TaxTMI 
TaxTMI 
2017 (12) TMI 1574
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....ness of manufacturing of coated diplex paper board. The return of income for the Asst Year 2014-15 was filed by the assessee on 27.11.2014 disclosing total income of Rs Nil. During the year under review, the assessee had received equity share capital with share premium from the following shareholders :- Sr. No. Name of the Allottee PAN No. of Shares Allotted Face Value @ Rs. 10/- Premium @ 50/- Total (Rs. 60/- per share) 1 Apex Tradexim Pvt. Ltd. AAGCA8097 C 2,70,0000 2,70,0000 13,500,000 16,200,000 2 Bansi Dealcom Pvt. Ltd. AAECB1132 B 20,000 200,000 1,000,000 1,200,000 3 Epson Electronics Pvt. Ltd AABCE4985 E 3,750 37,500 187,500 225,000 4 Extreme Tieup Pvt. Ltd. AACCE0207 G 12,500 125,000 625,000 750,000 5 RBM Impex Pvt. Ltd. AADCR6957 Q 411,250 4,112,500 20,562,500 24,675,000 6 Siksha Dealtrade Pvt. Ltd. AAQCS 7851 L 17,500 175,000 875,000 1,050,000 TOTAL 735,000 7,350,000 36,750,000 44,100,000 Further the assessee company received preference share capital....
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....,850,000 44,250,000 53,100,000 Rajesh Kumar Singhania GBR Holdings Pvt. Ltd. 45,000 450,000 2,250,000 2,700,000 Jaswant Kumar Nangalia Mahamaya Tie Up Pvt. Ltd. 15,000 150,000 750,000 900,000 Rajesh Kumar Singhania Apex Barter Pvt. Ltd. 50,000 500,000 2,500,000 3,000,000 Rajesh Kumar Singhania 1,330,000 13,300,000 66,500,000 79,800,000 The ld AO perused the documents submitted by the assessee in detail and thereafter issued summons u/s 131 of the Act dated 18.11.2015 to the directors of the above companies to appear personally and give complete details of investemtn in the shares of assessee company. The said summon was duly complied with by the parties concerned and all the related documents with regard to the investment in the assessee company in Asst Year 2013-14 were submitted. The ld AO independently examined the documents submitted by the assessee and the share applicant companies in detail and found no discrepancy with regard to the identity, creditworthiness of the parties and genuineness of the share allotment made during the year. The a....
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....e statement recorded of Brij Mohan Nangalia, he had commented that he had provided accommodation entries of bogus share capital to assessee company. Since the statements were recorded at the back of the assessee, the assessee requested the ld AO to provide the assessee an opportunity to cross examine the persons who has given the alleged statements before the DDIT(Inv.). However, the ld AO mentioned in his assessment order directly that no opportunity of cross examination need to be given as the directors of the share applicant companies had filed the retraction affidavit before the ld AO. The assessee came to know of the retraction affidavits filed by the directors of the share applicant companies only from the observations made in the assessment order and accordingly made a request to the ld AO seeking for certified copies of the said affidavits vide its letter dated 3.1.2017 filed on 5.1.2017, which were furnished to the assessee by the ld AO vide letter dated 19.1.2017 (i.e after the completion of assessment for the Asst Year 2014-15 on 29.12.2016). 3.7. The ld AO again recorded the statement of Jaswant Kumar Nangalia and Brij Mohan Nangalia (directors of share subscribing c....
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....ces in support of the genuine transactions. 2. That the AO solely based on the information received from the DDIT(Inv.) and without undertaking any independent exercise to rebut the submission and authentic evidences in support of the share capital made addition of Rs. 10,56,00,000/- u/s 68 of the Act and the Ld. CIT(A) erred in having upheld such illegal addition without considering that all the share applicant companies had furnished the source of funds before investing in the share capital of the appellant. 3. That the Ld. CIT(A) further erred in having upheld the addition of Rs. 10,56,00,000/- on the basis of alleged statements by the directors of different companies before the DDIT(Inv.) and completely ignored the fact that the statements recorded by the deponents were retracted, leading the entire exercise made by DDIT(Inv.) to a nullity. 4. That the Ld. CIT(A) erred in not having considered that the addition made by the AO on the basis of cash trail assumed by him was totally unfounded and baseless inasmuch as the figures shown were imaginary and not as per records and furthermore the entire transactions mentioned in the cash trail were through ban....
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....eave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds. 5. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee containing all the relevant documents required for the disposal of this appeal. The ld AR argued that assessee is the largest manufacturer of paper board in Eastern India and in order to expand its business further and to reduce the burden of interest payable on its long term borrowings, the assessee sought to receive equity and preference share capital from its existing shareholders of the company. Accordingly it received equity share capital at premium of Rs. 50 per share (face value Rs. 10 per share) to the une of Rs. 7.98 crores from the shareholders as stated above during the Asst Year 2013-14. The assessee company also received equity share capital at premium of Rs. 50 per share to the tune of Rs. 4.41 crores during the Asst Year 2014-15 (i.e the year under appeal) from its existing shareholders and a new shareholder. The only new shareholder from whom share capital and premium was received to the tune of Rs. 12 lacs during the year under appeal....
