TaxTMI 
TaxTMI 
2016 (4) TMI 1228
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....(only change in the figures) are raised by the assessee in both these appeals in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") read as under:- "1. The learned C.I.T. (A) has erred in upholding the addition of Rs. 1,60,00,000/- (for A.Y. 2006-07) and Rs. 3,75,00,000/- (for A.Y. 2007- 08) on account of alleged bogus share subscription, as unexplained cash credit u/s. 68 of the Income Tax Act, 1961. Your appellant respectfully submits that on facts and in law the addition of Rs. 1,60,00,000/- (for A.Y. 2006-07) and Rs. 3,75,00,000/- (for A.Y. 2007-08) is unjustified and should therefore be deleted." 3. First we shall take up the assessee's appeal in ITA No. 1835/Mum/2014 for the assessment year 2006-07. The brief facts in this case are that the assessee company belongs to Shri Vinod Faria/Milan Dalal group of cases. A search and seizure action u/s 132 (1) of the Act was carried out on 30th May, 2008 at the office and residential premises of Shri Vinod Faria, Director and the key person of the group were covered. The premises of the assessee company at Mahavir Annexe, 345, Kalbadevi Road, Mumbai was also....
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....ccommodation entries in the guise of share subscription have been stage managed and this fact has also been admitted by the Director of the assessee company, Mr Vinod Faria in his statement u/s 132(4) dated 31-05-2008. Besides the above two impounded loose Annexures, Annexure A-3 ( pages 1 to 212) also contains the similar nature of incriminating documents showing the clear-cut evidence that the assessee company has introduced bogus share subscription in the names of various parties which are nothing but mere accommodation entries." The case was reopened u/s 147 of the Act as the Revenue had reasons to believe that the income has escaped assessment to the tune of Rs. 1.60 crores. The reasons for reopening of the assessment were recorded and notice u/s 148 of the Act was issued on 4th September, 2009 and served upon the assessee. The Copy of the reasons recorded was provided to the assessee.The assessee requested that the original return filed u/s 139(1) of Act be treated as return of income filed in pursuance of notice u/s 148 of the Act. The Copies of the statements recorded of Shri Parag A. Nisar, Shri Suresh V. Faria and Shri Vinod K. Faria, the Directors of the assessee comp....
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.... payments. What do you have to comment about these observations? Ans. Your presumption is correct. I am unable to furnish my further comments thereon. While Shri Vinod K. Faria in reply to question No. 32 replied as under:- "Ans. Searches and surveys have been carried out at our group offices as well as at the residences of myself and my brother, Mr. Mahesh Faria and my associates, Mr. Milan Dalal. During the course of search/survey, I have been given to understand that various incriminating evidence has been found evidencing the investment in the immovable and movable properties by me and other entities. We may also not be in a position to prove the genuineness of the share capital subscribed by M/s Royal Rich Developers Pvt. Ltd to the satisfaction of the Department. Considering these facts, I, as an authorized representative of all these entities, declare an income of Rs. 10.00 crore as additional income over and above to the regular income recorded in the' books of accounts. Details of entity and assessment year-wise breakup of the income offered to tax will be furnished separately after going through the seized records and other details from our books of acc....
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....ee filed its first appeal before the ld. CIT(A). 5. Before the ld. CIT(A) the assessee submitted that the independent enquiry be made with each shareholder to find out the truth about the genuineness of the share transaction. The assessee contended that the assessee may be given opportunity to produce the shareholders before the A.O. in person, for examination. The ld. CIT(A) forwarded the submissions of the assessee to the A.O. for his remand report. In the said forwarding letter by the learned CIT(A) to the AO, it was mentioned that during the assessment proceedings similar request was made by the assessee to the A.O. for conducting independent enquiries with the shareholders to ascertain the genuineness or otherwise of the share subscription but the A.O. has not acceded to the request, and also it is contended by the assessee that the sufficient time was not given by the AO to the assessee to produce the lenders. In the remand report submitted by the A.O. to learned CIT(A), it was contended by the AO that reasonable opportunity were given to the assessee in remand proceedings, wherein show cause notices were issued on 10th July 2013 and 11th September, 2013 to the assessee, w....
