TaxTMI 
TaxTMI 
2017 (10) TMI 826
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....eady filed may be treated as return having been filed in response to notice under section 148 of the I.T. Act. The A.O. issued detailed questionnaire on the above issue of share capital and the assessee filed necessary details and clarifications before A.O. time to time. The assessee filed objections to the reopening of the assessment under section 148 of the I.T. Act, which was rejected on 13th August, 2012. The assessee submitted before A.O. that it has raised money aggregating to Rs. 17.60 crores through share capital/share premium during the assessment year under appeal from various parties which are Mumbai based companies, Kolkata based companies and Gauhati based companies. The details of which are noted at pages 2 and 3 of the assessment order. It was submitted that assessee has already filed copies of the confirmations, income tax return acknowledgments and bank accounts in respect of these companies, duly establishing the identity, genuineness and source of transaction regarding share capital and share premium. The entire share capital/ application money has been received by the assessee-company through normal banking channels by account payee cheques/demand drafts. Furthe....
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....ening of the assessment as well as addition on merits before Ld. CIT(A). The detailed contention of the assessee as regards reopening of the assessment has been noted in the impugned order. However, the Ld. CIT(A), confirmed the reopening of the assessment and dismissed this ground of appeal of assessee, particularly, when he has allowed the relief to the assessee on merit. Therefore, no detailed reasoning have been given because it was found that the issue is left with academic discussion only. 4. The assessee as regards the addition, on merit, reiterated the same submissions before Ld. CIT(A) and it was submitted that A.O. made the addition arbitrarily and unjustifiably. The assessee produced all the relevant documents before A.O. which have not been doubted. The assessee filed confirmations of all the share applicants, copy of their income tax returns, bank accounts and copy of annual accounts. Therefore, no adverse inference has been drawn against the assessee. The Ld. CIT(A) on going through the documents and material on record, deleted the entire addition of Rs. 17.60 crores and allowed the appeal of assessee. His findings in paras 3.3 to 3.5 of the impugned order are repr....
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....d. AR, the addition made cannot be legally sustained and is deleted. This ground of appeal is allowed." 5. The Ld. D.R. relied upon the orders of the A.O. and submitted that some parties did not file reply before A.O. and many parties filed reply at the Dak counter. No reasons have been given for the higher premium paid. Copy of the bank statements were not filed before A.O. The income declared by assessee and the share applicant companies were very small. Therefore, addition was correctly made by the A.O. The Ld. D.R. relied upon the following decisions. i. CIT vs. Precision Finance (P) Ltd., (1994) 208 ITR 465 (Cal.) ii. CIT vs. United Commercial & Industries Co. (P) Ltd., (1991) 187 ITR 596 (Cal.) iii. CIT vs. Nipun Builders & Developers (P) Ltd., (2013) 350 ITR 407 (Del.) iv. CIT vs. Nova Promoters & Finlease (P) Ltd., (2012) 342 ITR 169 (Del.). v. Mukesh Shah vs. ITO (2012) 246 CTR 82 (Jharkhand) vi. CIT vs. N.R. Portfolio (P) Ltd., (2013) 263 CTR 456 (Del.) vii. CIT vs. Empire Buildtech (P) Ltd., (2014) 366 ITR 110 (Del.) viii. CIT vs. Focus Exports (P) Ltd., (2014) 51 taxmann.com 46 (Del.). 6. On t....
