TaxTMI 
TaxTMI 
2017 (2) TMI 1302
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....tal Share premium Omega Vincom Trading (P) Ltd G-9/10 3rd floor Rani Sati Nagar CHS Ltd. S.V. Road, Malad(W) Mumbai 400064 Shares allotted 6800, rate per share Rs. 100/- share premium per share Rs. 150/- Rs. 6,80,000/- Rs. 10,80,000/- Pranjal Trading Co. (P) Ltd.,1-A, Hill View Apt. Shares allotted 7200, rate per share Rs. 100/- share premium per share Rs. 150/- Rs, 7,20,000/- Rs. 10,80,000/- Melbright Suppliers (p). LTD -2, Jogenda Kaviraj Row, Kolkatta 700072 Shares allowed 12000, rate per share Rs. 100/- share premium Rs. 150/- Per share Rs. 12,00,000/- Rs. 18,00,000/- Gawarja Merchants (P) Ltd., P-27, Princep Street, 3rd Floor Kolkatta Shares allotted 4000/-, rate per share Rs. 100/- share premium per share Rs. 150/- Rs. 4,00,000/- Rs. 6,00,000/- Total share capital Rs.30,00,000/- Rs.45,00,000/- 2.1 To verify the genuineness of share capital and share premium received from the said companies, the AO issued notices to these companies under section 133(6) to furnish information alongwith documentary evidences. A commission u/s 131(1)(d) of the Income Tax Act, 1961 were also issued to the Addl. DIT(....
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....ts (P) are also presently residing in Mumbai as per the submission of the AR. From the submission of the AR it is seen that the returned income of the company for A.Y. 2009-10 was only a meagre income of Rs. 47,129/-." "While in the other case of M/s Bright Metals India (P) Ltd., the company named as Melbright Suppliers (P) Ltd. having its office at 2, Jogendra Kaviraj Row, Kolkatta-72, the deputed Inspector could not served the summon as he failed to locate the company in the given address. But on 27.12.2011, the same AR of Gawarja Merchants (P) Ltd. appeared and produced documents. From the produced documents, it is seen that during the year 2008-09 they had applied for and been allotted 12000 equity shares of M/s Bright Metals India (P) Ltd. of Rs. 100/- each at a premium of Rs. 150/- per share amounting to Rs. 30 lacs on 30.09.2008. The said application was made by them out of the advances received from Outlook Tracom Pvt. Ltd. having its office at 3 No. Khalisa Kota Polyy, Kolkatta-150 amounting to Rs. 20,00,000/- on 17.6.2008 and rest 50,00,000/- through share application money from Nandan Merchants Pvt. Ltd. having its office at 11, Pollock Street, Kolkatta-01. The direct....
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.... office. With regard to M/s Pranjal Trading Co. (P) Ltd they have informed that they have already replied to the notice u/s 133(6) on 24.12.2011 giving full details as required in the said notice. 4. So far as the total income of Melbright suppliers (P) Ltd. and Gawarja Merchants (P) Ltd. for the assessment year 2009-10 is concerned it is submitted that the creditworthiness of a company cannot be decided from income of a particular year. To establish creditworthiness of a company net worth of the company has to examine. It is evident from the Balance sheets of the companies that the Net Worth of the Companies as at 31.03.2009 was as under: (a) Omega Vincom Trading P. Ltd. Rs. 373 lacs (b) Pranjal Trading co. P Ltd. Rs, 3626 lacs (c) Melbright Suppliers P. Ltd Rs. 3744 lacs (d) Gawarja Merchants P. Ltd. Rs. 1743 lacs As the net worth of the companies are many times higher than the amount invested into assessee company credit worthiness of these four companies are established. (a) All the four companies are registered and governed under the provisions of Companies Act,1956. (b) All the four companies are filing with annual ret....
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....le the proper confirmations with correct particulars of the said companies and their directors. The assessee did not produce the directors even when asked to do so. Instead it has submitted that department can directly issue notices u/s 133(6) to the companies on the addresses given by the assessee in its letter dated 25.11.2011. Therefore, now saying that directors cannot be produced at such a short notice is not acceptable. (iii) The assessee has simply taken out information from the Web-site without giving any information about the nature of business actually carried on by the companies and nature and place of its operations. As has been observed in number of cases, mere filing of returns of income by the companies and they having PAN is not sufficient evidences to prove genuineness of the transactions. It was in light of this that the assessee was asked to produce directors but it failed to do so. (iv) It can be seen from the report of ADIT (Inv.) Unit-1(4), Kolkotta that M/s Gawarja Merchants (P) Ltd. and M/s Melbright suppliers (P) Ltd. has meagre returned income for the assessment year 2009-10 at Rs. 47,129/- and Rs. 31,021/-respectively. The income of other two compan....