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..... The assessee has submitted its bank statement from 21-03-2006 to 31-03- 2006. There were no business activities carried out by the assessee company during this period except deposit of cheques from shareholders. It was observed by the A.O. that the assessee had issued 4 lacs equity shares in financial year 2005-06 and the face value of the shares Rs. 10/- per share while the shares had been issued at a premium of Rs. 30/- per share and the assessee credited an amount of Rs. 1.60 crores as share subscription. During the remand proceedings, assessee was asked by the AO to produce all shareholders for verification of the genuineness of the transaction and show cause notices were issued by the AO to the assessee on 10th September, 2013 asking assessee to produce shareholders between the period of 18.9.2013 to 25.9.2013 along with all relevant documents such as bank statement, copy of return of income, copies of details of allotment of share certificate with allotment letters, capital account and balance sheet. But the assessee failed to produce the shareholders on the stipulated time period from 18-09-2013 to 25-09-2013 and submitted that it will take some more time to co-ordinate....
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.... AHCPK1337F 62500 No A008 Laxmi D.Mange AHWPM1495N 30000 Yes A009 Ramji M. Bharwad AACPB1219L 37500 Yes A010 Deepak D. Dani AACPM1444J 25000 Yes A011 Kailashchand J. Kachhawaha HUF AADHK3700Q 45000 No A012 Pradeep M. Mange HUF AAIHP0455L 30000 Yes A013 Jayesh S. Kalola AITPK7624B 25000 Yes A014 Dharmesh J Joshi ADHPJ3912C 40000 No A015 Meena Joysar AEYPJ6107M 37500 Yes A016 Kantilal Joshi AEYPJ0250R 25000 Yes A017 Jeram Karotra AIXPX2394J 35000 No A018 Nishit Madiar AEWPM4655F 25000 Yes A019 Alka Y Gandhi 30000 No A020 Anil J Shinde 25000 No A021 Bharat Patel 37500 Yes A022 Chhya V. Dama AIHPD6019K 30000 Yes A023 Chhtalal T. Kalola AQUPK7634A 12,500 No A024 Drupad N. Bhatt HUF AADHD0055P 37,500 Yes A025 Geetesh Jadhav AKRPJI859P 22,500 No A026 Gopal P Bhanushali AGIPB7609L 26,250 No A027 Haresh P. Bhanushali AACPB6068P 25000 No A028 Jaswantrai J Ghatalia HUF AADHJ5530R 25,000 Yes A029 Kashavji Versh....
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....31 of the Act to the share subscribers but none of the share subscriber appeared before the A.O.in compliance to the summons issued u/s 131 of the Act which proved that the assessee failed to discharge its onus. A copy of the remand report was forwarded to the assessee for its comments whereby the assessee replied as under:- Sr No The learned A.O.'s remarks/observations Our comments on A.O.'s remarks/observation 1 As details filed on record seen that the assessee company was incorporated 17.3.2006 which was 15 days before the financial year 2005- 06 relevant to A.Y. 2006- 07. The assessee has submitted copy of bank statement for the period from 21.3.2006 to 31.3.2006. There is business no activities found during this period except of cheque deposits, which were received from the shareholders. The learned A.O. himself has recorded two finding namely (i) the appellant company was incorporated on 17.3.2006 and (ii)the appellant company has not started any business activities in the 15 days of existence during the financial year relevant to A.Y. 2006-07. Thus, there is no dispute about the above two factual aspects. 2 A.O.'s remark about documents submitted t....
