AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 1635
X X X X Extracts X X X X
X X X X Extracts X X X X
....that neither the financial position of the said investors is strong enough to substantiate the investment of such huge amounts in the assessee-company nor the financial position of the assessee-company justifies charging of premium of Rs. 90/- per share having face value of Rs. 10/- iv. On the facts and in the circumstances of the case and in law, the CIT(A) erred in placing reliance on the judgement of Supreme Court in the case of Lovely Exports Pvt. Ltd. (216 CTP. 195) (SC) since facts involved in that case are distinguishable from the facts of the assessee's case." V. On the facts and in the circumstances of the case and in law, the CIT(A) erred in ignoring the ratio laid down by the jurisdictional Bombay High Court dated February 22, 2012 in the case of Major Metals Ltd. Vs.UOI (Writ Petition No. 397 fo 2011), wherein judgements in cases of M/s. Lovely Export Pvt. Ltd. (216 CTR 195) (SC), CIT V/s. Creative World Telefilms Ltd (2011) (333 ITP. 100) (Born) etc. relied upon by the a s s es se e have be en di scus sed and distinguished while holding that that amounts shown to have been received as share application money has be to be taxed as income of income of the asessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee and also on perusing various details filed by the subscriber, issued notices to all subscribers u/s 133(6) to the addresses given. Out of those 10 companies, notices issued to 3 parties, viz. M/s V.D.R. Consultants P Ltd, M/s Heena Textiles Ltd and M/s Katrina Trading Pvt Ltd were not served. Remaining parties had filed their replies to notice u/s 133(6) and submitted various details called for by the AO. Later, the 3 companies, on whom notices u/s 133(6) could not be served have filed their replies to the AO alongwith various details. The AO also issued summons u/s 131 to directors of the company. In response to summons, the directors of certain companies have appeared before the AO and given their deposition wherein they have admitted subscription of share capital of assessee company. The AO also recorded statement of Shr Ritesh Burhad, CA u/s 131 of the Act. Based on the evidences filed by the assessee, information received from subscribers, notices issued u/s 133(6) and statements recorded from directors of certain companies, the AO came to the conclusion that although the assessee has proved identity of subscribers, but failed to prove genuineness of transactions a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....served that the assessee has filed complete documentary evidences to prove identity of subscribers and also filed enormous documents to prove genuineness of transaction and creditworthiness of the parties. The CIT(A) further observed that the AO has ignored all evidences filed by the assessee on flimsy grounds ignoring the fact that the subscriber to the share capital has capacity to prove subscription of share capital to assessee company. The AO also ignored affidavit filed by the subscribers wherein they have deposed before the magistrate alongwith all evidences. The CIT(A) further referring to the decision of Hon'ble Supreme Court in the case of CIT vs Lovely Exports (2008) 216 CTR 195(SC) observed that when the assessee has furnished details of subscription including their PAN, it is incumbent upon the AO to proceed further in accordance with law to reopen assessment of subscribers, if at all he is having doubt about the genuineness of transaction and creditworthiness of the parties, but cannot make addition u/s 68 of the Act to share capital in the hands of the assessee. The CIT(A) also discussed the proviso provided to section 68 by the Finance act, 2012 wef 01-04-2013 and ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the other hand, the Ld.AR for the assessee strongly supporting the order of the CIT(A) submitted that the assessee has proved identity, genuineness of transaction and creditworthiness of the parties by filing various documents including, PAN, CIN master data, share application form, Board Resolution, share certificate, confirmation of account, I.T. Acknowledgement receipt of subscribers, balancesheets, bank statements, reply to the notice issued u/s 133(6) of shareholders, affidavit filed by the directors of shareholder companies, sales-tax returns and share capital and reserves of shareholders. The AO has ignored all evidences to come to the conclusion that all those companies are paper companies without any business activity. The Ld.AR further submitted that the assessee has filed all details to prove the existence of companies and their business activities which is evident from the fact that all these companies are having huge turnover and net profit and also reserves and surplus to justify subscription of share capital to the assessee company. The assessee also furnished other details including bank statements of subscribers to prove that there is no instance of any cash depo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... transaction. The issue of shares at a premium and subscription of such shares by the subscribers is within the knowledge of the assessee company and subscribers and the AO cannot doubt the genuine transactions merely on suspicion and surmises without there being any adverse evidence in his possession. In this case, the AO has treated genuine share transaction with assessee company as unexplained cash credit on flimsy grounds ignoring evidence filed by the assessee. The Ld.AR referring to the paper book filed which contains 16 pages wherein he has furnished assessment order copies of 4 companies passed for the AYs 2008-09 to 2012-13. The Ld.AR further submitted that the AO has passed scrutiny assessment order in respect of these 4 companies wherein he has examined the issue of investment in assessee company without there being any adverse comments. Therefore, there is no reason for the AO to doubt the genuineness of transactions. As regards creditworthiness of the parties, these companies are having regular business activities which is evident from the fact that they have filed regular income-tax returns wherein they have declared huge share capital and reserves and surplus of Rs. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot justified in issuing share capital at a premium of Rs. 90 per share for shares having face value of Rs. 10 in the first year of its incorporation. According to the AO, all these sequence of events proves an undoubted fact that these companies are paper companies and the assessee is not able to prove the genuineness of transaction and creditworthiness of the parties and hence, he opined that the alledged share capital received from 9 companies is unexplained cash credit. 9. The AO made addition towards share capital u/s 68 of the Act, on the ground that the assessee has failed to offer any explanation with regard to the credits found in the nature of share capital and share premium. The provisions of section 68, deals with a case, where any sum found credited in the books of account of the assessee in the financial year in which the assessee, offers no explanation or explanation offered by the assessee, in the opinion of the AO is not satisfactory, then sum found credited may be treated as income of the assessee of that previous year. A plain reading of section 68, makes it very clear that to fix any credit within the ambit of section 68 of the Act, the AO has to examine 3 ingre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th the assessee company are not genuine. The AO has various reasons to come to the conclusion that the assessee has failed to discharge genuineness of transaction and creditworthiness of the parties. According to the AO, mere furnishing of income-tax returns and balance-sheets of subscribers would not be sufficient compliance of discharging genuineness of transactions, that too, in a case where notice issued u/s 133(6) to the subscribers to their given addresses were remain unserved. The AO also brought out some other reasons including statements given by directors of certain companies and Chartered Accountant, who has issued audit report in respect of these companies. The AO also doubted confirmation filed by the assessee and also share application forms. The AO has doubted application form for issue of share and audit reports to come to the conclusion that the share application form issued by the assessee are stereotyped. The AO also ignored statement given by the directors wherein they have categorically accepted that they have subscribed to the share capital of the assessee company. The AO also ignored affidavit filed by the subscribers on the ground that the report received fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6) of the Act. They further stated in the affidavit that they have subscribed to the share capital of the company and also furnished supporting evidences to justify investment in share capital of the company. We further notice that the assessee has furnished bank statement of subscribers wherein we do not find any instance of cash deposits or transfer from other companies prior to the date of transfer to the assessee company. Therefore, we are of the view that the AO was incorrect in treating share capital alongwith share application money as unexplained cash credit u/s 68 of the Income-tax Act, 1961. 12. Coming to the observation of the AO with regard to the issue of shares at a premium. The AO has questioned the issue of shares at a premium of Rs. 90 per share with a face value of Rs. 10 per share on the ground that the assessee is new company without any business, not able to justify issue of shares at a premium of Rs. 90 per share. We do not find any merit in the findings of the AO for the reason that the issue of shares at a premium and subscription to such shares is within the knowledge of the company and the subscribers to the share capital and the AO cannot have any role t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eir individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted." CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) "If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company." CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncerned, The Tribunal has relied upon an order of the Supreme Court in case of CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer." ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh-High Court) "If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee." Mod Creations Pvt Ltd vs. /TO (2013) 354 ITR 282 (Del-High Court) "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 transact ions in is sue 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee has received share application money from different subscribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In some cases such replies were not received through posts. Rs. 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall squarely within the ambit of the judgment of the Supreme court in the case of Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed." CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP-High Court) "Held, dismissing the appeal s , that it the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or f ict i tious persons or that any part of the share capital represented the company's own income from undisclosed sources. It was nobody&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the subscribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot be faulted." 14. Coming to the case laws relied upon by the Ld.DR. The Ld.DR relied upon the decision of Hon'ble Calcutta High Court in the case of Raj Mandir Estate Pvt Ltd vs Pr.CIT (2016) 386 ITR 162 (Cal). We have gone through the case law relied upon by the Ld.DR in the light of facts of the present case and find that the case law relied upon by the Ld.DR is not applicable as in this case, the subscribers to the share capital did not establish their financial capacity....