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....the Ministry of corporate affairs and were also filing there income tax returns. The PAN of these companies were also provided to the AO. The claim of the appellant was that the identity of the companies was established by way of PAN, Income Tax returns and returns filed before the Ministry of Corporate affairs. The genuineness of transactions was established as the payments had been received through the banking channels and share were allotted to these companies. The credit worthiness of the companies established from the net worth of these companies which was Rs. 373 lakhs in respect of Omega Vincom Rs. 3626 lakhs in respect of Pranjal Trading, Rs. 3744 lakhs in respect of Melbright Suppliers and Rs. 1743 lakhs in respect of Gawarja Merchants. It was further argued that the address of Omega Vincom and Pranjal Trading had changed. The new address were also provided by the appellant. It was also submitted that the directors of these companies were residing outside Jaipur and their addresses were given to the AO to summon them for necessary enquiry. The AO however did not accept the explanation filed by the appellant and made the addition of Rs. 75,00,000/- as untrue credit. 4.1 ....
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....ent has been explained and there is no direct or indirect relation between the appellant company and the share applicants. It may be mentioned that in the case of M/s ARL (supra), the addition was deleted even though there were statements recorded in the course of survey which is not the case here. In view of the above facts and decision of the Hon'ble ITAT, the addition made by the AO does not appear to be justified and is, accordingly deleted." 2.9 The ld DR vehemently argued the matter and supported the order of the AO and took us through the findings of the AO (reproduced above) and submitted that the AO's order deserve to be sustained and ld CIT(A)'s order to be set-aside. In support, she has relied upon the following legal authorities: (i) Navodaya Castle (P) Ltd vs CIT 56 Taxmann.com 18 (SC) (ii) CIT vs Navodaya Castle (P) Ltd 50 Taxmann.com 110 (Del) (iii) Riddhi Promoters (P) Ltd vs CIT 58 Taxmann.com 367 (Del) (iv) CIT vs Jansampark Advertising & Marketing (P) Ltd 56 Taxmann.com 286 (Del) (v) CIT vs Empire Buildtech (P) Ltd 366 ITR 110 (Del) (vi) CIT vs Ultra Modern Export(P) Ltd 40 Taxmann.com 458 (Del) 2.10 The Ld. AR of the assessee supported th....
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....changed and the assessee vide letter dt. 26.12.2011 provided the present address and requested to make enquiry on the present address but still the AO made no further enquiry. - The AO required the assessee to produce the directors of the company on 26.12.2011. The assessee vide letter dt. 26.12.2011 provided the present address of the directors of the company (PB 1 and 27) and requested the AO to directly issue notice to the directors for their presence as they are not residing at Jaipur. However, no such notice was issued. - From these facts, it is evident that assessee has proved the identity, genuineness of the transaction and creditworthiness of the company. 3. Gawarja Merchants (P) Ltd. - Assessee filed board resolution, share application form, confirmation, PAN, MOA/AOA, bank statement, ITR, Balance Sheet and P&L a/c along with relevant schedules of the company. From the Balance Sheet, it can be noted that the net worth of the company is Rs. 1743 lacs and in the schedule of investment, the investment in shares of the assessee is duly reflected at Rs. 10 lacs. - AO conducted the enquiry through ADIT (Inv.), Kolkatta. Summon issued u/s 131 of the IT Act, 1961 wa....
