TaxTMI 
TaxTMI 
2018 (5) TMI 849
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in law the Ld. Commissioner of Income Tax (Appeals) erred in confirming the addition made by the Ld. AO amounting to Rs. 3 Crores being share capital and premium by invoking the provisions of 68 of the Income Tax Act, 1961." 3. The brief facts of the case are that the assessee is dealer in textiles yarn & is also commission agent. During the course of assessment proceedings u/s 143(3) r.w.s. 143(2), the AO observed that assessee has raised new share capital as per chart below for which the assessee was asked by the AO to prove identity and creditworthiness of all the new shareholders as well genuineness of transaction of raising share capital, detailed as hereunder: Sr. No. Name of the Share Holder No. of shares 1 Viharilal Jhawar 60000 2 Urmila Devi Jhawar 270000 3 Pratik Jhawar 30000 4 Motivate Financial Services Pvt. Ltd 20000 5 Tej Corporate Services Pvt. Ltd 20000 6 Anumeeta Corporate Services Pvt. Ltd 20000 The AO observed that three shareholders namely Shri. Viharilal Jhawar, Smt. Urmila Devi Jhawar and Shri Pratik Jhawar as per chart above from whom share capital was raised during relevant prev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 3 crores during previous year relevant to the impugned assessment year. The AO observed that the total share capital ( inclusive of share premium) of the assessee company was Rs. 3.37 crores, out of which Rs. 3 crores is invested by the these three new shareholders which comes to 89.02% of the total capital fund of the assessee company and still the assessee is not able to trace these three new shareholders . It was observed by the AO that genuineness and creditworthiness of these three new shareholders could not be proved by the assessee and the onus was on the assessee to prove identity, genuineness and creditworthiness of these three new shareholders which was not satisfied by the assessee as genuineness and creditworthiness of these three new shareholders namely Motivate Financial Services Pvt. Ltd, Tej Corporate Services Pvt. Ltd and Anumeeta Corporate Services Pvt. Ltd. could not be proved which were treated by the AO to be unexplained and unproved chargeable to tax within deeming fiction of Section 68, which led to the additions to the tune of Rs. 3 crores in the hands of the assessee company, vide assessment order dated 28.03.2015 passed by the AO u/s 143(3) of the 1961 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arned CIT(A) observed that these three investing companies were not found at the addresses furnished by the assessee . The learned CIT(A) observed that the assessee could not provide whereabouts of these three new shareholders who invested in the share capital of the assessee company. The learned CIT(A) observed that when these parties are not traceable, then sanctity of their confirmations, documents etc are lost. The learned CIT(A) observed that the assessee is a Private Limited Company who must be aware of its investors. The learned CIT(A) observed that even evidences in support of creditworthiness of these investors were not filed. The learned CIT(A) observed that equity shares of Rs. 10 each were issued at a share premium of Rs. 490/- per share and no justification/basis for such a huge premium is brought on record . The learned CIT(A) observed that no document/ evidence to prove genuineness of these share capital issued at such a huge premium of Rs. 490/- as against face value of Rs. 10 were submitted by the assessee. It was observed by learned CIT(A) that the assessee company has not declared any dividend and it is beyond human probabilities that such large investments were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plicable to the assessee as the year under consideration is AY 2012-13 which is prior to the amendment by Finance Act, 2012 . Thus, it was submitted that the Revenue cannot ask for source of source of investments made these three new shareholders. It was submitted that confirmations were filed from these three new shareholders along with their bank statements. It was submitted that financial statements were also filed of two of the new shareholders namely M/s Motivate Financial Services Pvt. Ltd and Tej Corporate Services Pvt. Ltd.. It was submitted that Form No. 2 executed by the assessee was also filed in the paper book wherein it is declared that the assessee has allotted equity shares of face value Rs. 10 each at a share premium of Rs. 490 per share.It was submitted that the said form was duly filed with Ministry of Corporate Affairs and receipt is also placed in paper book. Our attention was drawn to list of allottees, Resolution passed by the assessee company to substantiate that the proper documentations were produced before the authorities below. The said documents are placed in paper book filed by the assessee with the tribunal. The Ld. Counsel for the assessee relied upon....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... companies namely namely Motivate Financial Services Pvt. Ltd and Tej Corporate Services Pvt. Ltd were placed . The ld. DR submitted that no audited financial statement of Anumeeta Corporate Services Pvt. Ltd were submitted by the assessee. The learned DR also relied upon the decision of Hon‟ble Delhi High Court decision in the case of Principal CIT v. Bikram Singh (2017) 85 taxmann.com 104(Del.). It was submitted by Ld. DR that these companies who have invested Rs. 3 crores in assessee company do not have necessary financial capabilities to invest such a huge amount with the assessee company. The Ld. AR on the other hand made an attempt to distinguish the decision relied upon the by learned DR and submitted that the cases relied upon by Ld. DR related to the cash credit by way of loans and not by way of share capital. The learned AR submitted that amendment to section 68 made by Finance Act, 2012 is not retrospective . It was submitted that Revenue cannot insist on explaining source of source of these investments. It was submitted that share premium is a capital receipt and assessee has discharged its onus. 6. We have considered rival contentions and perused the materi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 86% of shares. It is incomprehensible that the assessee company is not aware of the whereabouts of the new shareholder who had substantially contributed to the capital of the assessee company to the tune of Rs. 300 lacs out of total capital deployed of Rs. 337 lacs. It is well known that the ownership , management and control over the companies is exercised by persons holding majority of shares . Thus, the shareholders who invested as much 89% of the capital introduced have been allotted 14% of the company‟s shares i.e. they are reduced to minority shareholders albeit they contributed bulk of capital introduced in the assessee‟s company while the majority shareholding holding shares to the tune of 86% are held by the original promoters who merely invested 11% of the total capital introduced in the assessee‟s company. Thus, within this relevant year under consideration shares were allotted to original promoters at par value of Rs. 10 per share while new shareholders were allotted shares at a price of Rs. 500 per share. No justification for such different issue price even within this relevant year under consideration is brought on record. No doubt situations could....