TaxTMI 
TaxTMI 
2018 (9) TMI 1026
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....f the case, the CIT(A) has erred in deleting addition of Rs. 5,85,00,000/- made u/s. 68 of the IT Act on account of unexplained share capital and premium. 2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that on the prevailing facts of the case the onus on the part of the assessee u/s. 68 of the Act stands discharged." 2. The brief facts common to all these appeals are that the assessee filed returns of income on 24.11.2006, 02.11.2007, 02.09.2008, 15.10.2009 and 14.11.2011 declaring income/loss of Rs. (-) 947/-, Rs. Nil, Rs. 1177/-, Rs. 1470/- & Rs. 7446/- respectively for the assessment years 2006-07 to 2010-11. A search operation u/s. 132(2) was carried out at Aakriti Hotels Pvt. Ltd., Community Centre, Saket, New Delhi on 22.11.2011. During the search operation, following documents belonging to the assessee were found and seized : Page Nos. Particulars of documents seized Annx. A4 page 50-59 Transfer deed of lease hold rights between M/s. Sir Biotech India Ltd. And Sutlej Agro Products Ltd. For property at Institutional plot No.4, Sector R-04, vide allotment No.INS0326001 situated in greater Noida Distt. Ga....
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.... companies, as mentioned in the orders of the authorities below, are as under : 4 A.Y. 2006-07: S. No. Name of the Company Share Capital Share Premium Total amount 1 M/s Alavel Finvest (P) Ltd. 2,50,000 47,50,000 50,00,000 2 M/s Jagdishwar Pharmaceutical Works Limited 2,50,000 47,50,000 50,00,000 3 M/s Stocknet International Limited 2,75,000 52,25,000 55,00,000 4 M/s Chrysler Electrical Components (P)Lld. 5,00,000 95,00,000 1,00,00,000 5 M/s Gateway Computers (P) Ltd. 2,00,000 38,00,000 40,00,000 6 M/s Exxcon Electricals (P) Ltd. 4,00,000 76,00,000 80,00,000 7 M/s Venus Overseas Limited 4,00,000 76,00,000 80,00,000 8 M/s Impala Industrial Enterprises Ltd. 2,50,000 47,50,000 50,00,000 9 M/s IVilco Finexim (P) Ltd 2,50,000 47,50,000 50,00,000 10 M/s Esquire Agro Products (P) Ltd. 1,50,000 28,50,000 30,00,000 A.Y. 2007-08: S.N Name of Company Return Income Share Capital Share Premium Total Profit before Tax 1 M/s Alavel Finvest (P) Ltd. 0)1,930 2,50,000 47,50,000 50,....
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.... 9,50,000 10,00,000 14 Ltd.M/s New Outlook Securities Ltd. 40,000 7,60,000 8,00,000 A.Y. 2009-10: S.N Name of Company Share capital Share premium Total 1. M/s Alavel Finvest (P) Ltd. 50,000 9,50,000 10,00,000 2. M/s Logic Infotech Limited 1,87,500 35,62,500 37,50,000 3. M/s Laffan Software Limited 77,500 14,72,500 15,50,000 4. Gateway Computers (P) Ltd., 72,500 13,77,500 14,50,000 5. M/s Novelty Traders Limited 1,30,000 24,70,000 26,00,000 6 M/s Bhaskar Fund Management Limited 47,500 9,02,500 9,50,000 7 M/s Online Information Technologies Ltd. 5,000 95,000 1,00,000 8 M/s Gromore Fund Management Company Limited 72,500 13,77,500 14,50,000 9 M/s Shakti Ispat Product (P) Ltd. 1,00,000 19,00,000 20,00,000 10 M/s Wilco Finexim (P) Ltd. 1,85,000 35,15,000 37,00,000 11 M/s Oshin Investments and Finance (P) Ltd. 5,00,000 95,00,000 1,00,00,000 A.Y. 2010-11: S.N Name of Company Share Capital Share premium Total 1. Alavel Finvest (P) Ltd. 4,78,000 2,34,....