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....s:- (i) ACIT Vs. Dhanlaxmi Equipment Pvt. Ltd. (2016) 46 CCH 0355 (Jpr.) (Trib.) ITA No. 1103/JP/11 dated 21.03.2016 (ii) Pr. CIT, Udaipur vs M/s Shubh Mines Pvt Ltd (DB Appeal No. 96/15) dated 3.5.2016 passed by Hon'ble Rajasthan High Court (iii) Pr. CIT, Udaipur vs Softline Creations Pvt Ltd 387 ITR 636 (Del) (iv) CIT Vs. Shree Barkha Synthetics Ltd. (2004) 270 ITR 477 and (2006) 283 ITR 377 (Raj.) (HC) (v) Jadau Jewellers & Manufacturers Pvt. Ltd. Vs. ACIT (2016) 130 DTR 17 (Jaipur) (Trib.) ITA No. 686/JP/14 dated 14.12.2015 (vi) Wellman Wacoma Ltd. Vs. JCIT (2016) 46 CCH 0456 (Kol.) (Trib.) (vii) ITO Vs. Nishit Fincap (P.) Ltd. (2016) 46 CCH 0365 (Del.) (Trib.) (viii) CIT Vs. Lovely Exports (P.) Ltd. 216 CTR 195 (SC) (ix) DCIT Vs. Dolphine Marbles (P) Ltd. 57 DTR 58 (Jab.)(TM) (x) M/s Bharti Syntex Ltd., Gangapur Vs. DCIT XLV Tax World 169 (Jpr.) (ITAT) dt. 13.01.11 (xi) CIT Vs. Divine Leasing and Finance Ltd. 299 ITR 268 (Del.) (HC) (xii) CIT Vs. Victor Electrodes Ltd. 329 ITR 271 (Del.) (HC) (xiii) CIT Vs. Gangour Investment Ltd. 18 DTR 242 (Del.) (HC) (xiv) CIT Vs. Ujala Dyeing and Printing Mills P. Ltd. 328 ITR 437 (Guj.) (HC) (x....
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....rce of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. 14. Certificate of incorporation, PAN etc. are relevant for purchase of identification, but have their limitation when there is evidence and material to show that the subscriber was a paper company and not a genuine investor. 18. Lovely Exports (P.) Ltd. (supra) was also considered and distinguished in N.R. Portfolio (P.) Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT v. Nipun Builders and Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), wherein it has been held that a reasonable approach has to be....
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.... vide its judgment in MAF Academy (P.) Ltd (supra). In the impugned order it is accepted that the assessee was unable to produce directors and principal officers of the six shareholder companies and also the fact that as per the information and details collected by the Assessing Officer from the concerned bank, the Assessing Officer has observed that there were genuine concerns about identity, creditworthiness of shareholders as well as genuineness of the transactions. 21. In view of the aforesaid discussion, we feel that the matter requires an order of remit to the tribunal for fresh adjudication keeping in view the aforesaid case law. The question of law is, therefore, answered in favour of the Revenue and against the respondent-assessee, but with an order of remit to the tribunal to decide the whole issue afresh. One of the reasons, why we have remitted the matter is that the cross objections of the respondentassessee questioning notice under Section 147/148 were dismissed as infructous and even if we decide the issue on merits in favour of the Revenue, the cross objections would got revived and require adjudication. The appeal is accordingly disposed of." 3.2 We now refer....
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.... no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." (p. 84) This reasoning must apply a fortiori to large scale subscriptions to the shares of a public company where the latter may have no material other than the application Forms and Bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the company/assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives a gift. 7.Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) a succinct yet complete precis on the essentials of income-tax liability can be discerned from these words - "In all cases in which a receipt....
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....make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of sections 68 and 69 of the IT Act. The burden of proof 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, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the Company. 16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/subITA scriber; (2) the genuineness of the transaction, namely: whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) If relevant details of t....
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.... subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operandi is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-meditated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The cas....
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.... sharedividend or interest to the said entry operators/subscribers. The profit motive normal in case of investment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions 29. In CIT v. Nipun Builders & Developers (P.) Ltd. [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In su....
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....eir shares were related or known to them. It is highly implausible that an unknown person had made substantial investment in a private limited company to the tune of Rs. 63,80,100/- and Rs. 75,60,200/- in two consecutive assessment years 2002-03 and 2003-04 respectively without adequately protecting the investment and ensuring appropriate returns. Other than the share application forms, no other agreement between the respondent and third companies had been placed on record. The persons behind these companies were not produced by the respondent. On the other hand respondent adopted prevaricate and non- cooperation attitude before the Assessing Officer once they came to know about the directed enquiry and the investigation being made. Evasive and transient approach before the Assessing Officer is limpid and perspicuous. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the credito....