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....case with that of three judicial pronouncements relied on by the appellant. The learned A.O. has not proved any comments on the three judicial pronouncements mentioned in para 4 of our letter dated 8.2.2010. The A.O. has not disputed that the facts of the present case are similar to the facts in the said three judicial pronouncements. 7 Non-consideration by the A.O. of subsequent change in law (effective from A.Y. 2013-14) which has bearing on the proper understanding of law as it was applicable for A.Y. 2006-07 The law requiring to prove source of source in case of share application, share capital and share premium is introduced for the first time w.e.f. 1.4.2013 i.e. A.Y. 2013-14 by amending section 68 of the I.T. Act, 1961. This amendment is prospective in application and does not apply retrospectively to A.Y. 2006-07. Thus for all assessment years prior to A.Y. 2013-14 the law as laid down by Hon'ble Supreme Court in the case of CIT v. Lovely Exports P. Ltd. (SC) 216 CTR 195 continues to apply. It was observed by the ld. CIT(A) that certain incriminating documents were found from the premises of the assessee company during the course of survey from the premise....
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....tions. It was observed by the learned CIT(A) that in the bank accounts of the subscribers, equivalent amounts have been deposited either in cash or through cheques or through draft etc either on the same day or a day before the payment to share subscriptions, which raised doubts about genuineness of the transactions. It was observed by the learned CIT(A) that in some of the accounts, there were several credits ranging from Rs. 49,000/- to Rs. 49,500/- which shows that bank drafts of these amounts might have been purchased through deposits in cash. In-fact in most of the bank accounts of share subscribers, there are hardly any balance before and after subscription in the shares, indicating that these persons hardly have any means. From the acknowledgement of the income tax returns, it was further observed by the learned CIT(A) that income of subscribers in most of the cases was less than Rs. 1 lac. The learned CIT(A) observed that it is not understandable that how a person having meager income of Rs. 80000- 90000, which is hardly sufficient to meet personal expenses of household expenses in expensive city like Mumbai, could make investment running from Rs. 5 lacs to Rs. 10 lacs in s....
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....d reported in 258 ITR 278(Guj) are distinguishable on facts and are not applicable to the facts of the present case. Thus, The learned CIT(A) upheld/confirmed the assessment order dated 14-12-2009 passed by the AO u/s 143(3)/147 of the Act wherein the subscription amount of Rs. 1.60 crores was treated as unexplained cash credit u/s 68 of the Act and hence learned CIT(A) upheld / sustained the addition made by the A.O vide his appellate orders dated 24- 02-2014. 6. Aggrieved by the appellate order dated 24-02-2014 passed by the ld. CIT(A), the assessee is in further appeal before the Tribunal. 7. The ld. Counsel for the assessee reiterated its submissions as were made before the authorities below and submitted that the additions have been made u/s 68 of the Act of Rs. 1.60 crores as unexplained cash credit to the income of the assessee for the instant assessment year. The assessments have been reopened u/s 147/148 of the Act within a period of 4 years. The ld. Counsel further submitted that the assessee is not challenging the reopening of the assessment u/s 147/148 of the Act. The addition of Rs. 1.60 crores has been made based upon the issue of 4 lacs equity shares of Rs. 10 ....
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....ut in the instant case no document is found from the possession of the assessee as the premises of the assessee was not searched. No business activity has been started by the assessee for the period of 15 days starting from date of incorporation on 17-03-2006 till the end of financial year on 31-3-2006. The ld. Counsel drew our attention to the assessment order framed against the assessee for assessment year 2011-12 which is placed at paper book page 72 & 73 wherein it was clearly stated that there is no business activity carried out by the assessee company and assessment was completed at nil income. The ld. counsel submitted that the two other Directors namely Mr Suresh V Faria and Mr Parag A Nisar are saying that these are accommodation entries but they are not aware of the affairs of the business of the assessee. It is submitted that even if it is concluded that it is an undisclosed income and accommodation entries have been taken by the assessee, it cannot be concluded that this is an undisclosed income of the assessee as there is no income during the period as the assessee has not undertaken any business during the period of 15 days from 17-03-2006 to 31-03-2006. It is submitt....
