TaxTMI 
TaxTMI 
2018 (10) TMI 855
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....o the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of the Ld. AO in disallowing the deduction fully as claimed by the assessee u/s 24(a) of the Income Tax Act, 1961. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) erred in law and on facts in confirming the action of the Ld. AO in making the impugned additions/disallowances and in framing the impugned assessment order which is contrary to law and facts and was framed without providing adequate opportunity of hearing and without confronting the entire adverse material which was used against the assessee and that too by recording incorrect facts and findings. 5. That having regard to the facts and circumstances of the case the ld. CIT(A) erred in law and on facts in confirming the action of the A.O. in charging interest u/s. 234A, 234B and 234C of the Income-tax Act. 2. From the above grounds of appeal, it emerges out that the issues involved in this appeal, which need adjudication, pertain to the following additions made by the Assessing Officer and sustained by the ld. CIT(A) : (i). Addition of Rs. 1,07,25,000/- made....
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....s also filed a small written synopsis - ground-wise - before us which reads as under : GROUND NO.1: it relates to the addition of Rs. 1,07,25,000/- on account of share premium on the ground that assessee failed to justify the impugned credit with supporting documentary evidence and failed to produce the parties. Ld. A.O. has discussed this issue at Page 1-2 of the assessment order, whereas Ld. CIT(A) has discussed this issue from Page 2-19 of the appeal order. PB 166-175 are the submission before Ld. CIT(A) inter-alia submitting that share capital has been accepted but share premium received from those very shareholders through banking channel were not accepted which is not possible, more so when there were overwhelming evidences from these shareholder-companies confirming the share premium and that all the shareholder-companies were assessed to tax and such shareholder-companies confirmed the transaction to Ld. A.O. directly and relying upon various pages of the paper book and meeting adverse observation of Ld. A.O. and relying several decisions, which are relied upon here also. PB 185-207 are further submissions to Ld. CIT(A) in response to the....
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....wal. 4. In reply, it is submitted that in this Para Ld. CIT(A) mentions about the existence of the bank account of the shareholder companies, whereas in the preceding paras, Ld. CIT(A) mentions that bank account of the shareholder companies were not filed by the assessee. Thus, this shows the contradictory findings by Ld. CIT(A) and proves that the earlier finding was incorrect. It is further submitted that investment is made out of the funds available and not out of the income and therefore, even if there was nil income in the hands of the shareholdercompanies, it does not go to establish that those companies were not creditworthy, more particularly when bank statements and other evidences filed by the assessee clearly show the source of the investment made. Ld. CIT (A) has found the deposits and withdrawals as typical example of entry providers. In reply, it is submitted that this conclusion of Ld. CIT(A) is nothing but surmise and conjecture. 5. Ld. CIT(A) has mentioned in Para 8.16 that the director of all the four companies was Sh. Jitender Kumar but none of the returns have been signed by him and the affidavits have also been signed by Mr. Parmod Ku....
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....orded by the Assessing Officer were incomplete and sparse. The impugned order passed cannot be treated and regarded as perverse. The appeal is dismissed as no substantial question of law arises". CIT vs. Oasis Hospitalities (P) Ltd., 333 ITR 119 (Delhi High Court) Income-Cash credit-Share application money-Though the share applicants were not produced in spite of specific direction of the AO, assessee company has filed copies of PAN, acknowledgement of returns of the share applicants and their bank account statements of the relevant period when the cheques were cleared-Thus, primary onus was discharged by the assessee-Assessee was not confronted with the investigation carried out by the Investigation Wing or given any opportunity to cross-examine the persons whose statements were recorded by the Investigation Wing to draw adverse conclusion against the assessee-As regards discrepancies in the bank statements, these statements were provided by the shareholders and were printed on the bank stationery-Assessee was never confronted with these discrepancies by the AO-In any case, it does not follow from these discrepancies that the amount of share capital was undisclos....