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....ven. However, in the meantime, the assessee furnished the audit reports, balance sheets, copies of acknowledgment of returns etc. of all the investor companies. Replies to notices u/s. 133(6) were also furnished directly by the investor companies on the request of the assessee. On perusal of evidences so furnished, the Assessing Officer observed that the companies were showing meager profit; that the bank statements show the receipt and transfer of same amount to various parties; that the said companies were not shown to have been engaged in any major business activity; that none of the above companies were showing any positive income; and that assessee, thus, failed to discharge the onus that lay upon him by section 68 of the IT Act. Accordingly, final show cause notice was issued to the assessee to explain as to why the amounts credited in the books of assessee in the form of share capital and premium be not treated as unexplained credits u/s. 68 of the Act ? 2.3. In reply to show cause notice, the assessee submitted that complete details such as names and present addresses of the investor companies, their PANs, bank statements, balance sheets and its annexures were filed befo....
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....ally valid. The assessee has not challenged the decision of ld. CIT(A) on legality of assessments either by way of any appeal or cross-objections. However, on merits of the additions made u/s. 68, the ld. CIT(A) has accepted the contentions of the assessee by relying on several decisions and has deleted the impugned additions vide impugned order observing as under : 4.3 Decision:- I have considered the assessment order, written submission alongwith paper book and oral arguments of Ld. AR. The main grounds on which the assessing officer has invoked section 68 for addition of impugned share capital can be summarized as under:- a) During the assessment proceedings, notices issued u/s 133(6) to the impugned shareholders has returned back, and subsequent submissions of details by these shareholders company has been managed by the appellant company & hence cannot be relied. b) Ld. assessing officer has found that these share investing companies does not declare income which can commensurate to the investment made. 10 c) The appellant has failed to produce the directors of these share holders company and applied judicial pronouncements....
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....by the assessing officer in dependently in response to notice u/s 133(6) in the office of the assessing officer. The Ld. assessing officer has made no enquiry to disprove the evidence filed independently by these companies at the new addresses. Therefore, the assessing officer has not found any error in the submission made by the appellant. In that case, the onus to disprove the details filed by the appellant lied with the assessing officer. In that circumstance, onus was not on the assessee to produce the director of these share applicant companies. The directors & the investing companies are stationed outside Delhi namely in Kolkata, & Guwahati, the appellant has made specific request vide letter in response to assessing officer letter dt. 10.03.2014 to issue commission for the production of these directors at the address. The assessing officer has not issued such commission. Under these circumstances reliance of the assessing officer to discharge onus to produce directors u/s 68 as per various judgment such as N.R. Portfolio Pvt. Ltd. cited supra & other decision are misplaced. In those cases, the assessing officer has given adverse finding on the initial evidences produced by t....
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.... identity of such shareholder & documents submitted by the shareholder in response to notice u/s 133(6), asked to produce directors of these shareholder companies. In my view, once the appellant has filed all documents in support of share capital and new address of the share holder companies, onus was lying on the assessing officer to disprove the same. Without disproving these evidences onus will not shift back to the appellant. Under these circumstances, even the decision of Hon'able High Court of Delhi in the case of N.R. Portfolio Pvt. Ltd., will not help the case, as in that case, the assessing officer has made enquiry to disprove apparently the evidences filed by the assessee, then the decision was given that the onus was shifted back on the assessee to produce directors. In present facts & circumstances of the case, the decision relied by the Ld. AR namely the decision of hon'able Supreme Court in the case of Steller Finance Ltd and decision of jurisdictional High Court in the case of Nipuan Auto (P) Ltd cited Supra appears to be more applicable that the appellant has discharged onus cast upon it u/s 68 to prove the share capital. Considering entire facts & circumst....
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....8/2017) (vi). Kamleshbhai Dharmshibhal Patel vs. CIT 31 taxmann.com 50 (Guj) (vii). Rajesh Sunderdas Vaswani vs. ACIT, 76 taxmann.com 311(Guj) (viii). SSP Aviation Ltd. V. DCIT, 20 taxmann.com 214. (ix) CIT v Classic Enterprises, 35 taxmann.com 244 (x). Savesh Kumr Agarwal v. Union of India, 35 taxmann.com 85. 5. The learned Authorized Representative of the assessee, on the other hand, reiterated the detailed submissions made before the ld. CIT(A) and relied on the findings reached by the ld. CIT(A) in the impugned order and plethora of decisions, as relied by him in its submissions before the first appellate authority. He has also relied on the order of ITAT New Delhi rendered in the case of Priyatam Plaschem Pvt. Ltd. vs. ITO (ITA No. 2534/Del/2018 - A.Y. 2014-15- dated 10.08.2018. Addressing the issue on merits, it was submitted that substantial cogent evidences were laid before the Assessing Officer to prove all the ingredients of section 68 and to discharge the onus that lay on him by this section; that the notices u/s. 133(6) were issued on old addresses of the investor companies as mentioned in the share application forms, b....