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....sal of SLP by Hon'ble Supreme Court in the case of CIT v. Divine Leasing and Finance Limited in civil appeal no CC 375 of 2008 vide orders dated 21-01-2008, decision of Hon'ble Bombay High Court in the case of CIT v. Creative World Telefilms Limited (2011) 333 ITR 100(Bom. HC) and decision of Hon'ble Delhi High Court in the case of CIT v. Value Capital Private Limited in 307 ITR 334(Del. HC) 8. The ld. D.R. submitted that section 68 of the Act has been amended by Finance Act 2012, w.e.f. 01-04-2013 whereby the onus is on the assessee to prove source of source in the case of receipt of share subscription to the satisfaction of the AO. The ld. D.R. relied on the decision of ITAT, Kolkata Bench in the case of Subhlakshmi Vanijya (P.) Ltd. v. CIT, [2015] 60 taxmann.com 60 (Kol. Trib) whereby amendment to section 68 of the Act by insertion of proviso by Finance Act, 2012 was held to clarificatory in the case of closely held companies in which public are not substantially interested and applicable with retrospective effect. The ld. D.R. submitted that all the three Directors of the company have accepted in the statement recorded on oath that these are bogus transactions and are merely....
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.... that amendment to provisions of Section 68 of the Act by Finance Act, 2012 is prospective in nature as can be seen from explanatory memorandum explaining rationale behind introduction of this proviso and hence the same is applicable from assessment year 2013-14 and onward years. 9. We have considered the rival contentions and also perused the material available on record including case laws relied upon by the rival parties. We have observed that the assessee company was incorporated on 17th March, 2006 with the objective of undertaking construction and development of properties and to do business in the field of real estate. However, the assessee has not carried out any business activity from 17th March 2006(date of incorporation) to 31st March, 2006 ( end of previous year) i.e. for the fifteen days as it falls in this relevant previous year 2005- 06 as per the facts emerging from the records. There was a survey action carried out by the Revenue on 30th May, 2008 u/s 133A of the Act whereby the assessee's premises were surveyed. Search action was simultaneously conducted by the Revenue u/s 132(1) of the Act on the Directors and other entities on 30-05-2008. Certain docume....
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....efore the learned CIT(A), the assessee has submitted that these are genuine share capital raised by the assessee and the assessee has produced the copies of bank statement, income tax returns, certain confirmations, Balance Sheets/statement of affairs of the share subscribers from the share holders with respect to share subscription to the tune of Rs. 115 lacs from 13 shareholders, while name, address and PAN of the rest 4 shareholders subscribing Rs. 45 lacs were produced. The same are also produced before the Tribunal in paper book filed before the Tribunal and similar contentions are advanced before the Tribunal. The Revenue has doubted the genuineness of the transaction on the ground that assessee having no business/project in hand and being merely paper company have received huge share capital money to the tune of Rs. 1.60 crores on issue of 4 lacs equity shares and that too at a huge premium of Rs. 30 per shares as against face value of Rs. 10 per share. The assessee has not filed any valuation report or explanation to justify issuance of shares of face value of Rs. 10 per share at a premium of Rs. 30 per share. The Revenue has also doubted the creditworthiness/capacity of th....
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.... the assessee during the relevant previous year and also even till the assessment year 2011-12 which is evident from the assessment order passed by the AO u/s 143(3) of the Act. These above stated discrepancies in the issuance of shares by the asssessee company in our considered view do not happen in usual course of business and certainly required deeper probe to unravel the truth behind the huge share subscription raised by the assessee company to the tune of Rs. 5.50 crores in assessment year 2006-07 and 2007-08 within short span of incorporation of the assessee company with no worthwhile business/project in hand and the assessee company being merely a paper company. The assessee was rightly asked by the Revenue to produce the shareholders in the assessment as well remand proceedings before the AO, as the role of the AO is both of investigator and adjudicator whereby he is duty bound to unravel the truth behind the smokescreen, but the assessee could not produce the shareholders despite sufficient, adequate and proper opportunity granted by the Revenue in the assessment as well remand proceedings. Summons u/s 131 of the Act were issued by the AO to the share subscribers directly ....
