TaxTMI 
TaxTMI 
2017 (3) TMI 206
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....ablished, there was no justification for making any addition. (3) The appellant submits that in view of the fact that the appellant had filed confirmation, P.A. No., copy of audited accounts (showing source of investment in the appellant company and all related evidence), there was no justification for confirming the addition by the learned Commissioner of Income-tax (Appeals). (4) The appellant further submits that if at all the department felt that the investing companies were bogus companies, the proceedings should have been initiated against those companies as held by Supreme Court in case of Lovely Export Pvt. Ltd. (216-CTR-195). (5) The appellant further submits that the learned Commissioner of Income-tax (Appeals) has applied law which came into effect as per amendment from A.Y.2013-14 in A.Y.2011-12. (6) Without prejudice to the above, since share capital is capital receipt, there was no justification for making any addition. (II) Miscellaneous: The appellant craves leave to add, alter or vary any of the grounds of appeal. 2. Briefly stated facts as culled out from the records are that the assessee is a private limited company engaged in the business of....
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....ts examined the balance sheets and profit and loss accounts and observed that a common modus operandi was followed by alleged three companies which were having no fixed assets, meager income vis-à-vis the share capital and premium. In the bank statements of these companies there are only transfer entries but having no sign of regular business activities and investments made in share capital of various companies are not fetching any income. In view of this ld. Assessing Officer observed that alleged three companies which have made huge investments in share capital of other companies but the bank statements are conspicuously replete with deposits and withdrawals of the same amounts in a short span of one or two days which shows that these companies are just acting as a conduit of funds with no real business and accordingly made an addition of Rs. 61,00,000/- u/s 68 of the Act towards unexplained cash credit of the alleged three companies. 3.1. Aggrieved, assessee went in appeal before ld. Commissioner of Income Tax(A) by making sincere efforts to convince ld. Commissioner of Income Tax(A) that assessee company is having a huge turnover, regular business activities, premium ....
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....s are to be submitted. If such a high figure of premium was fixed in consultation with experts or financial institutions, details thereof. In case the details are not furnished then the only inference that could be drawn was that no such consultation took place, the rate of premium was fixed unilaterally by the appellant without any reference point to past records, present earnings or future prospects. (ii) The Central Government had notified the Unlisted Public Companies (Preferential Allotment) Rules, 2003 which apply to issue- of shares on preferential basis and/or through private placement by a company in pursuance of a resolution passed under sub-section (1A) of Section 81 of the Companies Act, 1956 and to the issue of shares to promoters and their relatives either in public issue or otherwise; Please furnish details whether, in compliance with the provisions of the Rules, the share premium prices were determined? (iii) Please produce the copy of the Minutes of Meeting of the Board of Directors held which reflects that the Board had decided the issue of pricing. When was the execution of the share application forms completed? A. How prices of shares determine....
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.... on shares issued to Cap Vanijya Pvt. Ltd., Newjet Trexim Pvt. Ltd., and Sadasukh Dealers Pvt. Ltd. against issue of 1,10,000 shares was eminently reasonable. It would be pertinent to point out that during this year, 90,000 shares were issued to family members and associate concerns from whom also similar amount of share premium was collected. From the above you will find that during this year, 2,00,000 shares were issued of which 90,000 were issued to family members and associates and 1,10,000 shares were issued to the other three parties. Total premium collected on all these shares was Rs. 86,40,000. Thus, you wil! find that share premium was rightly collected as per the intrinsic worth and the profitability of the company. You will also note that premium at same rate was collected from family, members and associate concerns. This would take care of your query, I may further point out that out of the three companies, Sadasukh Dealers Pvt. Ltd. is now registered at Ahmedabad and both its directors reside at Surat and known to the directors since last two decades. As it is directors of the company had very old relationship with directors of companies who have invested. As ....
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....orrespondence/e-mail etc. give evidence how offer was conveyed, if there was any instrument of communication with details of company profile, valuation of shares. Produce the copy of the share application alongwith the original share application (one application for sample) (iv) When were the share applications received, and the shares were allotted and sent to the parties? Share Application - when and where printed, no. of shares printed, bill of such expenses, whether such claims were part of profit and loss account. (v) Delivery of share certificates - mode, date and expenses claimed. Produce the copy of the share certificate (one certificate for sample) (vi) Please furnish the response of the persons to your offer and mode and instrument of expression of interest/acceptance of offer. (vii) When was the name of such persons entered in the share allotment register? (viii) The attendance register for the AGM held is to be produced alongwith the relevant proxy authorization forms and any proof of communication to the share holders in regard to the convening of the AGM or even for the dispatch of the share certificates. (ix) What....