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at assessee‟s own peril as presumption will be drawn against the assessee. The assessee has raised share capital inclusive of share premium from these three parties to the tune of Rs. 3 crores and onus is on the assessee to prove genuineness of the transaction for raising of share capital to the tune of Rs. 300 lacs as well to prove identity and creditworthiness of these three shareholders. This is the mandate of Section 68 of the 1961 Act and it was for the assessee to have brought cogent evidences to satisfy the ingredients of Section 68 of the 1961 Act. No doubt Section 56(2)(viib) of the 1961 Act read with Section 2(24)(xvi) are placed in the statute by Finance Act, 2012 w.e.f. 01-04-2013 and the impugned AY under consideration is AY 2012-13 but when the genuineness of the transaction of raising of share capital at huge valuations is itself in question then parameters of Section 68 are to be compulsorily fulfilled and the onus is on the assessee to prove that the transaction is genuine. Thus, to contend that Section 56(2)(viib) r.w.s. 2(24)(xvi) are placed in statute by Finance Act , 2012 w.e.f. 01-04-2013 and no question can be raised as to the valuation of shares at an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tc. These shareholders who are member of public are un-known persons to the company issuing shares and the company issuing shares have no control/mechanism to verify their creditworthiness etc. and the burden of proof in such cases is different , but there is another class of companies which are closely held companies in which public are not substantially interested who are mostly family controlled closely held companies and they raise their share capital from their family members, relatives and friends and in these companies since share capital is received from the close knit circles who are mostly known to the company/promoters, the onus as required u/s 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. The onus of widely held company could be discharged on the submissions of all the information contained 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 before us the share capital are mostly raised from family, close relatives and frie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ders before the AO and if the assessee falters the additions can be made u/s 68 of the Act.. The Hon‟ble Supreme Court dealt with this issue in A. Govindarajulu Mudaliar v. CIT (1958) 34 ITR 807(SC),as under: "Now the contention of the appellant is that assuming that he had failed to establish the case put forward "by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paper book did not reveal the transaction of investing of Rs. 100 lacs by the said company in the assessee company as no such bank entry towards transfer of Rs. 100 lacs to the assessee company could be seen from the bank statements filed before the tribunal (pb/page 13-14) . The perusal of the bank statement of these three parties otherwise clearly reveals that the money is just received in their bank account on several occasions which is immediately transferred out of their bank account to some other entities and the balance maintained at any given point of time in their bank account is minuscule . It is also observed from their bank statement for the period of February 2012/March 2012 that common parties are transferring huge amount of money into their bank accounts such as Loyana Mercantile Private Limited , Olympia Sales Agency Private Limited and Girivar Infrastructures Private Limited etc on several occasions . The perusal of the Balance Sheet of the two companies namely Motivate Financial Services Pvt. Ltd and Tej Corporate Services Pvt. Ltd. clearly reveals that they do not have any financial strength of their own to justify such a huge investment in the assessee company a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessment proceedings before the AO while in the instant case, the shareholders are not traceable. In that case of Apeak Infotech(supra), the tax-payer led the evidence to satisfy ingredients of Section 68 as to identity, creditworthiness and genuineness of the transaction while in the instant case we have arrived at finding of fact that creditworthiness of the shareholders and genuineness of the transaction was not proved. This takes us to the landmark judgment of Hon‟ble Supreme Court in the case of Lovely Exports Private Limited(supra) replied upon by the assessee . It was held by Hon‟ble Calcutta High Court in the case of Rajmandir Estates Private Limited v. Pr. CIT reported in (2016) 70 taxmann.com 124(Cal.) at para 25 that "the judgement in the case of Lovely Exports (P.) Ltd. (supra) lends no assistance to the assessee because in that case the Division Bench reiterated that omission to make an enquiry, where such an exercise is provoked, shall render the order of the assessing officer both erroneous and prejudicial to the revenue. The Division Bench went on to hold that the revenue should not harass the assessee where "the preponderance of evidence indica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hareholders and the assessee also could not furnish the current addresses of these three new shareholders. These in the instant case before us, these three shareholders did not have sufficient income to justify making these huge investments and factual matrix of the instant appeal before us justify confirming additions u/s 68 which are similar to the factual matrix in the case of Konark Structural Engineering Private Limited(supra). Similarly, learned DR rightly relied upon decision of Hon‟ble Gujarat High Court in the case of Pavankumarm Sanghvi(supra) as in this case the loans made by the lenders to the tax-payer are preceded by credit entry of similar amounts in their bank account and the bank balance maintained in their bank account is miniscule , on that factual matrix the Hon‟ble Gujarat High Court affirmed the additions. In the instant case before us, the factual matrix is similar as the investment in assessee company by these new shareholders as detailed by us is preceded by the credit entries in the bank account of these new shareholders of equivalent amount and the bank balance regularly maintained by these new shareholders is miniscule. Thus, in our consid....