TaxTMI 
TaxTMI 
2017 (10) TMI 594
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 statements, copy of ROC Form No.2 and evidence of shares issued to bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny (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 case the above certificates have been sold, please confirm with respect to your bank statement. Also give the name/address/PAN of the party to whom these shares of M/s JSPL have been sold. 10. Please provide....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee 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 5,03,818 9. After analyzing the financial of the assessee company as well as explanation given by the assessee regarding issue of shares at a premium, the Assessing Officer observed that the issue of shares at high premium is not justified for most of the funds are introduced by the assessee company through its shareholders under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 held that the credit of Rs. 65,00,00,000/- (including share capital and share premium) are directly hit by provisions of section 68 of the I.T. Act. Since the assessee in the instant case has failed to discharge its onus, the Assessing Officer, therefore, made addition of Rs. 65,00,00,000/- to the total income of the assessee u/s 68 of the I.T. Act. 11. Before the CIT(A), it was explained that the relevant documents evidencing confirmation of loan of two amounts received from M/s Globe Fincap Ltd., the bank statement/PAN/ITR, annual accounts etc. of that party had been furnished t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ker 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 No.00030340030126 (refer page 47 of paper book) * Copy of Bank statement of GFL wherein transactions of grant of above loan on 17th November 2011 and 21st March 2012 to the appellant and corresponding return of said loan by the appellant on 18th November 2011 and 22nd March 2012 is clearly reflected (refer page 48 and 49 of the paper book). * Copy of ledger account of the appellant in the books of GFL for the period 01st April 2011 to 31st March 2012 (refer page 50 to 64 of paper book). A perusal of same would clearly depict that a loan of Rs. 5 cr was granted by GFL on 17th November 2011 and the same retuned back....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Allotment of Share Capital in Form 2 submitted to the Registrar of Companies on 06th April 2012 (refer pages 117 to 123 of paper book). * Ledger account of Share Application Money Paid for Jindal Securities in the account books of AFPL and SPPL (refer pages 11 to 12 of paper book). * Copy of income tax return of AFPL for AY 2012-13 (refer pages 13 of paper book). * Copy of income tax return of SPPL for AY 2012-13 (refer pages 14 of paper book). * Bank account statement of AFPL (refer pages 15 to 17 of paper book). * Bank account statement of SPPL (refer pages 18 to 19 of paper book). * Copy of Audited Annual Accounts of AFPL for financial yea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 to the AO to comment on the aspect of the genuineness of the loans of Rs. 5 crores and Rs. 2.5 crores from M/s Globe Fincap Ltd. taken on 17.11.2011 and 21.3.2012 respectively, which were credited into the assessee's bank current account no.03392560001278 with HDFC Bank, Roop Nagar, from where the impugned two amounts were circulated to Aman Finvest Ltd. and Supreme Portfolio Pvt. Ltd. and received back and re-circulated and hence required to be examined in order to apply section 68, neither the AO nor the Addl.CIT have commented on this aspect except to state that the issue of loan taken or repaid is a different issue but the same does not justify the creation of share capital of Rs. 65 crores in the books prior to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee 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. 2.5 crores to the assessee. Thus, this Rs. 2.5 crores, coupled with the Rs. 15 crores referred to earlier and another Rs. 15 crores referred to herein above in the present para, the assessee received total amount Rs, 32.50 crores from Aman Finance Pvt. Ltd. as share application money in this manner. After these transactions, the amount was refunded to Globe Fincap Ltd. 17. Thus the facts are undisputed that the loan amount received from Globe Fincap Ltd. has been utilized by the assessee to make investments in sister concerns (herein after referred to as AFPL & SPPL) and they in turn have utilized these amounts to invest in the share capital of the assessee* company. This is so because all the impugned transactions h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ish 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 in concluding that loan received from GFL is not connected to the receipt of share capital by the appellant. 4. That on facts and in law the CIT(A) erred in relying upon and invoking provision of Finance Act 2012 which are specifically applicable w.e.f. 01st April 2013 (i.e. from AY 2013-14 onwards) to the facts of instant case. 5. Without Prejudice, that on facts and in law the CIT(A) erred in not restricting the addition by applying Peak Credit Theory. The appellant craves leave to add, alter, modify, amend or withdraw any ground at any stage of the appeal." 22. Ld. counsel for the assessee strongly objected to the order of ld. CIT(A). He submitted that the provisions of section 68 were amended w.e.f. assessment year 2013-14 whereas the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 submitted that the Assessing Officer in the body of the assessment order has not made any addition on account of such purchase of shares in the assessee company at huge premium. 26. Referring to the copy of the assessment order passed by the Assessing Officer u/s 143(3) in the case of M/s Aman Finvest Pvt. Ltd. for assessment year 2012-13, he submitted that the Assessing Officer in the body of the assessment order has not made any addition on account of investment in the shares with premium in the assessee company. 27. Referring to the provisions of section 68, he submitted that as per the said section where a sum is found credited in the books of the assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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, the persons from 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 mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessed and it would be immaterial as to whether the amount so credited is given the colour of a loan or 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 he said section is very wide....