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....e 4,40,00,000 3,40,00,000 Profit & Loss a/c. balance 3,49,07,684 1,23,15,761 If you consider the figures of Reserves which includes balance of profit and loss account, the total of free reserves would be Rs. 7,89,07,684 on 31-03-2011 and Rs. 4,63,15,761 on 31-03-2010. Further, the profits have been continuously rising as profits were Rs. 1,83,07,723 for year ending 31-03-2010 and Rs. 3_,25,91i923 for year ending 31-03-2011. In this background the share premium ofRs.50 lacs on shares issued to Cap Vanijya Pvt. Ltd., Newjet Trexim Pvt. Ltd., and Sadasukh Dealers Pvt. Ltd. against issue of 1,10,000 shares was eminently reasonable. It would be pertinent to point out that during this year, 90,000 shares were issued to family members and associate concerns from whom also similar amount of share premium was collected. This is reflected in the returns of allotment. (d) Share certificates were personally handed over and there was no correspondence about dividend or any other matter. (e) As mentioned earlier, the mode of communication/contact with the investors and evidence of how offer was conveyed, this was as per personal discussion with....
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....ent years (page 56-61). None of these directors of the appellant company was director of the two companies of Kolkata and one company ofsurat from which share premium has been taken during the above period." 6.1.6 On the perusal of the details, it is observed that the appellant had received share capital of Rs. 11,00,000;- and share premium of Rs, 50,00,000;- during the year from 3 companies of Kolkata. The AO issued notices u/s 133(6) of the Act on the given addresses out of which the notice issued to Sadasukh Dealers Pvt. Ltd. was returned back unserved. The AO issued commission u/s 131(1)(d) of the Act to Investigation Wing, Kolkata to verify the identity, creditworthiness and genuineness of the transaction. The Investigation Wing Kolkata after inquiry reported vide its letter dated 31/01/2014 that the all the 3 companies could not be located at the given addresses. It was also informed that one of the directors of M/s Cap Vanij'ya Pvt. Ltd. namely Shri Anj'ani Banka was summoned u/s 131 of the Act by Investigation Wing, Kofkata and the statement was recorded on 16/01/2014 wherein he stated that the companies in which he is director including M/s Cap Vanijya Pvt. Ltd.....
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....t, . . The company was incorporated in the year 1999 and has shown accumulated losses of Rs. 1,15,728/- as on 31.03,2009, loss of Rs. 1,10,918/- as on 31.03.2010 and loss of Rs. 1.07.199/-as on 31.03.2011. The appellant only source of income is from interest and income shown in ITR is of Rs. 6,729/- in AY 2011-12 as per return of income filed on 27,09.2011. The appellant only source of income is from interest of Rs. 15,20,03s/- on which the appellant has claimed salary/wages/staff expense of Rs. 10,27,000/-,but it is strange to note that the company has no activity and no source of income except interest income but still the expenses incurred towards operation and administration expenses is of Rs. 14.99.526/- No rental payment shows for its registered office premises Though no rental payment has been shown but the total electricity expenses claimed is of Rs. 500/- only for the whole year out of the total expenses of Rs. 14,99,526/-.The electricity bills never come in round figures and cannot be of such a meager amount. No real source of income or actual business activity but various persons have invested into equity shares of the company....
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.... these 3 Kolkata companies on personal persuasion and contacts. The appellant could not submit any documentary evidence regarding the correspondence made with the lenders for the investments is share capital. Not a single piece of paper or email could be furnished as a proof of the discussions for share capital along with the terms and conditions, paper work etc. It is important to point out that these 3 companies had never made any transactions earlier with the appellant company which could explain the conduct of them lenders in investment in share capital. 6.1.9 The 3 parties were not found at the given addresses when enquires were conducted by the Investigation Wing, Kolkatta. The onus was on the appellant to prove the existence of the share holders which could not be discharged as the share holders are non-existent and non traceable on the given addresses. Now coming to issue of the creditworthiness and genuineness of the transactions, the AO noticed that in the bank accounts of the share holders meager balances were maintained in the accounts and the deposits were made immediately two or three days before or on the same day in the bank accounts of the share holders and that....