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.... the assessee is a newly incorporated company which is a closely held company having received huge share capital money including huge share premium of Rs. 1.6 crores in this relevant previous year with no business activity / project in hand as per the facts emerging from the records. The assessee has received huge share premium @ Rs. 30/- per share against the face value of Rs. 10/- per share without any worthwhile business/project in hand. The assessee did not also filed any valuation report before the authorities below as well before us to justify the issuance of shares of Rs. 10 per share at the premium of Rs. 30 per share while the assessee company was a newly incorporated company having no business/project in hand and having no networth of its own being merely a paper/shell company. It is the contention of the assessee that the documents were not impounded from the premises of the assessee during survey operations u/s 133A of the Act but from the premises belonging to the Promoter- Director of the assessee company namely Mr Vinod K. Faria and hence no additions can be made by the Revenue in the hands of the assessee. It is pertinent to mention here that in closely held family ....
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....t require that the Revenue has to show the sources of the income before bringing the amount to tax since the amount is found to be credited in the books of the assessee in case the assessee has not offered explanation to the satisfaction of the AO and more-so in the instant case the Directors of the assessee company had admitted that these share subscriptions is bogus and are merely accommodation entries taken by the assessee whereby equivalent amount was paid to the investors. The Director of the assessee Mr Vinod K Faria also surrendered Rs. 10 crores whereby one of the ground of the surrender was that the assessee company will not be able to show the genuineness of the share subscription. This contention of the assessee is also rejected. Section 68 of the Act cast obligation on the assessee 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 of credit thereof or the explanation offered by the assessee is found not satisfactory in the opinion of the AO, the sum so credited may treated as income and charged to income-tax as income of the assessee of that previous year. T....
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....in the statutory share application documents and on not being satisfied the AO may proceed against the shareholders u/s 69 of the Act instead of proceeding against the company, but in the closely held companies as in the instant case the share capital are mostly raised from family, close relatives and friends and the assessee is expected to know the share subscribers and the burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s 68 of the Act as unexplained cash credit. The use of the word 'any sum found credited in the books ' in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity a....
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....unal: "13.u. Now we espouse the next leg of the arguments of the ld. AR that the insertion of proviso to section 68 by the Finance Act, 2012 w.e.f. 1.4.2013 empowering the AO to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective and, hence, the CIT in the year under consideration question was not right in directing the AO to examine the genuineness of share capital with premium. On the other hand, the ld. DR advocated the retrospective operation of this amendment. 13.v. In order to evaluate the rival the contentions on this issue, we consider it apt to reproduce the relevant part of the proviso to section, which reads as under : - 'Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of ....
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....d or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the fact that such amendment to the substantive provision has been given prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real intention of the legislature from the date such provision....
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....nd hence retrospective. In this case it was held that the interest paid by the firm to a partner on his individual deposits is not hit by section 40(b), if the person is a partner not in his individual capacity but as representing HUF. The same view was taken in Suwalal Anandilal Jain v. CIT [1997] 224 ITR 753/91 Taxman 337 (SC). However in Rashik Lal & Co. v. CIT [1998] 229 ITR 458/96 Taxman 16 (SC), somewhat contrary view was expressed. That is how the matter came up before the larger bench of the Hon'ble Supreme Court in Kanji Shivji & Co. (supra). In this case Explanation 2 to section 40(b) has been held as declaratory and hence retrospective in operation by affirming the judgments in the cases of Brij Mohan Das Laxman Das (supra) and Suwalal Anandilal Jain (supra). 13.aa. A survey of the above judgments makes it patent that 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 fact that the amendment has been given effect prospectively. In our considered opinion the border line between a substantive provi....
