimate fact of the matter is that Investors have confirmed the fact of investment made by them in the capital of the appellant company, Shares were issued against the credit balances appearing in the accounts of these parties/ persons and it is a matter of inference as to whether the credit balances lying in the books were in the nature of loan or not. Therefore, nothing turns on such observation of AO, as rightly contended by the appellant. G. Assessing Officer has mentioned at page 10 or Assessment order that equity shares were allotted to M/s Master Finlease Ltd. on 7/08/03 which according to Assessing Officer was not possible. I have seen the document and admittedly PB ....
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....s rightly contended by the appellant, otherwise it would have been explained to him. Copy of agreement filed before Assessing Officer would show that this agreement was entered on 5.8.02 and was also signed on 5/8/02. In fact such agreement could not be signed prior to 5/8/02. A copy of this very agreement filed by M/s Wisdom Publishing Pvt. Ltd. in its assessment proceedings before its Assessing Officer appears to, bear the date on 3rd page of Agreement could be a typographical error which does not have a significant bearing on the present issue. Signing by witness or registration is not legally required and therefore observations of Assessing Officer on these aspects also do not carry any meaning. K. AO has mentioned at page 3 of the assessment order that vide order sheet entries dated 17-03- 2006, creditworthiness of the parties were asked but it is seen as noted by me above also that that he did not ask for this evidence in respect of all the shareholders but asked about the shareholders to whom share capital was allotted against the credit balance. Fact of the matter is that evidences were filed which would show that onus to establish the share capital was discharged.....
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.... outstanding trade liabilities and no cash / cheque amount was paid by those creditors. The Assessing Officer was not satisfied with the explanation and evidences filled by the assessee. According to AO, the assessee has raised the share capital in respect of which the assessee filed evidences, but as per the AO those evidences fail to establish the creditworthiness of the shareholders. Assessing Officer relied on various case laws for the proposition that since assessee could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of Rs. 27,00,00,000/- is to be treated as unexplained cash credits u/s 68 of the IT Act. However, during the appellate proceedings, the assessee has filed written submissions contending therein assessee submitted all what was required and what was essential to discharge the burden cast u/s 68. Assessee filed a Paper Book containing the evidences filed in assessment proceeding to drive home its view point that not only identity of the shareholder was proved but also genuineness of transactions and creditworthiness of the shareholders, and that all the shareholders are existing income tax assesses and thus identity in a....
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.... are showing the bank statements of M/s Avisha Credit Capital Ltd. and source of funds in their hands. Petition contains the evidences showing the bank statements of M/s Master Finlease Ltd. and source of funds in their hands and further evidence to show the source of Rs. 20 lacs in the hands of M/s Master Finlease, Ltd. which was given to by M/s Master Finlease Ltd. Ld. CIT(A) has rightly held that thus, when adequate opportunity of hearing was not given by the AO, it is incumbent for the appellate authority to admit the evidences. Hence, in view of the above, additional evidences filed by the assessee were rightly admitted by the Ld. CIT(A). 8.2 As regards the addition u/s. 68 it is observed that the A.O. has expressed his doubt only about the creditworthiness of the shareholders and the identity of the persons/ entities subscribing to the share capital was not doubted by the Assessing Officer and this fact is clear from the plain reading of the assessment order. In this behalf, we draw support from the decision of the Full Bench of Hon'ble Delhi High Court in case of CIT vs Sophiya Finance Limited 205 ITR 98 wherein it has been held that once identity of the shareholder i....
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....orth Rs. 10,00,00,000 were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash/ cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs. 25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said addition made u/s 68 cannot be sustained on the legal grounds itself as discussed above 8.4 We further note that during the appellate proceedings, the Assessee's AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the assessee company were also demonstrated during the appellate proceedings on 26-2-2007 by the Director of the aaseessee company Mr. J.P.Madaan. There is no evidence brought on record the show that such transactions of purchase of softwares were sham transactions to evade the taxes nor there can be any, since there is no advantage to the appellant company to enter into such sham transactions. Assessee had neithe....