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....ey has been received by way of account payee cheques-No question of law arises. CIT vs. Victor Electrodes Ltd. (2010) 329 ITR 271 (Del) Income-Cash credit-Share application money-Assessee filed copies of resolutions passed by the board of directors of applicant companies, besides their bank statements and IT returns in which addresses of the applicant companies are recorded- Genuineness of these documents is not doubted-AO did not make any verification nor summoned the records of the banks on which cheques issued were drawn-There was no legal obligation on the assessee to produce the director or other representatives of the applicant companies before the AO-If the AO had any doubt about identity of the share applicants, he could have summoned the directors of the applicant companies- Assessee had established the identity of share applicants and the genuineness of the transactions-Therefore no addition could be made under s. 68. Without prejudice to the above, reliance is placed on the decision in the case of CIT vs. Dataware (P) Ltd. in ITA 263/2011, dated 21-09-2011 for the proposition that Ld. AO can make direct enquiry from the Ld. AO of shareholder. ....
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....9,635) u/s 24(a), which was reduced by Ld. A.O. to Rs. 2,81,021/-, thus giving short deduction u/s Rs. 10,114/- which seems to be calculation error at the end of Ld. A.O. PB 184 is the submissions before Ld. CIT(A) Ld. CIT(A) has discussed this issue at Page-22 of the appeal order and has mentioned that appellant has not given any evidence to go against the decision of Ld. A.O. It has surprising that when assessee is pointing out arithmetical error based on PB- 6, to say that there was no evidence, highly unjustified. Apart from the above, the ld. AR also relied on following decisions : (i). CIT vs. Jalan Hard Coke Ltd., 95 taxmann.com 330 (Rajasthan), SLP filed by the Revenue stands dismissed by Hon'ble Supreme Court reported in 95 taxmann.com 331(SC) (ii). Order of ITAT, Hyderabad in M/s. Hariom Concast & Steel Pvt. Ltd., Vs. ITO (ITA No. 1775/Hyd/2014 dated 05.10.2016). 6. On the other hand, the ld. DR relying on the orders of authorities below, submitted that the assessee failed to substantiate the identity and creditworthiness of the creditors and as such failed to discharge the onus that lay upon him by section 68 of the Act.....
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.... (ii). Copy of letters given to the ld. Assessing Officer giving the details of share capital/share premium alongwith confirmations and other evidences. (iii). Copy of account of share application money showing an aggregate amount of Rs. 1,10,00,000/- received in the form of share capital of Rs. 2,75,000/- and share premium of Rs. 1,07,25,000/- from M/s. Bhawani Portfolio P. Ltd. (Rs.25,00,000), Campari Fiscal Services P. Ltd. (Rs.35,00,000), M/s. Rishabh Shoes P. Ltd. (Rs.30,00,000) and M/s. Thar Steels P. Ltd. (Rs.20,00,000). 8. It is apparent on record that none of the authorities below have bothered to rebut the contentions of the assessee that he issued 27,500 equity shares of Rs. 10 each at premium of Rs. 390/- per share during the year to above share holders. The authorities below have no objection on increase of share capital of Rs. 2,75,000/-, rather accepted the same, but have proceeded to disbelieve the share premium on the issue of these very shares @ 390/- per share, amounting to Rs. 1,07,25,000/- received from the same very share holders through account payee banking instruments, which also included the amount of share capital of the face value of Rs....
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....ed during the year under consideration. Therefore, according to the revenue authorities, it is beyond any logical reasoning that a company with zero balance sheet could gamer Rs. 490/- per share premium from its subscribers. Such transaction may raise eyebrows but considering the subscribers to the assessee company, the test for the genuineness of the transaction goes into oblivion. It is an undisputed fact admitted by the Revenue authorities that 10,19,000 equity shares has been subscribed and allotted to IDFC PE Fund-II which company is a Front Manager of IDFC Ltd., in which company Government of India is holding 18% of shares. The contributors to the IDFC PE Fund-II who is a subscriber to the assessee's share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are all public sector undertakings. Therefore, to raise eyebrows to a transaction where there is so much of involvement of the Government directly or indirectly does not make any sense. 10.1. No doubt a non-est company or a zero balance company asking for a share premium of Rs. 490/- per share defies all commercial prudence but at the same time we cannot ignore t....
