TaxTMI 
TaxTMI 
2017 (10) TMI 594
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Rs. 990/- each were made to the following parties :- (i) Aman Finvest (P) Ltd. - 32500 shares of Rs. 10/- each at a premium of Rs. 990/- per share. (ii) Supreme Portfolio (P) Ltd. 32500 shares of Rs. 10/- each at a premium of Rs. 990/- per share. 3. He observed that after receiving the amount of Rs. 65,00,00,000/- from the above companies, the company has reinvested the amount by purchasing shares at premium of both the above companies i.e. Rs. 32,50,00,000/- of Aman Finvest (P) Ltd. and Rs. 32,50,00,000/- of Supreme Portfolio (P) Ltd. during the year under consideration. He, therefore, asked the assessee company to furnish the specific details regarding share capital/ share premium through query no.3 vide questionnaire dated 07.01.2015 which reads as under :- "It is noticed that during the year company has issued share to the tune of Rs. 32,50,000/- to M/s Supreme Portfolio Pvt. Ltd. and Rs. 32,50,000/- to M/s Aman Finvest Pvt. Ltd. In this regard furnish copies of ROC letters, supporting bank statements and evidence of shares issued to these parties." 4. The assessee, in response to the said letter, filed the requisite details such as bank stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made with the assessee company during the year under assessment :- "1. Copy of Bank Statement from where funds have been given to above assessee company (M/s JSPL). 2. Source of funds raised for making investment in the above company. (M/s JSPL). Please provide complete chain details of funds received in your bank account giving Name/Address/PAN of the persons from whom the said funds have been received. 3. Name of the person, who offered the shares of the company on behalf of M/s JSPL. Also submit offer prospects in this regard. Also provide justification of buying the share premium supporting with documentary evidences. 4. Name of the person (Mediator) through whom the deal was negotiated for making investments in share/ share application money. 5. Copy of application from in respect of share application money paid to M/s JSPL. 6. Copy of acknowledgement of receipt share application Form and share certificate. 7. Copy of share certificate of the above company (M/s JSPL). 8. Please state what is the current status of these shares, whether these are still in your possession or have been sold? 9. In ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rusal of the bank statement and the flow chart filed by the investor companies, he noticed that an amount of Rs. 5,00,00,000/- has been rotated, nineteen times only single day i.e. on 17.11.2011 and Rs. 2,50,00,000/- rotated 43 times on 21.03.2012 & 22.03.2012 in between the investors and the assessee company just to create fictitious net worth and not to earn any business profit. The Assessing Officer analyzed the financial of the assessee company and noted that the company has not done any business activity and major part of the turnover is derived from the dividend income. The company has issued 6,50,000 shares at Rs. 1,000/- per shares (face value of Rs. 10/- each at premium of Rs. 990/- per shares) against book value of Rs. 35.76. He also analyzed book profit of the assessee company before issue of shares at a premium i.e. on 31.03.2011 which is as under :- 1. Shar Holder's funds (in Rs.) Share Capital 1,75,00,000 Reserves Reserve and Surplus 4,50,80,227 Total 6,25,80,227 No. of shares 1750000 2. Profit/Loss of the company A.Y.-2011-12 6,16,440 A.Y.-2012-13 7,60,176 A.Y.-2013-14 3,86,196 A.Y.-2014-15 5,03....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany which has no future for running any profit in future years. d. On perusal of share transaction between the assessee company and subscribers, it is prime facie appear that assessee company as well as the subscriber are well aware of the nature of the share transactions. e. Thus, the assessee company has totally failed to justify the charging of the premium amounting to Rs. 64,35,00,000/-." 10. The Assessing Officer analyzed the provisions of section 68 and came to the conclusion that the assessee in the instant case has failed to establish the genuineness and creditworthiness of the transactions. He observed that the transactions between the assessee company and its alleged investors are unusual in nature and character. Relying on various decisions including the decisions of the Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More reported in 82 ITR 540, decision in the case of CIT vs. Sri Meenakshi Mills Pvt. Ltd. reported in 63 ITR 609, decision in the case of Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. reported in 157 ITR 77 and various other decisions mentioned in the assessment order, the Assessing