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.... Hema Trading Company Pvt. Ltd., 95,00,000 6. Eternity Multi-trade Pvt. Ltd., 90,00,000 (B) Kolkata Based Companies 1. Neha Cassettes Pvt. Ltd., 90,00,000 2. Warner Multimedia Ltd., 95,00,000 3. Gopikar Supply Pvt. Ltd., 90,00,000 4. Ganga Builders Ltd., 90,00,000 5. Gromore Fund Management Co. Ltd., 95,00,000 6. Bayanwala Brothers Pvt. Ltd., 95,00,000 7. Super Finance Ltd., 90,00,000 8. Shivalaxmi Export Ltd., 95,00,000 9. Natraj Vinimay Pvt. Ltd., 95,00,000 10. Neelkanth Commodities Pvt. Ltd., 95,00,000 11. Prominent Vyapaar Pvt. Ltd., 95,00,000 (C) Guwahati based companies 1. Ispat Sheets Ltd., 90,00,000 2. Novelty Traders Ltd., 90,00,000 Total Amount 17,60,00,000 8. The Learned Counsel for the Assessee relied upon the order of the ITAT, Delhi Bench in the case of ACIT, Central Circle-13, New Delhi vs. M/s. Adamine Construction Pvt. Ltd., (supra), in which the departmental appeal, on the identical question have been dismissed. The findings of the Tribunal in paras 10 to 18 of the Tribunal are r....
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....ed in response thereto. 14. The assessment was completed vide order dated 28.03.2013 at an income of Rs. 5,15,00,715/- wherein the ld. Assessing Officer has proceeded to add back a sum of Rs. 5,15,00,000/- on account of alleged unexplained share capital received by the appellant company from various companies situated at Mumbai and Kolkata. The ld. CIT (Appeals) has, however, deleted the addition being convinced with the submissions of the assessee. 15. In support of the ground, the ld. Sr. DR has basically placed reliance on the assessment order with this contention that assessee has thoroughly failed to establish creditworthiness of the investor companies as well as genuineness of the transaction. Some of the parties were not found on the given address and some of them did not respond to the notices issued by the Assessing Officer to them nor the assessee has been able to produce them for verification before the Assessing Officer. In absence of compliance of these requirements the Assessing Officer was very much justified in making the addition of Rs. 5,15,00,000/- under section 68 of the Act on account of unexplained share capital and share premium received by ....
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....t has been received and the Income-Tax particulars which go on to establish the identity and creditworthiness of the respective share applicants authoritatively and conclusively. (2) On the basis of the documents/details submitted, the Learned Assessing Officer, has summarized as follows :- S.No. Name of the Share Holder Returned Income Assessment Year 1 Vanguard Jewels Ltd Rs. 3,42,600/- 2008-09 2. Ganga Builders Ltd (Rs. 2,910/-) 2008-09 3. Shivlaxmi Exports Ltd Nil 2008-09 4. Lexus Infotech Ltd 15,64,590/- 2008-09 5. Hema Trading Co Pvt Ltd 17,16,207/- 2008-09 (4) In order to further verify the genuineness of all the parties commissions u/s 131 were sent by the Learned Assessing Officer to the respective Investigation agencies in Mumbai and Kolkata. In response to which reports were received from the office of Addl. CIT, Range-10(2), Mumbai and Assistant Director of Income Tax (Inv) Unit- III(3), Kolkata. The Addl Commissioner of Income Tax, Range 10(2), Mumbai and Assistant Director of Income Tax (Inv), Unit-III(3), Kolkata also deputed Inspectors of Income Tax to serve the summons and con....
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....n the basis of the said exercise, the Learned Assessing Officer has observed and concluded as follows:- * The identity and the creditworthiness of the investors are not established as all the investors are showing a nominal income. Neither the investor company and nor the assessee company has produced any proof to substantiate the credit worthiness of the investors (for example balance sheet of the investor company); * The genuineness of the transactions is also in doubt as the investors have not enclosed the bank statement showing the source of fund for share application money. (6) The Learned Assessing Officer has accordingly held that the creditworthiness of the investors and the genuineness of the transactions is in doubt and has accordingly treated share capital/application money and share premium amounting to Rs. 5,15,00,000/- as unexplained and added this same to the taxable income of the Appellant Company u/s 68 of the Income Tax Act, 1961. (7) The Assessing Officer in the course of assessment proceedings had desired the Appellant Company to furnish the details of the amount received and evidence in support of identity and creditworthines....