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.... the amounts as claimed towards share capital/share premium. 6.1.12. When the Assessing Officer asked the appellant to furnish the details, the appellant produced details like bank statement, copy of acknowledgment of return, confirmations, etc. However, when the Assessing Officer got inquiry conducted at the stated addresses through the Investigation Wing, Kolkatta, the parties were found to be non-existent, It was also found by Investigation Wing that one of the directors of M/s Cap Vanijya Pvt. Ltd. namely Shri Anjani Banka was summoned u/s 131 of the Act by Investigation Wing, Kolkata and the statement was recorded wherein he stated that the companies in which he is director including M/s Cap Vanijya Pvt. Ltd. is controlled by Shri Manohar Lal Nangalia. Subsequently, the statement on oath of Shri Manohar Lal Nangalia was also recorded wherein he submitted that the companies are actually controlled by him and these companies are 'paper/shell companies'. Thereafter, the appellant except producing the papers could not prove existence or availability of the share applicants. When the identity of the person is required to be proved so as to examine whether in fact they ha....
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....ying any tax on the same. 6.2.2 The method of providing accommodation entry entails breaking up large amounts of money into smaller, less-suspicious amounts. This smaller amount has to be below Rs. 50.000/-as'deposit of cash below this amount does not require providing PAN of the depositors. The money is then deposited into one or more bank accounts either by multiple people or by a single person over an extended period of time. Also, even larger amounts are deposited in the banks with PAN numbers of individuals who are mostly illiterate and work for these entry operators for small salary or commission. The money is then routed through paper companies controlled by these operators. These companies are incorporated by taking care of ali formalities such as registering with ROC but having only postal addresses with no real office or employees. The directors of such companies are again individuals who are mostly illiterate or semiliterate and work for the entry operators for small salaries or commission. At first sight, most of these companies would pass of as finance, investment or technology companies. But as the entry operators have admitted in large number of cases that the....
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....hat the assesseecompany received share capital from those persons who had given statements before investigation wing that they were entry providers giving accommodation entries after receiving cash and after charging their commission. Assessee furnished PAN of subscriber-companies, share application forms, board resolutions, copy of bank statement, pay orders, confirmation from subscribers, their income-tax returns, copies of their balance sheets, etc. However it was held by the Hon. Court that if explanation adduced by assessee with regard to identity and creditworthiness of subscriber-companies and genuineness of transactions was not acceptable for valid reasons, Assessing Officer could make addition under Section 68 anct for that purpose he would not be under any duty to further show or establish that monies emanated from coffers of assessee-company. The Hon. Court further observed that 'We are unable to uphold the view of the Tribunal that it is incumbent upon the Assessing Officer, on the facts and circumstances of the case, to establish with the help of material on record that the share monies had come or emanated from the assessee^s coffers. Section 68 of the Act casts n....
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....he ground reality i.e. the de-facto existence of the creditor is first established prima facie paving the way for the Assessing Officer to examine further the capacity and genuineness aspects. Merely based on arranged affairs and supporting documents, the identity cannot be said to be established, and in many case not the capacity and genuineness of the transaction. In this aspect it would be necessary to advert to two decisions of the Supreme Court, the first being in Commissioner of Income Tax Vs. P. Mohanakala AIR 2007 SQ 2116. While considering the scope of Section 68, the Supreme Court observed as follows: ". ,.. When and in what circumstances section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory. It is only then the sum so credited may be charged to income-tax as the income of the assessees of that ....
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....xplanation furnished by the assessee about the source of the credits in question viz., realisation from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not satisfactory. It is well settled that 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." 6.2.8. The only requirement for establishing the cash credit to be undisclosed income of the taxpayer is that proper enquiry must be made by A.O before making any addition u/s 68. In Khandelwal Constructions v. CIT 227 ITR 900 (Gau.) It has been heid that section 68 of Income Tax Act, 1961, empowers the Assessing officer to make enquiry regarding cash credit, if he is satisfied that these entries are not genuine he has every right to add these as income from other sources. But before rejecting the assessee's explanation A.O. must make proper enquiries and in the absence of proper enquiries, addition cannot b....
