TaxTMI 
TaxTMI 
2016 (10) TMI 219
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....ssing Officer be restored. 2. Briefly stated facts of the case are that assessee is a private limited company engaged in the business of purchase and sale of grey cloth, dying painting & processing in other process house. Return of income was e-filed on 28.09.2009 declaring total income at Rs. 45,85,980/-. Case was selected for scrutiny assessment through CASS. Notice u/s 143(2) of the Act was issued on 7.6.2011 and duly served upon the assessee. Notice u/s 142(1) of the Act along with detailed questionnaire was issued on 25.7.2011. Major thrust of Assessing Officer was towards examination of amount received during the year at Rs. 3.5 crores towards share capital along with share premium from following 5 companies each contributing Rs. 70 lacs towards 1,00,000 equity shares of Rs. 10/- each and share premium of Rs. 60/- per share:- i) Green Star Financial Service Pvt. Ltd., Ahmedabad. ii) Archer Financial Service Pvt. Ltd., Ahmedabad. iii) Suraj Corporate Service Pvt. Ltd., Ahmedabad. iv) Fly High Exports Pvt. Ltd., Kolkata. v) Oasis Cine Communication Ltd., Kolkata. Necessary details were called for to verify the identity, creditw....
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....in respect of subscribers of share capital. (3) Confirmations from the subscribers. Investment made is duly reflected in the balance sheet of subscribers. (4) Copy of bank statement of the subscribers. In these bank accounts the cheques issued by these persons are reflected. (5) Copy of audited balance sheet of the subscribers. The fact of these documents being part of assessment records are duly acknowledged by the A.O. in the assessment order itself. The above documents clearly establish the fact that all the share capital has been received from five companies who are regularly assessed to income-tax. The share capital has been received through banking channels and the same is reflected in the balance sheet of the subscribing companies. The balance sheet of subscribing companies are audited and these investments are reflected in the balance sheet of the subscribing, companies. The subscribing companies are established companies as these are having substantial funds in the form of share capital and Reserve and Surpluses. The funds available in-the form of share capital and reserve and surplus is far exceeding the amount of subscription i.e. Rs. ....
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.... 4. Aggrieved, Revenue is now in appeal before the Tribunal. 5. Ld. DR supported the order of Assessing Officer and also placed reliance on the judgment of Hon. Supreme Court in the case of Navodaya Castles (P) Ltd. vs. CIT (2015) 56 taxmann.com 18 (SC), judgment of Hon. Calcutta High Court in the case of CIT vs. Maithan International (2015) 56 taxmann.com 283 (Calcutta), decision of the Tribunal, Kolkata Bench "B" in the case of Subhlakshmi Vanijya Pvt. Ltd. vs. CIT (2015) 60 taxmann.com 60 (Kolkata-trib) and ld. DR urged that all the 5 companies through which share capital and share premium of Rs. 3.5 crores has been received are just paper company which are engaged in providing accommodation entries. Ld. DR further referred to the bank statements, financial statements, balance sheets and profit and loss accounts of all those 5 concerns where there is huge transactions in the bank accounts but are having a meager sale and meager income which nowhere co-relates to the voluminous transactions passed through bank accounts. Ld. DR also referred the statement of one of the directors of the cash creditors M/s Suraj Corporate Services Pvt. Ltd., Ahmedabad where the director has cat....
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..... During the course of assessment proceedings itself in order to prove the identity, creditworthiness and genuineness of the transactions, assessee has filed PAN, copies of income-tax returns for Asst. Year 2009-10, confirmation regarding share purchases along with proof of payments through cheques, copies of bank accounts and audited balance sheets for Asst. Year 2009-10. We further find that summon was served u/s 131 to the following three parties based at Ahmedabad :- i) Green Star Financial Service Pvt. Ltd., Ahmedabad. ii) Archer Financial Service Pvt. Ltd., Ahmedabad. iii) Suraj Corporate Service Pvt. Ltd., Ahmedabad. 9. It was alleged by assessee that summons u/s 131 were not received by Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. As far as personal attendance of the director of Suraj Corporate Service Pvt. Ltd., authorized representative on behalf of the company appeared and again filed documents which were already filed by the assessee and submitted that he took leave on behalf of the director for attending in personal due to illness of director's father. We further find that Assessing Officer came across the ....
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....es of rupees have passed through their bank account during the year but when we turn to the profits and loss account, there is a meager interest income of Rs. 9,77,080/- and similarly in case of Oasis Cine Communication Ltd., Kolkata against bank transaction in crores of rupees there is sales turnover of Rs. 348500/- and net profit before tax at Rs. 1289.56 which shows that the transactions which happened through the bank account are not having any impact on the profit and loss account. 12. Similarly in the case of Suraj Corporate Services Pvt. Ltd. when we refer to the bank statement placed on pages 14 & 15 of CIT(A)'s order, we find that transactions worth crores of rupees have moved through bank balances at various points of time are more than Rs. 50 lacs whereas a meager amount of interest has been shown at Rs. 18,903/-. Similar type of financial datas are depicted in other two impugned parties namely - Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. having common address. From observing these documents it seems that huge volume of transactions are in the form of debit and credit of cheques and are of typical nature of paper companies engaged in....
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....ssing Officer, the identity and capacity of the shareholders along with the genuineness of the transactions there can be no escape from section 68.[Para 13.t] Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1-4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective? * As per this proviso where any share capital etc. is credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the Assessing Officer. The essence of this amendment is that a closely held company is required to satisfy the Assessing Officer about the share capital etc. issued by it, in the absence of which, an addition under section 68 can be made in the hands of the company. If the amendment is accepted to be prospective, then it would mean precluding the Assessing Officer from examining the genuineness of transactions of rece....
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....is gathered, inter alia, from the Finance Bill, Memorandum explaining the provision of the Finance Bill etc. [Para 13.x.] / * Any amendment to the substantive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the feet that the amendment has been given effect prospectively. The border line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. [Para 13aa] On adverting to the language of section 68, it transpires that it refers to 'any sum credited' i....
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....to be placed on the company. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the Assessing Officer and it was only with the aim of setting to naught certain contrary judgments which 'created doubts' about the onus of proof by holding that there was no requirement on the company to prove the share capital etc. and as such no addition could be made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. [Para 13. ad.] Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advance....
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....t in the case of Sumati Dayal vs. CIT 1995 AIR 2109, Hon. Supreme Court held as under :- 5. It is no doubt true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provi- sion and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See :Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut , the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. (See : Sreelekh....
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....e deficiency is altogether an incorrect impression of the law. [Para 16] * It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial, orders. Where the relevant enquiry was not undertaken as in this case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. .[Para 19] * In view of above, the order of the Tribunal is set aside. 17. Hon'ble Apex Court in the case of Navodaya Castle (P) Ltd vs CIT reported in (2015) 56 taxmann.com 18 (SC) has held that mere filing of certificate of incorporation, PAN were not sufficient for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor. 18. Examining the facts in the light of above judgments and decisions we observe that assessee is a private limited company which is ....
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....nvestment or reserve and surplus created is just used to invest in other companies without having any return and the gross turnover of the company is not having any direct connection with the voluminous bank transaction then such companies end up into a paper company. 19. From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case before us we observe that assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily called upon the investors. The investors could have come along with all the ....