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....ion of the officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. (10) The above Section enjoins upon an Appellant Company, the duty to adequately, satisfactorily and substantively explain the source of any cash credit in his books of accounts and no further. To put it differently an Appellant Company's burden of proof would stand discharged if he is able to prove the nature and source of the cash credit received and thus his onus of proof cannot extend to failure to prove the source of the proof with a view to arrive at the ultimate source of funds. As long as the nature, source and identity of the investor is established, no further onus of proof can be enjoined on it. In the instant case no case can be made out to doubt the genuineness, existence or identity of the investors and as such no cause exists for the invocation of S. 68. (11) An analysis of the provisions of Section 68 of the Incometax Act, 1961 would make it clear that in order to discharge the onus, the Assessee must prove the following:- (i) identity of the creditor; (ii) capacity of the creditor to advance mone....
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.... the parties and genuineness of the transactions. (15) In this connection Your Honour's attention is also invited to the decision of the Hon'ble Delhi High Court in the case of Commissioner of Income-Tax vs. Steller Investments Limited [(1991) 192 ITR 287 (Delhi)] wherein it has been clearly held that any increased capital is not assessable in the hands of the company. The relevant observations of the Learned Judges are as follows:- "It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself." (16) Subsequent to the above an appeal filed by the Department against the judgement/ob....
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....roof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription, he is empowered, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company". (18) Further Your Honor's kind attention is also invited to the decision of their Lordship of the Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd [(2008) 216 CTR 195 (SC)] wherein the special leave petition filed by the Department against the order of the Delhi High Court has been dismissed with the following remarks :- "We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the Assessee Company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgement". (19) The above decision of the Hon'ble Supreme Court follows the earlier decision....
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....actions with the Appellant Company; (d) Copies of Annual Accounts. (22) In view of the above, no doubt remains as to the identity of the investors, their credit worthiness and the genuineness of the transactions and correspondingly no adverse inference is called for. (23) In fact, in the instant case, reliance is placed on the decision of the Delhi High Court in the case of CIT vs Kamdhenu Steel & Alloys Limited and Others [(2012)206 Taxman 254(Delhi)] wherein the following has been held :- "38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 39. We may repeat what is often s....
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.... (25) To conclude it may be said that on the basis of the facts discussed supra and the ratio of the above judgements makes it clear that if the share applicants are identified and it is established that they have deposited money in the Company, no recourse can be made to the provisions of S 68. The Appellant Company had provided all the requisite particulars to establish the identity of the share applicants in the confirmations, ITRs and bank statements already filed before the Assessing Officer. The various arguments advanced by the Learned Assessing Officer are frivolous and irrelevant and the onus enjoined upon the Appellant Company by the provisions of section 68 stands not only adequately but also completed satisfied. (26) Accordingly since it is clear that if the shareholders / share applicants are identified and it is established that they have invested money in the purchase of shares, no recourse can be made to the provisions of S 68. In the instant case the Appellant Company had provided all the requisite particulars to establish the identity of the share applicants in the confirmations already filed before the Assessing Officer. The ld. AR also placed relianc....
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....e means to make the investment, investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the case of CIT Vs. Orbital Communication P. Ltd. (supra) the Hon'ble jurisdictional High Court of Delhi in the case of the claimed share application money has been pleased to hold that where substantial evidence has been produced by the assessee to prove creditworthiness of the creditors and genuineness of share applications, failure to produce creditor is not material. In the case of CIT Vs. Winstral Petro Chemical P. Ltd. (supra) in the case of cash credits/share application money, the Hon'ble jurisdictional High Court of Delhi on the issue of burden of proof, has been pleased to hold that initial burden is on assessee to prove identity of creditors, the burden then shifts to Revenue to prove that credits were not genuine. In that case while dismissing the appeal of the Revenue, the Hon'ble High Court was pleased to hold that it had not been disputed that the share application money was received by the assessee company by way of account payee cheques through normal banking channels. Admittedly, c....