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....oof is fluid for the purposes of sec. 68 of the Act. Once assessee has submitted basic documents relating to identity, genuineness of transaction and creditworthiness then AO must do some inquiry to call for more details to invoke section 68. An assessee can discharge his onus of proof by proving three things: Identity of the creditor capacity of the creditor and the genuineness of the transaction. Once the assessee proves all three things his onus is discharged. Section 68 of the income Tax Act provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, ' :he opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The Supreme Court held in Sumati Dayal vs. CIT 214ITR 801 (SC) in applying the test of human probabilities as follows; "ft 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 provision and if a rece....
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....3. Section 68 of the Act clearly shows that any sum found credited in the books of an assessee maintained for a previous year may be charged to income-tax as the income of the assessee of that previous year, if (a) the assessee offers no explanation about the nature and source of such sum, or (b) the explanation offered by him is, in the opinion of Assessing Officer, not satisfactory. As a matter of fact, section 68 is a statutory recognition of what was previously established by judicial decisions to the effect that where certain sums of money were claimed by the assessee to have been borrowed from certain persons, it was for the assessee to prove by cogent and proper evidence that there were genuine borrowings as the facts are exclusively within the assessee's knowledge. In deciding an issue of this nature, there cannot be one generai or universal proposition of law which could be the guiding yardstick in the matter. Each case has got to be decided orfthe "facts and circumstances of that case. The surrounding circumstances to be considered must, however, be objective facts, evidence adduced before the authorities, presumption of facts based on common human experience in life ....
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....ore, follows that the subscribers to shares of private company can be only private persons. Such private persons must invariably be persons of confidence and acquaintance of directors of private company and there should be normally, no difficulty in producing them before the AO. And in case, they are not produced, the natural corollary is that the real position is not the same as emerges from papers and documents furnished in this behalf. 6.3.2 Now, in order to appreciate the above discussions and analysis, it would be necessary to consider the judgment of the Delhi High Court in Lovely Exports 299 ITR 268 which has been heavily relied upon by the appellant. In the case of Lovely Exports, the Assessing Officer had proceeded to make an addition on the ground that the share applicants in question did not exist. The assessee had furnished necessary details such as the PAN of the share applicants. The share money had been received through banking channels. The Assessing Officer made an addition only on the ground that some of the summons which were issued to the share applicants were returned unserved, whereas in the case of others the summons though served, had not been complied wi....
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....hese share subscribers to find out whether they were creditworthy or were such who could subscribe to such huge money towards share application in the appellant-company. The facts of the present case is not a case of public issue of shares rather it is a case of private placement. Therefore in the light of the observation of the Hon'ble Court in the case of Lovely Exports(supra), the legal regiment will be different as compared to the public issue. Whereas in the case of public issue, the company concerned cannot be expected to know every detail pertaining to the identity as well as the financial worth of each of its subscribers but same cannot be said in the case of private placement. As per the observation of the Hon'ble High Court, a very strict approach to the burden has to be adopted and the same is laid almost entirely on the assessee which receives the share subscription. It is, highly improbable in the case of the appellant that it is not knowing the latest address of all these shareholders and is not in touch with them from whom such a huge amount has been received as share application money with a huge premium especially when all these shareholders taken together ....
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....den must be upon the assessee to explain the nature and source of the share application money received. In order to discharge this burden, the assessee is required to prove; (a) Identity of shareholder; (b) Genuineness of transaction; and (c) Credit worthiness of shareholders. As far as the creditworthiness of the subscriber is concerned, that can be proved by producing a bank statement of the subscriber showing that it has sufficient balance in its account to enable it to subscribe to the share capital. The Delhi High Court held that once the initial borden has been discharged, the observations of the Supreme Court in the case of Lovely Exports would suggest that the Department is free to proceed to reopen the individual assessments in the case of alleged bogus shareholders in accordance with law and is not remediless. This would be more so when the assessee is a public limited company and has issued share capital to the public at large as in such cases the company cannot be expected to know every detail pertaining to the identity and financial worth of the subscriber. However, the initial burden on the assessee would be somewhat heavy in case the assessee is a private limited com....