Officer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Finvest (P) Limited (AFPL) - 3,25,000/- shares of Rs. 1000/- (including share premium). (b) Supreme Portfolio (P) Limited (SPPL) - 3,25,000/- shares of Rs. 1000/- (including share premium) The above transaction of issuance and allotment of shares was carried out in the following manner :- Step 1 - A loan of Rs. 5 crores and Rs. 2,50 crore was received by the appellant on 17th November 2011 and 21st March 2012 respectively from M/s Globe Fincap Limited (GFL) which is an unrelated concern. GFL is a group finance company of M/s Globe Capital Market Ltd. (GCML), a SEBI registered share broker of National Stock Exchanger (NSE) and Bombay Stock Exchanger (BSE) and with whom appellant in maintaining a regular share trading account for doing transactions on NSE and BSE. Whenever there was shortfall of funds in the trading account of the appellant with GCML, GFL provided funding to the appellant. The appellant submitted following documentary evidences during the course of assessment proceeding for substantiating the genuineness of loan transaction and creditworthiness of GFL: * Confirmation from GFL accepting grant of loan from its HDFC Current Account ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 21st March 2012 and 22nd March 2012 share capital of AFPL and SPPL was purchased by the appellant. On 17th November 2011 vis-à-vis loan of Rs. 5 crores received by the appellant from GFL there were 6 transactions involving credit of Rs. 5 crores from AFPL and SPPL in appellant's book of accounts and hence cumulatively Share Capital of Rs. 30 crores was issued by the appellant to these parties on this date. Similarly on 21st March 2012 and 22nd March 2012 vis-à-vis loan of Rs. 2.5 crores received by the appellant from GFL there were 14 transactions involving credit of Rs. 2.5 crores from AFPL and SPPL in appellants books of accounts and hence cumulatively Share Capital of Rs. 35 crores was issued by the appellant to these parties on this date. Although AFPL and SPPL are related concerns, yet in order to substantiate genuineness of above transactions involving notional share capital build up following documentary evidences were submitted by the appellant before AO during the course of assessment : * Board Resolution dated 30th March 2012 for allotment of 3,25,000 share to AFPL and SPPL respectively (refer page 116 of paper book). * Copy of Return of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spect. The Assessing Officer in the remand report dated 07.11.2016 reiterated the view of his predecessor. The Addl. CIT's report dated 16.11.2016 also did not throw any further light on this aspect. The remand report of the Assessing Officer was primarily on the aspect of the share premium issued with reference to the financial results shown for the A.Ys. 2011-12 to 2014-15 which shows that the assessee company did not have adequate net worth of earning per share in order to justify the premium of Rs. 64.35 crores. 14. Ld. CIT(A) confronted the remand report of the Assessing Officer to the assessee. It was submitted that the Assessing Officer has failed to understand the mechanism adopted to build up what is admittedly notional share capital as per which there is virtually no fresh cash introduced in the bank. The Assessing Officer is completely silent on the genuineness of the transactions between the assessee and Global Fincap Pvt. Ltd. 14.1 Based on the argument of the assessee, remand report of the Assessing Officer and rejoinder to such remand report, the CIT(A) upheld the addition made by the Assessing Officer. While doing so, he observed that despite specific remand t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 15 crores had been received from AFPL. It is at this stage that the amount was refunded to Globe Fincap Ltd. on the same day by the assessee. 16. Similarly, he observed that the second amount of Rs. 2.50 crores on receipt by the assessee on 21.03.2012 has been transferred to the account of Supreme Portfolio Pvt. Ltd. and received back as share application money and this transaction with Supreme Portfolio Pvt. Ltd. and received back has been repeated 7 times to create Rs. 17.50 crores as share application money paid to Supreme Portfolio Pvt. Ltd. by the assessee. Coupled with Rs. 15 crores transactions the total amount of Rs. 32.50 crores was received from Supreme Portfolio Pvt. Ltd. After the seventh occasion the assessee transferred Rs. 2.5 crores to Aman Finance Pvt. Ltd. which was received back and this transaction is repeated 6 times. The assessee received Rs. 15 crores from Aman Finance Pvt. Ltd. as share application money in this manner. Thereafter Aman Finvest Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. circulated this money with each other on the same day so as to receive/invest in share application money within themselves until finally M/s Aman Finance Pvt. Ltd. paid Rs.