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....le conclusion was that the conclusion of the Tribunal that the assessee had discharged his initial burden in respect of 6 companies and 9 individual investors, was based on evidence and additions made by the Assessing Officer were enquired into without pursuing correctness of material placed before it by the assessee. No question of law could be said to be arising in such circumstances in respect of finding arrived at by the Tribunal, which was essentially a finding of fact and did not stand vitiated in law. [Para 11]" 3.7 In case of Riddhi Promoters (P) Ltd (supra), the Hon'ble Delhi High Court held as under: "6. It is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of section 68, the assessee has to further satisfy the revenue as to the genuineness of the transaction and the creditworthiness of the share applicant or the individual who is advancing amounts. The assessee's reliance upon the order of the Commissioner (Appeals) to contend that the sources of the funds were in essence as directors, is, in this context, of no avail. ....
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.... assessee had come up with some proof of identity of some of the entries in question. But, from this inference, or from the fact that the transactions were through banking channels, it does not necessarily follow that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established. [Para 41] The Assessing Officer here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But the Commissioner (Appeals), having noticed want of proper inquiry, cannot close the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of the Tribunal, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under section 148 issued by the Assessing Officer, as also the mat....
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....on, or anything to indicate why its mark up of the share premium thousand fold in respect of the shares which were of the face value of Rs. 10 lakhs was justified. [Para 8]" 3.11 In the case of Ultra Modern Export(P) Ltd (supra), the Hon'ble Delhi High Court has held as under: "9. As noticed previously, the CIT (A) was of the opinion that the assessee had discharged the basic onus which was cast upon it after considering the ruling in Lovely Exports (P.) Ltd.'s case (supra). The material and the records in this case show that notice issued to the 5 of the share applicants were returned unserved. The particulars of returns made available by the assessee and taken into consideration in paragraph 3.4 by the AO in this case would show that the said parties/applicants had disclosed very meager income. The AO also noticed that before issuing cheques to the assessee, huge amounts were transferred in the accounts of said share applicants. This discussion itself would reveal that even though the share applicants could not be accessed through notices, the assessee was in a position to obtain documents from them. While there can be no doubt that in Lovely Exports (P.) Ltd. (supra), ....
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....say that the finding arrived at by the CIT(A), affirmed by the ITAT, which remains a finding of fact, cannot be said to be capricious or perverse." 3.13 In case of Softline Creations Pvt Ltd 387 ITR 636 (Del), the Hon'ble Delhi High Court has held as under: "(4) This court has considered the concurrent order of the CIT(A) as well as the ITAT. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of PAN numbers, to highlight the identity of the share applicants, as well as produced the affidavits of Directors. Furthermore, the bank details of share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their credit-worthiness. The AO chose to proceed no further but merely added the amounts because of the absence of the Directors physically present themselves before him. 6 We are of the opinion that no question of law arises, having regard to the concurrent findings of fact. The assessee has, in our opinion, complied with the law spelt out by the Supreme Court in CIT vs. Lovely Exports Pvt. Ltd. 216 C....
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....ms of satisfying such burden of proof. 4.6 In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain un-served and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders' attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the shareholder. It would be also incorrect to universally state that an inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing ....
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....rpose (profit motive) behind the investment and whether any dividend declared and distributed in the past or not. Whether share subscribers have their own profit making apparatus and were involved in any tangible business activity or were they merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. Creditworthiness and genuineness of the transaction is therefore not proved by showing merely issue and receipt of a cheque or by furnishing a copy of statement of bank account of share subscriber, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment. 4.10 The entire evidence available on record has to be considered and a reasonable approach has to be adopted. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish identity, creditworthiness of the shareholders and the genuineness of the transaction. 4.11 Where the assessee has discharged the initial burden placed upon him under sec. 6....
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....ommission u/s 131(1)(d) of the Income Tax Act, 1961 were also issued to the Addl. DIT(Inv.) at Mumbai and Kolkatta. In case of Omega Vincom Trading (P) Ltd and Pranjal Trading (P) Ltd, both these companies based in Mumbai, the companies were not found existing at the given address and summons couldn't be served on them. Similarly, in case of Melbright Suppliers (P) ltd, the company was not found existing at the last provided address in calcutta, on further enquiry, the ld AR appeared and informed the department that the address of the company has changed to Mumbai and submitted certain documents. Further, personal attendance of the Directors of the investee companies were called for by the Assessing officer, however they couldn't appear before the Assessing officer as the assessee submitted that the notice served to them was too short and as they were residing out of Jaipur, they couldn't attend the hearing before the Assessing officer. The identity of these investee companies therefore cannot be said to have been established as there are surrounding circumstances to show that these companies donot exist at first place and secondly, there is no proof that these companies were carry....