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....been rightly made. Hence, the isolated evidence of the appellant had no evidentiary value at all. As a matter of fact, the law of evidence mandates that if the best evidence is not placed before the Court, an adverse inference can be drawn as against the person who ought to have produced it. {Krishnaveni Ammal158 ITR 826 (Mad.)} 6.3.8 The Hon. ITAT, Kolaktta Bench in the case of [2014 ] 52 taxmann.com 305 (Kolkata - Trib.) Bisakha Sales (P.) Ltd, while deciding the racket/scam of the issue of accommodation entries held that the methodology and acts done in such cases of capital formation is not tax avoidance, It is more in the nature of tax evasion by money laundering. These transactions have in effect three limbs. The first limb is the creation of the shell companies with substantial share capital which is balanced with inventories in the form of shares in other shell companies. The second limb is the transfer of such shell companies to persons who desire to use such substantial share capital companies for converting their unaccounted money into accounted funds and use such shell companies to do legitimate business. The third limb is when the shell companies after being taken o....
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.... Authorised Representative further submitted that all necessary details were available with the Revenue authorities but they could not find any error in the details submitted by the assessee which could have proved that the alleged share capital/premium was unexplained money of the assessee company. It was further submitted with regard to that the alleged statement of Mr. Anjani Banka, director of Cap Vanijya (P) Ltd. and Mr. Manohar Lal Nangalia that assessee had submitted vide its letter dated 28.2.2014 that they do not know either of the two persons and how they were connected with the alleged companies. Ld. Authorised Representative also submitted that with all these details, why the inspector could not find their locations and further relied on the judgment of the Supreme Court in case of Lovely Exports Ltd. (216 CTR 195), wherein the Hon. apex court has held that if the share application money is received by the assessee company from alleged bogus shareholder whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company. It....
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....ompany. Ld.Authorised Representative also relied on following judgments/ decisions :- 1. Pr.CIT vs. N.C. Cables Ltd. (2017) 391 ITR 13 (Delhi) 2. Laxmiraj Distributors Pvt. Ltd. vs. ACIT (2017) 53 ITR (Trib) 376 (Ahmedabad) 3. Commissioner of Income Tax vs. Navodaya Castles (P) Ltd. (2014) 50 Taxmann.com 110 (Delhi 4. Pr.CIT vs. Goodview Trading (P) Ltd. (2017) taxmann.com 204 (Delhi) 5. Neelkanth Finbuild Ltd. (Delhi)(Trib) 70 SOT 368 6. Shalimar Buildcon Pvt. Ltd.(Jaipur) 128 ITD 396 7. Kisco Casting Pvt. Ltd. (Chandigarh) 685 CHD 2011 8. Anmol Marmo grains Pvt. Ltd. (Jodhpur) 67 SOT 480 9. A. I. Developers Pvt. Ltd. (Delhi) 178 TTJ 332 10. Vitrag Metal Pvt. Ltd. (Mumbai) 46 ITR (Trib) 201 11. Dhanlaxmi Equipment Pvt. Ltd. (Jaipur) 1103 JP 2011 12 Lotus Integrated Taxpark Ltd.(Chd) 173 TTJ 848 13 Dolphins Marbles Pvt. Ltd. (Jab)(tm) 139 TTJ 126 14 Tulip Finance Ltd. (Delhi) 15 DTR 185 15. Aquatech International Ltd. (Del-A) 13 DTR 382 16 Monnet Ispat & Energy Ltd. (Delhi-Trib) 171 Taxman-27 17 Smart Capital Services Ltd. (Del-E) 10 DTR 593 18 A-One Housing Complex Ltd. (Delhi) 110 ITD 361 19 Uma Polymers Pvt. Ltd. (Jd)(t....
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....m , 1 Newjet Trexim Pvt. Ltd. 27, 5^th Floor, Brabourne Road, Kolkata-700001. AAACN8738P 300000 1500000 2 Cap Vanijya Pvt. Ltd. 14-C, 4^th Floor, Maharshi Devendra Road, Kolkata-700007. AABCC3989 30000 150000 3 Sadashukh Dealers Pvt. Ltd. 6-A, Raja Subodh Malik Squire, Kolkata-18 AAKCS9420P 500000 200000 We further observe that ld. Assessing Officer took note of the statements recorded by DDIT (inv) Wing of Kolkata in the case of Mr. Anjani Banka, director of Cap Vanijya (P) Ltd. and Manoharlal Nangalia wherein Mr. Anjani Banka admitted that Cap Vanijya (P) Ltd. and other companies are under the control and management of Manoharlal Nangalia who has further confirmed that Cap Vanijya (P) Ltd. is a paper/shell company engaged in providing accommodation entries of share capital/premium. We further observe that ld. Assessing Officer on examination of the financial statement of alleged three companies prepared charts showing fixed assets, interest income/turnover, accumulated profits and share capital/premium which is summarized below :- (1) Sadasukh Dealers Pvt. Ltd. Assessment Year Fixed Assets as on 31st March Inte....