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....cifically 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 capital'. The burden of proof under 68 can be no different in respect of issue of share capital by closely held companies vis-à-vis loans or gifts. The Hon'ble jurisdictional High Court in Maithan International (supra), Active Traders (P.) Ltd.(supra), Mimec (India) (P.) Ltd. (supra) and Nivedan Vanijya Niyojan Ltd. (supra) has specifically held that the above three ingredients are required to be satisfied even in case of issue of share capital by a ....
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....he hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium, etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee-company in the hands of the resident-shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e., a Venture Capital Fund, Venture Capital Company registered with the Securities and Exchange Board of India(SEBI). This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years." 13.ad. A careful perusal of the first para of the Memorandum brings out that the onus of....
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....ctive in operation. 13.ae. The about discussed judgments from the Hon'ble Summit Court holding a clarificatory substantive provision as retrospective, despite the same being made applicable from a particular year, fully govern the position under consideration. It is interesting to note that the judgment of the Hon'ble jurisdictional High Court in Maithan International (supra) holding that the burden of proving the credit of share capital etc. is on a closely held company and failure to do so attracts the rigour of section 68, has been delivered on 21.1.2015, much after the amendment carried out by the Finance Act, 2012. This case pertains to pre-amendment era as the order of the tribunal assailed in this case is dated 24.6.2011. It shows that the Hon'ble High Court has also impliedly approved the proposition that the position anterior to the A.Y. 2013-14 was the same inasmuch as the onus to prove the share capital by a closely held company was on it. We, therefore, hold that the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the ld. AR, being devoid of any merit, are hereby jettisoned. 1....
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....f the AO, then the entire amount including the fair market value of the shares, is chargeable to tax u/s 68 of the Act. If however, the genuineness of the amount is proved and the shareholder also proves his source, then the hurdle of section 68 stands crossed and the share premium, to the extent stipulated, is chargeable to tax u/s 56(2)(viib) of the Act. It shows that only when source of such share premium in the hands of a shareholder is properly explained to the satisfaction of the AO, that the provisions of section 56(2)(viib) gets triggered. Approaching this section pre-supposes that the assessee genuinely received share premium from the share-holder having satisfactorily explained the transaction. Thus it is evident that sections 68 and 56(2)(viib) can never simultaneously operate. The later excludes the former and vice versa. Consequently, we are unable to accept the contention of the ld. AR that the proviso to section 68 attached a new obligation and hence should be declared as prospective. It is axiomatic that proving genuineness of a transaction of any credit, including share capital, was always an essential constituent of section 68. Since section 68 covers 'any sum....
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....sactions, the amount of share capital, etc. is liable to be added u/s 68. It is only where share capital/ premium are genuinely received and all the three necessary ingredients stand proved to the satisfaction of the AO that the share premium is not chargeable to tax before assessment year 2013-14 and, thereafter, chargeable to the extent and in the circumstances as enshrined in section 56(2)(viib). This contention, consequently, fails. 13.ak. To sum up, we hold that the contention of the ld. AR that since the AO 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 w.e.f. A.Y. 2013-14 and hence the CIT by means of impugned order u/s 263 could not have directed the AO to do so, is unsustainable." Thus, it is for the assessee to explain the creditworthiness of the share subscribers and genuineness of the transaction including the source of source. The AO wanted to examine the share subscribers to go to bottom of the truth to find out the real nature of the transaction in order to verify genuineness of the transaction and to verify credit worthiness of the....