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.... the Act. The assessee succeeds and Revenue fails on this account. 11. The Ld. Departmental Representative has raised an altogether plea by stating that the nature of the transaction should also be judged within the parameters of the Sec. 68 of the Act. The counsel for the assessee strongly objected to this but in the interest of justice and fair play, we allowed the DR to raise this issue. For this, we draw support from the decision of the Hon'ble Supreme Court in the case of Kapurchand Shrimal Vs CIT 131 ITR 451, wherein the Hon'ble Supreme Court has laid down the ratio that "It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute." 11.1. Considering the submissions of the Ld. DR in the light of the above ratio, let us test the transaction in the light of the provisions of Sec. 68 of the Act. As per Section 68 - the initial onus is upon the assessee to establi....
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....d be said to be sham. 12. We have considered the grievance of the Revenue from all possible angles and by applying the provisions of Sec. 56 of the Act and at our stage we have gone to the extent of testing the transaction within the parameters of Section 68 of the Act. We could not find a single evidence which could lead to the entire transaction as sham. Our view is also fortified by the share holding pattern as explained to us and as substantiated by the material evidence on record. We find that the share holders in all the related transaction under issue are directly or indirectly related to the Government of India. Therefore, considering the entire issue in the light of the material evidence brought on record, in our considerate view, the Revenue authorities have erred in treating the share premium as income of the assessee u/s. 56(1) of the Act. In our considerate view, for the reasons discussed hereinabove, we do not find it necessary to apply the provisions of Sec. 68 of the Act. We, therefore, direct the AO to delete the addition of Rs. 47,97,10,000/-. Ground No. 2 & 3 are accordingly allowed". 8. The other case law relied on by assessee is also on the is....
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....n share capital and share premium of the assessee company. (vi). Copies of annual reports and balance sheets of the creditors showing the impugned investments. (vii). Copies of master data of the shareholders downloaded from the website of MCA showing the investment of share holder companies. (viii). Copy of return of allotment in Form-2 filed to RoC in respect of impugned share capital and share premium. 11. In presence of all these evidences, submitted by the assessee, on authenticity of which no objection or doubt has been raised by any of the authorities below to doubt the explanations of the assessee regarding the three ingredients of section 68 of the Act. Once, all the above documentary evidences are produced, the assessee had discharged the onus cast upon him. It is also not in dispute that the notices issued by the Assessing Officer u/s. 133(6) of the Act stood served upon the shareholders/creditors and the same were directly responded to the Assessing Officer. Hon'ble Gujrat High Court in a recent decision of PCIT vs. D&H Enterprises, (2016) 72 taxmann.com 91 (Gujrat) on such issue held as under : "7. Thus, from the facts noted herei....
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....tworthiness of applicants and genuineness of transactions, assessee furnished copies of their certificates of incorporation, copy of ITR, bank statements, balance sheet and payment details - However, Assessing Officer added amount of share application money to income of assessee on grounds that share applicants had never appeared before Assessing Officer - It was noted that assessee produced all replies filed by these investors 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 additions under section 68 were unjustified - Held, yes [Paras 5,5.2,5.9] [In favour of assessee] 14. It is also pertinent to not....
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....ntity 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 presumption that low return of income was sufficient to doubt the creditworthiness of the share holders." Similar view has been taken by Hon'ble jurisdictional High Court in another decision in the case of PCIT vs. M/s. Goodview Trading Pvt. Ltd. dated 21 November, 2016 reported in 2016 (12) TMI 617 - Delhi High Court, observing as under : 8. It is quite evident from the CIT(A)'s reasoning in paragraph 4.3, that the materials clearly pointed to the share applicants' possessing substantial means to invest in the assesse....