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....this regard. Further it is not possible for the assessee to know about the source of source and such powers are with the Revenue authorities to make the investigation. However, we also observe that ld. Authorised Representative was unable to file any documentary evidence to show that there was a communication between the company officers and the alleged three companies which can prove any connection between them and also the intention to invest in the assessee company. Ld. Authorised Representative also could not reply that why company based in Kolkata can invest all the way in a company in Gujarat without having any previous business connection. 7. We observe that both the ld. Representatives have referred and relied on various judgments/decision dealing with the issues of unexplained cash credit u/s 68 of the Act as well as reopening of assessment proceedings u/s 147 of the Act which in nutshell gives the view that merely furnishing of PAN, income-tax returns and confirmation may not be sufficient evidence to prove the genuineness and creditworthiness of the person and one more step is required from either side to substantiate their plea. At this juncture we find it pertinent ....
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.... find that Assessing Officer came across the statement of Mr. Jitendra Jain, one of the directors of Suraj Corporate Service Pvt. Ltd., Ahmedabad recorded by DDIT(Inv) on 21.9.2010, in case of another investigation, in the case of M/s B. R. Metals and Alloy (Gujarat) Ld., wherein it was stated by Mr. Jitendra Jain that the said company, Suraj Corporate Services Pvt. Ltd. provides accommodation entries to the companies which gives cash to the said entities and the same was routed through various other paper entries and finally from the bank account of Suraj Corporate Services Pvt. Ltd. the same was introduced in the form of share application money. 10. Relevant extract of statement recorded on 21.09.2010- in the form of Questions & Answers in respect of Shri Jitendra Jain by DDIT(Inv), Ahmedabad, are as follows :- Q. 22. In which companies you are the director within last 6 years ? Pl. explain. Ans:22 I am the director within last 6 years in the following companies - 1. Surat Corporate Services Pvt. Ltd. 2. Grin BPO Services Pvt. Ltd. 3. Siddhi Vinayak Fincap Ltd. 4. Shelja Finlease Pvt. Ltd. 5. Radhe Finservice Pvt. ....
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....typical nature of paper companies engaged in providing accommodation entries. 13. Further we observe that Co-ordinate Bench, Kolkata in the case of Subhlakshmi Vanijya(P) Ltd. vs. CIT (2015) 60 taxmann.com 60 (Kolkata -Trib) came across issue relating to unexplained cash credit u/s 68 of the Act wherein share capital was received from companies having very meager income and low financial capacity to invest huge amounts in other companies"share capital wherein the Co-ordinate Bench has held as under :- HELD Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company? * As per section 68 where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. This section has received the attention of the Supreme Court and almost all the High Courts in numerous cases. It has been almost unani....
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....ning the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition under section 68 notwithstanding the same being non-genuine. In the oppugnation, if the amendment is held to be retrospective, then it would mean that the Assessing Officer would have all the powers to examine the genuineness of share capital and share premium received by the assessee company on the touchstone of section 68. If the assessee fails to satisfy him on the identity and capacity of the subscribers and genuineness of) transactions, then addition will be called for under section 68. [Para 13.w.] * It is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intentio....
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.... it refers to 'any sum credited' in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision Thus, it would extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to 'any sum credited', there can be no reason to restrict its application only to 'loans' and not to 'share capital1. The burden of proof under section 68 can be no different in respect of issue of share capital by closely held companies vis-a-vis loans or gifts. The High Court in CIT v. Maithan International [2015] 375 ITR 123/231 Taxman 381/56 taxmann.com 283 (Cal.). CITv. Active Traders (P.) Ltd. GBP19951214 IT....