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....vestor companies on the basis of reasons recorded for initiation of reopening of assessment proceedings based on the report relating to survey conducted at the premises of the assessee that the business premises of the assessee actually belong to Bhushan Steel Ltd. and several other companies were having their Registered offices in the same premises. The submission of the assessee in this regard remained that there is no law that more than one company cannot have its Registered office at one address and that there is no law that companies cannot change their Registered offices. It was submitted that business raise capital and such capital is rotated in economy for increasing production and trade and for making more efficient use of capital. Companies change and, sometimes in quick succession. This is the normal formation of capital in any open economy and the process of capital formation cannot be taken to be representing only unaccounted funds or impeded. It was submitted that all the companies having Registered office at the premises undisputedly belonged to Bhushan Group. The sources of capital introduced in these companies were established during the respective assessment proce....
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....Companies and two of the Companies from Kolkata based are also found existing and genuine in the case of ACIT, Central Circle-13, New Delhi vs. M/s. Adamine Construction Pvt. Ltd., (supra). All Kolkata parties confirmed genuineness of transactions in their reply before A.O. Therefore, the issue is covered in favour of the assessee by the above said judgments. The Hon'ble Rajasthan High Court in the case of CIT vs. ARL Infratech Ltd., 394 ITR 383 considered the identical issue of share application money in which the assessee filed PAN and other details of the investor companies. No direct relation was also found between assessee and the investor companies. Therefore, additions deleted, were found fully justified. 10. The Hon'ble Supreme Court in the case of CIT vs. Lovely Exports Pvt. Ltd., (2008) 216 CTR 195 held as under : (i) "If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, 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." 11. The Hon'ble Delhi High Court in the....
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.....21073/99 in which Hon'ble Apex Court held "we have examined the position, we find that the shareholders are genuine parties. They are not bogus and fictitious therefore, the impugned order is set aside." In this case, the Hon'ble Bombay High Court and the ITAT, Mumbai Bench, which was the subject matter in SLP before Hon'ble Supreme Court observed that assessee failed to produce any evidence regarding confirmation of the amount supposed to have been received as share capital from third party. The case of the assessee is therefore, on better footing as against the decision of the Hon'ble Supreme Court in the case of Earthmetal Electrical Pvt. Ltd., vs. CIT (supra). The decision of the Hon'ble Delhi High Court in the case of Pr. CIT vs. Laxman Industrial Resources Pvt. Ltd., (supra), clearly apply to the facts of the case of the assessee that the assessee received genuine share application money from the investor Companies. The assessee on the basis of the documentary evidences have been able to establish that the share holders are genuine parties and they are not bogus and fictitious. The Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing & Fin. Ltd., 299 ITR 268 held t....
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....n scrutiny of accounts, the Assessing Officer found an addition of Rs. 71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of share application money from five of its subscribers. Accordingly, the Assessing Officer made an addition of Rs. 35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified." ....
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....eel Ltd., and several other Companies having their Registered Offices at the same address. This created a suspicion in the mind of the Revenue. The Ld. CIT(A) therefore, rightly noted that there is no law that more than one Company cannot have its Registered Office at one address. The Companies could have change their address later on. It is also an admitted fact that source of the capital investment companies were established during their respective assessment proceedings including in the case of the present assessee-company as per the findings of the Ld. CIT(A). Ld. CIT(A) also found that no evidence was found during the course of survey to indicate introduction of unaccounted cash/funds in the form of share capital in these companies. These findings of fact recorded by the Ld. CIT(A) have not been rebutted through any evidence or material on record. No evidence has been brought on record that money so invested in assessee-company came from coffers of assessee-company. All objections of A.O. have been considered by Ld. CIT(A) and various case law referred to above support the findings of Ld. CIT(A) that addition has been correctly deleted. 20. The Ld. D.R. relied upon the deci....