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....is paid in lieu of share subscription. It is not shown and brought on record that these statements recorded on oath were retracted by the Directors of the assessee at any stage of proceeding till now. The Director of the Company Mr. Vinod K. Faria in statement recorded u/s 132(4) of the Act on 31-05-2008 surrendered Rs. 10 crores over and above regular income recorded in the books of accounts maintained by the assessee and one of the grounds for the surrender of Rs. 10 crores was that the assessee company will not be able to prove the genuineness of the share capital of Rs. 5.5 crores ( both in AY 2006-07 and 2007-08) raised by the assessee company to the satisfaction of the AO. We would like to usefully refer to the findings of Hon'ble Calcutta High Court in the case of Rajmandir Estates Private Limited(supra) which are reproduced hereunder: "21. After hearing the learned advocates, we are of the opinion that the following questions arise for consideration:- (a) Whether in the light of the views expressed in the case of Lovely Exports (supra) & Steller Investment (supra) the order under Section 263 directing further investigation is legal? (b) Is the fin....
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....at the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through "front" companies etc. The money may be invested in real estates, business and etc. The stages at which money-laundering could be easily detected are those where cash enters into the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatriated in the form of transfers." The role of the revenue authorities in tackling the menace of laundering black money was commented by the learned author as follows:- "It has to be kept in view that India has a problem of black economy, which is unacounted and many a time the holders of black money also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unreported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is ....
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.... companies which contributed to the share capital of the assessee in the name of assets were left merely with the share-scripts of the assessee. The other lot of 15 subscribers in substance had the share-scripts held by them substituted by the share-scripts of the assessee. (g) Though, Mr. Poddar made extensive submissions scanning the order under Section 263 in between the lines, he did not criticize the finding of the Commissioner that "the A.O. did not examine a single Director of the assessee company or of the subscribing company" which goes to show that correctness of this assertion is not in dispute. 24. From the aforesaid evidence the following, prima facie, inferences can safely be drawn:- (a) The promoter/directors of the assessee and their close relatives and friends had united with the common object of creating at least 20 (19+1) companies apparently having a large capital base, but, in fact these are mere paper companies having no real worth. The transaction of sale and purchase of shares was nominal rather than real. (b) The allegation, in response to the notice to show-cause u/s. 263 that "it bears importance to state here that the ....
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....om whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the Incometax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." In the case of Sumati Dayal (supra). Their Lordships held that a capital receipt can become taxable if the explanation offered by the assessee about the nature and source thereof is not satisfactorily ex....
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....he revenue." 27. In the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) the Tribunal had held as follows:- "The Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment order for 1960-61 was considered by itself, it could not be said that the assessment order was prejudicial to the interests of revenue. It was also observed that the factum of advance of initial capital, realization of amounts by sale of gold ornaments and the carrying on of the moneylending and speculative business had already been accepted and assessed in the previous years, that even in the year of assessment in question the Income-tax Officer had added Rs. 1,499 to the disclosed income from speculative business and Rs. 1,270 to the disclosed income from interest and made the assessment on a total income of Rs. 9,037; as such it could not be said that the assessment was prejudicial to the interests of revenue and that at the most it could be said that the assessee could not have carried on any business at the addresses given by her but where an assessment has been made without territorial jurisdiction it could not be said to be prejudicial to....
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....ssessee is interested in stalling that investigation on the plea that the order of the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. 28. We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself which reads as follows:- "During the Financial Year the assessee company has issued 792737 No. of equity share with a face value of Rs. 10/- along with a premium of Rs. 390/-. Thereafter, Notices u/s. 133(6) of the I.T. Act, 1961 were also issued to verify the transactions of the assessee on test check basis. The case is discussed and heard. Issue relevant for determination of total income of t....
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....n the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, control and manage them." The persons behind the assessee company and the persons behind the subscribing companies were not interrogated which was essential to unearth the truth. Reference may also be made to the judgement of this Court in the case Active Traders (P.) Ltd. (supra). The question for consideration is whether in the presence of materials discussed above the Commissioner was justified in treating the assessment order erroneous and prejudicial to the interest of the revenue. That question in the facts and circumstances has to be answered in the affirmative. We find no substance in the submission that the order of the learned Tribunal is perverse, after examining all the submissions advanced by Mr. Poddar. 29. Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Subsection 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax....