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....rospective. The contrary arguments advanced by the assessee being devoid of any merit, are hereby jettisoned. [Para 13. ae.] Thus, the contention of the assessee that since the Assessing Officer of the assessee-company is not empowered to examine or make any addition on account of receipt of share capital with or without premium before amendment by the Finance Act, 2012 with effect from assessment year 2013-14 and hence the Commissioner by means of impugned order under section 263 could not have directed the Assessing Officer to do so, is unsustainable. [Para 13.ak.] 14. We further observe that in the case of CIT vs. N. Tarika Properties Investment in ITA No.2080 of 2010 Hon. Delhi High Court vide its judgment dated 28.11.2013 has held as under :- 31. We are of the considered opinion that the Assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. The surrounding circumstances and inquiries made by the Assessing Officer were significant but the said finding though not disturbed have been ignored. Further the Tribunal has failed to t....
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....however, act unreasonably. (See : Sreelekha Banerjee (supra) at p. 120) 16. Further we observe that in the case of CIT vs. Maithan International (2015) 56 taxmann.com 283 (Calcutta), Hon. Calcutta High Court has held as under :- Held - * When payment by cheque did not establish the creditworthiness of the lender mere examination the pass bOOK or the bank statement or me letter of confirmation or the balance sheet of the lender was not enough. The inspector appointed by the Assessing Officer did not go beyond the aforesaid documents. Therefore, it cannot be disputed that the view formed by the Commissioner that in none of the reports, he has commented upon the issue of creditworthiness ;.e. whether these parses had sufficient means to advance such huge loans, is not without basis. * It is well establishes that credits allegedly based on loan from parties, who are. not possessed of sufficient means cannot be accepted as genuine. The Assessing Officer was required to make proper investigation to determine whether the money was really lent by the third party or it has come out of the resources of the assessee himself. Thus the Assessing Officer has failed ....
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....assessee is a private limited company which is not open to public and, therefore, if it requires to increase its capital base or invite investment in the share capital along with premium which in this case is Rs. 60/- over the face value of Rs. 10/- then it has to approach within its friends and relatives for the investment. In the given case Rs. 70 lacs each has been given by the impugned 5 parties to the private limited company i.e. the assessee. Any prudent person who intends to invest in a company with a motive of gaining from the said investment, looking to the quantum of share capital and premium invested by these 5 parties which is of a substantial percentage of the total share capital of the company it is surprising to note that none of them was able to appear before the Assessing Authority nor the assessee was able to bring any of them in person to prove the genuineness of transaction and creditworthiness of the investor towards share capital and share premium given these impugned 5 parties. More so we find that out of the 5 parties three parties are within Ahmedabad and so is the assessee. It is not simple to believe that none of them could have been made to appear before....
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....e investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. If this has been the situation, then there would have been no doubt on the genuineness of the transactions. On the contrary in the instant case assessee completely fails to prove the same. 20. It is well settled that in order to discharge the onus the assessee must prove the following :- i. The identity of the cash creditor; ii. Capacity of the cash creditor to advance money towards capital. iii. Genuineness of the transaction. If the assessee has adduced evidences to establish the prima facie, the aforesaid onus shifts to the Department. However, mere furnishing of particulars or the mere fact of payment by account payee cheque or the mere submission of confirmation letter by the share applicant is by itself, not enough to shift the onus to the Department although these facts may, along with other facts be rel....
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....e above, we find that one common event is with regard to the report of investigation of the Department and the statement on oath of the director of one of the alleged companies admitting it to be a paper company. In the case of assessee out of the alleged three companies M/s Cap Vanijya (P) Ltd. is admittedly a shell/paper company as the director and the controlling person has accepted. As far as other two companies are concerned there is no such report of the investigation wing to prove them to be paper companies. We will, therefore, proceed further by segregating the alleged three companies into two parts wherein in the first part we will discuss about Cap Vanijya (P) Ltd. and the second part remaining Newjet Trexim (P) Ltd. and Sadasukh Dealers (P) Ltd. 8. As regards Cap Vanijya (P) Ltd. we find that undoubtedly assessee has submitted necessary evidences and details at the primary stage but the Revenue came with a counter to disprove the evidences of assessee with the help of report of Dy. Director of Income-Tax (Inv), Kolkata as well as the statement on oath u/s 131 of the Act of the Director of Cap Vanijya (P) Ltd. and the controlling person Mr. Manoharlal Bangalia clearly ....