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons cited before him, ld. CIT(A) held that the assessee has failed to show that the share capital and share premium is explained. 21. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal with the following grounds :- "1. That on the facts and in law the orders passed by Assessing Officer {hereinafter referred to as the "AO"} and Commissioner of Income Tax (Appeals) {hereinafter referred to as the "CIT(A)"} are void-ab-initio and bad in law. 2. That on facts and in law the CIT(A) erred in upholding addition of Rs. 65,00,00,000/- made by the AO invoking provisions of section 68 of the Act. 3. That on facts and in law the CIT(A) erred in holding that appellant has not been able to establish creditworthiness of the share applicants i.eM/s AmanFinvest (P) Limited (AFPL) and M/s Supreme Portfolio (P) Limited (SPPL). 3.1 That on facts and in law the CIT(A) after accepting that "the loan amount received from Globe Fincap Ltd (GFL) has been utilized by the appellant to make investments in sister concerns AFPL and SSPL and they in turn have utilized these amounts to invest in share capital of assessee company" has erred....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Act was not justified especially when the assessee had filed the details of Memorandum of Association, Articles of Association, Certificates of Incorporation, bank accounts indicating the source of payment, copy of confirmations, Income Tax particulars, audited balance sheets, Profit & Loss Account etc. The assessee are not genuine and, therefore, the Assessing Officer simply could not have disregarded the documents produced by the assessee. 24. Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Gagandeep Infrastructure (P.) Ltd. reported in (2017) 80 taxmann.com 272, copy of which is placed at page 197 - 201 of the Paper Book, he submitted that the Hon'ble High Court in the said decision has held that where the Revenue urged that assessee company received share application money from bogus shareholders, it was for revenue to proceed by reopening assessment of such shareholders and assessing them to tax and not to add same to assessee's income as unexplained cash credit. 25. Referring to the copy of assessment order passed by the Assessing Officer u/s 143(3) in the case of M/s Supreme Portfolio Private Limited for assessment year 2012-13, he ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t could be said that the income had accrued, but that question can no longer arise because section 68 provides that the amount so credited is to be regarded as the income of the assessed for "that previous year", i.e., the previous year in which the same is found credited in the books of the assessed. It is unknown that in order to avoid payment of tax an amount may be credited in the books of account in such a manner which may not disclose its true nature or source thereof. For example, amounts may be credited in the books of account as if they represented sums received from different persons. As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessed them, irrespective of the colour or the nature of the sum received which is sought to be given by the assessed, the Income-tax Officer has the jurisdiction to enquire from the assessed the nature and source of the said amount. When an explanation in regard thereto is given by the assessed, then it for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er of times and accordingly M/s Aman Finvest (P) Ltd. invested an amount of Rs. 32.50 crores as share application money along with premium in the assessee company. By following similar pattern M/s Supreme Portfolio (P) Ltd. also invested an amount of Rs. 32.50 crores in the assessee company. We find the Assessing Officer disbelieving the huge share premium obtained by the assessee on account of sale of shares treated the amount of Rs. 65 crores as unexplained cash credit and made addition u/s 68 of the I.T. Act, which has been upheld by the CIT(A). It is the submission of the ld. counsel for the assessee that he has explained the source of share application money invested in the assessee company by the two sister concerns and, therefore, the provisions of section 68 do not apply. It is also his submission that when the genuineness of the loan obtained from M/s Globe Fincap Ltd. has not been doubted and assessee has given money to the two sister concern who, in turn, have invested in the shares of the assessee company, it cannot be said that the purchase of share in the assessee company by the two sister concerns can be treated as unexplained cash credit. It is also his alternate ar....