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....int out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. The judgement in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspicion held that this was or could be a case of money laundering. We as a matter of fact have discussed this issue in great detail and need not reiterate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the assessing officer. It is true that the assessing o....
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....holder as well genuineness of the transaction and the AO wanted to interrogate the shareholder which attempt of the AO was thwarted by the assessee as the shereholders were neither produced by the assessee nor the shareholders appeared in pursuance to summons issued by the AO. 2. Mitesh Rolling Mills Private Limited v. CIT (2002) 258 ITR 278(Guj)- In the instant case, it was held by the Hon'ble Court that it is for the assessee to offer an explanation as to nature and source of credit as appearing in the books of accounts of the assessee and the AO if not satisfied with the explanation of the assessee may treat the same as income of the assessee u/s 68 of the Act keeping in view the overall circumstances of the case and it is not that the AO shall make addition if the explanation offered by the assessee is not satisfactory and the matter was remanded by the Hon'ble Court to Tribunal to decide the matter in light of decision of the Hon'ble Apex Court in the case of CIT v. Smt P. K. Noorjahan (1999) 237 ITR 570(SC), Roshan Di Hatti v. CIT (1977) 107 ITR 938(SC) and CIT v. Bharat Engineering and Construction Company (1972)83 ITR 187(SC). 3. The case of Roshan Di Hatti v. CIT (19....
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.... the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that that income is from any particular source.Again this decision in fact support the case of Revenue instead of advancing the case of the assessee as the assessee did not discharged its burden as cast u/s 68 of the Act.In any case, Section 68 of the Act placed in the Act of 1961 creates a legal fiction wherein if the assessee did not offer an explanation to the satisfaction of the AO, then the amount found credited in the books of the assessee shall be treated as income of the assessee u/s 68 of the Act. In the instant case under appeal, the Directors of the assessee have admitted in statement recorded on oath that these share subscription is bogus and were merely accommodation entries wherein cash was given to ....
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....of sale proceeds or receipt of share capital money. First, the Assessing Officer is to enquire whether the alleged shareholders in fact exist or not. The truthfulness of the assertion by the assessee regarding the nature and the source of the credit in its books of account can be examined by the Assessing Officer. Where the identity of the shareholders stands established and it is shown that they had in fact invested money in the purchase of the assessee's shares, then the amount received would be regarded as capital. Where the assessee offers no explanation at all or the explanation offered is unsatisfactory, the provision of section 68 may be invoked. The Revenue in this case made sweeping broad generalized allegation that the assessee being developer is accepting 'on-money' which is taken in cash which has not been prima facie established by the Revenue while all cash credit appearing in the books of the assessee were added as income treating the investor companies as paper companies while the addition was deleted on the grounds that the revenue was unable to produce material to substantiate its case that the genuineness and creditworthiness of the investors and the source o....
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....Bombay) This case was decided relying on Hon'ble Apex Court decision in Lovely Exports Private Limited(supra) which we discussed in preceding para. 8. CIT v. Value Capital Services Private Limited (2008) 307 ITR 334(Del)- The Hon'ble Delhi High Court held that the burden is on the Revenue to prove that the money emanated from the coffers of the assessee which went into to get the amount of cash credit in the books of the assessee. This case is distinguishable as in the instant case there is an un-retracted statement u/s 132(4) of the Act by Director of the assessee that the amount of share subscription was bogus and merely an accommodation entry. The assessee has also not been able to establish the creditworthiness of the share subscribers and also the genuineness of the transaction. We are of the considered view that the onus is on the assessee company to bring on record the cogent evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction which in the instant case the assessee is not able to prove the same as per the facts emerging from the records and material before us as set out above and in our considered view in the....