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....n before the Assessing Officer as to the nature and source of credits, being share application money received from different companies, whose details were also 16 filed before the Assessing Officer. In support of his explanation, the assessee admittedly filed following documentary evidences: (i). Photocopy of share applications forms dully filled in. (ii). Certified true copy of Board Resolutions passed by Board of Directors of the respective companies in respect of investment to be made in the shares of the assessee company. (iii). Photocopy of PAN Cards of all the investor companies. (iv). Audit reports along with photocopies of final accounts, i.e. balance sheet, Profit & Loss account complete with the schedules of the investing companies. (v). Photocopy of Memorandum & Article of Association with certificates of incorporation of the said companies. (vi). Bank account statements of the investing companies. (vii) Allotment advice issued by the assessee company, giving details of the allotment of shares against the share application money received, indicating Folio No. Certificate number, number of shares allotted, com....
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....f fact recorded by the Commissioner (Appeals) and the Tribunal, it cannot be said that the conclusion arrived at by the Tribunal is, in any manner, contrary to the record or that the same suffers from any legal infirmity so as to give rise to any question of law, much less a substantial question of law warranting interference." 18 In such view of the matter, in our considered opinion, the dissatisfaction of the Assessing Officer cannot be sustained only on the basis of suspicion. The ITAT, Delhi Bench in the case of Priyatam Plaschem Pvt. Ltd. vs. ITO in ITA No. 2534/Del/2018 for A.Y. 2014-15 dated 10.08.2018 in para 8 to 11, held as under on identical facts : "8. We have considered the rival submissions. The A.O. noted that assessee has received share application money/ share premium of Rs. 6 crores from the Investor Company M/s. Mekastar Finlease in assessment year under appeal. For verification of the share application money, the A.O. issued notice under section 133(6) of the I.T. Act, to the investor company who have replied the same directly to the A.O, copy of which is filed at page-185 of the paper book in which the investor has confirmed the transaction with ....
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....sessee may be asked to prove the source of the credit in its books of account but cannot be asked to prove source of the source. The authorities below have also relied upon the assessment orders in the case of S.K. Jain and group and investigation conducted in their cases. However, according to the Learned Counsel for the Assessee, such reports, assessment orders and statements recorded in their cases, have not been confronted to the assessee and same were subjected to cross-examination on behalf of the assessee. There is no finding given on the same in the orders of the authorities below. Therefore, the contention of the assessee cannot be disputed and as such, no adverse view could be taken against the assessee because the same cannot be read in evidence against the assessee. Further, assessee has not taken any amount directly from Shri S.K. Jain and others. The contention of assessee has also not been disputed through any evidence or material on record that the assessee company has owned immovable property which has given on rent and assessee received rental income of Rs. 1.09 crores in assessment year under appeal. Therefore, the valuation report of the Govern....
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....er in response to the summons issued to them; and (v) the creditors had paid small amounts as tax qua their individual returns and that tax had not been deducted at source in respect of the commission received by them. Consequently, the Assessing Officer added the unexplained credit in the books of account of the assessee to the extent of Rs. 8.24 lakhs to its income. The Commissioner (Appeals) reversed the view taken by the Assessing Officer. The Tribunal reversed the view takenby the Commissioner (Appeals). On appeal: Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of no avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be requ....
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.... the assessment year under consideration the assessee had taken loans from various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, GIR numbers/permanent account numbers, etc., of all the depositors. The Assessing Officer however issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee. After considering the evidence, the Assessing Officer made an addition of Rs. 12,85,000 to the returned income of the assessee. This was confirmed by the Commissioner of Income-tax (Appeals). On further appeal to the Tribunal the Tribunal held that the phraseology of section 68 of the Income-tax Act, 1961, was 22 clear, that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year", that the un-satisfactiriness of the explanation does not and need not automatically resu....