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.... is enclosed in pages 1 to 5 of second paper book). C) The share capital and premium received from the shareholders during the Asst Year 2013-14 to the tune of Rs. 7.98 crores was verified by the ld AO by issuing summons u/s 131 of the Act and the same has been accepted to be genuine by the ld AO and scrutiny assessment for the Asst Year 2013-14 was completed by the ld AO on 26.3.2016 which is 8 months after the date of survey. D) The equity shares were issued to the shareholders at the rate of Rs. 60 per share which includes premium of Rs. 50 per share in both Asst Years 2013-14 and 2014-15. E) The premium has been duly justified by an independent share valuation done by a Chartered Accountant in terms of Rule 11UA of the Income Tax Rules who had certified the value per share at Rs. 67.78 , whereas the assessee company had issued shares only at Rs. 60 per share ( enclosed in page 202 of the paper book which is part of the reply letter dated 19.9.2016 filed before the ld AO during the scrutiny proceedings for Asst Year 2014-15) . F) One of the main contentions of the ld AO for framing the addition towards share capital was due to the fact that in....
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....nts. This opportunity of cross examination was denied by the ld AO to the assessee. The certified copies of the affidavits were submitted by the ld AO to the assessee vide his letter dated 19.1.2017 (copy enclosed in page 204 of paper book). The affidavits filed by these parties are enclosed in Pages 206 to 214 of paper book. In the said affidavits, it has been mentioned by the said directors that the statements during survey were made out of coercion and mental torture purportedly created by the office of the DDIT(Inv.). All these affidavits were filed within one day of giving the statement and had been duly sworn before the Notary Public at Bidhannagar Court. H) The Directors of the share applicant companies in response to summons issued u/s 131 of the Act had responded vide reply letter dated 16.12.2016 filed on 16.12.2016 for the Asst Year 2014-15 as under:- a) Copy of the PAN Card . b) Hard Copy of the ITR for the Asst Year 2014-15. c) Computation of Income for the year ended 31.3.2014. d) Copy of the Profit and Loss Account along with copy of Balance Sheet for the year ended 31.3.2014. e) Since the concerned director had n....
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....istent good performance of the assessee company. K) The source of funds were also duly explained by the share subscribing companies which are enclosed in pages 115-119 of the paper book ( Apex Tradexim Pvt Ltd) ; pages 131-133 of the paper book (RBM Impex Pvt Ltd ) ; pages 145-147 of the paper book (Extreme Tie up Pvt Ltd) ; pages 161-163 of the paper book (Shiksha Dealtrade Pvt Ltd) ; pages 175-176 of the paper book (Epson Electronics Pvt Ltd) and pages 189 - 190 of the paper book (Bansi Dealcom Pvt Ltd). All the shareholders had duly submitted a certificate with regard to investment in the share capital of the assessee together with their audited accounts and ITR acknowledgements and relevant pages of their bank statements to explain their sources for making investments in share capital in the assessee company. 5.3. We find that Mr Brij Mohan Nangalia and Mr Jaswant Kumar Nangalia had during the course of assessment proceedings had given a statement before the ld AO in person wherein they had accepted to the fact that their respective companies had invested in the share capital of the assessee company and had also retracted from the statements recorded by the DDIT(Inv....
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....parties in their statements had repeatedly stated that they had signed the statements before the DDIT(Inv.) without reading the same. In any case, the statement given before the DDIT(Inv.) had already been retracted by those parties by way of an affidavit duly sworn before a registered Notary. 5.5. We also find that merely rejecting the evidences filed by the assessee does not entitle the ld AO to make an addition u/s 68 of the Act . Such outright rejection of the evidences by the ld AO is totally contrary to the law as laid down by the Hon'ble Apex Court in the case of CIT vs Orissa Corporation (P) Ltd reported in 159 ITR 78 (SC) wherein it was held that :- 10. The question was again considered by this Court in Homi Jehangir Gheesta v. CIT [1981] 41 ITR 135, when this Court reiterated that it was not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established ; but where the circumstances of the rejection were such that the only proper inference was that the receipt must be treated as income in the hands of the assessee, there was no reason why the assessing authority sho....
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.... of share capital with premium is a paper company and does not carry on any business to justify such huge premium. Whereas in the instant case, the assessee company before us (i.e Krishna Tissues P Ltd) is a running company engaged in the business of manufacturing of coated duplex paper board and is a pioneer in that industry in Eastern India. This company was incorporated on 30.3.2005 and is having a turnover of above Rs. 200 crores. The assessee company before us had duly justified the premium per share for allotment of shares based on the strength of its financials and supported by a chartered accountant's certificate in terms of Rule 11UA of the Income Tax Rules. These facts are conspicuously absent in the case before the Hon'ble Calcutta High Court in the case of Rajmandir Estates P Ltd supra. We find that the three ingredients of section 68 of the Act are duly fulfilled in the instant case which is not so in the case before the Hon'ble Calcutta High Court. Hence the reliance placed on the said decision by the ld DR does not advance the case of the revenue as it is factually distinguishable as explained above. 5.7. We find that the preference capital to the tune of Rs. 6.15....