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....d as under : "Once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has "created" evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable." 9.5. Decision of Hon'ble jurisdictional High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), in which it was held as under : "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court. 9.6. Decision of jurisdictional High Court in the case....
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....39;s case that the non-resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the 25 addition was rightly deleted. CIT v. Lovely Exports P. Ltd. [2009] 319ITR (St.) 5 (SC) applied." 9.10. Decision of Hon'ble jurisdictional High Court in the case of CIT vs. (i) Dwarakadhish Investment P. Ltd., (ITA.No. 911 of 2010) and (ii) Dwarkadhish Capital P. Ltd., (ITA.No.913 of 2010) (2011) 330 ITR 298 (Del.) (HC), in which it was held as under : "In any matter, the onus of proof is not a static one. Though in section 68 of the Income Tax Act, 1961, the initial burden of proof lies on the assesses yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number an....
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....and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be nonexistent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee." 9.12. Decision of Hon'ble jurisdictional High Court in the case of CIT vs. Value Capital Services Pvt. Ltd., (2008) 307 ITR 334 (Del.) (HC), in which it was held as under : "Dismissing the appeal, that the additional burden was on the Department to show that even if the share applicants did not have the means to make the investment, the 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. No substantial question of law arose." 10. Considering the facts of the case, in the light of material on record and the above decisions, it is clear that assessee produced sufficient documentary evidence before A.O. at the assessment as well as appellate stage....
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....vestors in response to inquiry notice issued to them under section 133(6) before Assessing Officer in which these investors had confirmed making investments in assessee company - A request of assessee to Assessing Officer to issue summons against said investors under section 131 for their production at assessment stage was not considered and Assessing Officer passed assessment order on next day - Whether since assessee at assessment stage had produced sufficient evidences before Assessing Officer so as to discharge its initial onus to prove identity of investor companies, their creditworthiness and genuineness of transactions, impugned 28 additions under section 68 were unjustified - Held, yes [Paras 5,5.2,5.9] [In favour of assessee] 9. The Assessing Officer has laid much emphasis on the non-service of notices u/s. 133(6) of the Act, but it has nowhere been objected by the ld. DR that these notices were sent at old addresses and not on the new Addresses of the investor companies admittedly submitted by the assessee. Moreover, the Assessing Officer is vested with ample powers to enforce and compel the appearance of the creditors by issuing summons u/s. 131, but the Assessing Off....
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....t share holders funds, so as to cover the investments made with the assessee company and the AO has failed to enquire into such facts before doubting the creditworthiness of the share holders. For this view, we stand fortified by recent decision of Hon'ble jurisdictional High Court in the case of CIT v. Vrindavan Farms (P) Ltd., 2015(11) TMI 279 dated 12 August 2015, where, the Hon'ble court has held as under : "3. The ITAT has in the impugned order noticed that in the present case the Revenue has not doubted the identity of the share applicant. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire details of the share applicants were made available to the AO by the assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificate of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the above documents submitted to him. It has been rightly commented by the ITAT that without doubting the documents, the AO completed the assessment only on the 30 pr....
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....f Konark Structural Engineering (supra), summons u/s. 131 issued could not be served, whereas in the instant cases, no summons u/s. 131(1) were issued despite request of the assessee and furnishing current addresses of the share holders. Hon'ble Allahabad High Court in the case of Munnalal Murlidhar vs. CIT, 79 ITR 540 (All.), held that the AO should assist the assessee by exercising powers to enable the assessee to produce evidence. In absence of same, the assessment would vitiate. Hon'ble M.P. High Court in the case of CIT vs. Ramesh Chand Shukla (MAIT No. 71 of 2003 decided on 01.04.2005 held, "it is now well settled that where the assessee requests the Assessing Officer to issue summons, to enforce attendance on the creditors to establish the genuineness and capacity of the creditor, it is duty of the Assessing Officer to enforce attendance of creditors by issuing summons. If the Assessing Officer does not chose to issue summons and examine the creditors, he cannot subsequently treat the loans standing in the name of such creditors as non-genuine nor add the amount thereof to the assessee's income." Since in this case, the AO has not even considered the request of assessee to i....