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2018 (12) TMI 197
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....acity and genuineness of transactions involving the alleged receipts of share application money totaling to Rs. 1,80,00,000/- from the aforesaid bogus companies is established only on the basis of the fact that those companies have filed return with the registrar of companies and income tax department and that the funds have been transferred through banking channels. Preponderance of probabilities and all circumstantial and direct evidences show that the scheme of fund transfer through such means was a façade created to portray a veil that attempts to conceal the true nature of such transactions. I, therefore, add back the entire amount of Rs. 1, 80,00,000/- under section 68 of the I.T. Act, 1961 to the assessee's total income considering the assessee to be the ultimate beneficiary of the said funds through the scheme of bogus fund transfer mentioned in the foregoing paragraphs. Penalty u/s 271(1)(c ) is separately initiated. [Add: Rs. 1,80,00,000/-]" 3. On appeal, first appellate authority dismissed the appeal on merits by holding as follows: "5. I have carefully considered the facts of the case, the material on record. During....
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....ness of manufacturing of granites slabs and has Earning Per Share (EPS) of Rs. 36. He submitted that the company is not a paper company and has turnover of Rs. 10.54 crores for the assessment year 2012-13 and 9.80 crores for the assessment year 2011-12 etc. He drew attention of the Bench to page 54 of the Paper Book which contained the justification note for charging share premium at the rate of Rs. 190/- per share, on the face value of Rs. 10 per share. He further argued that each of the share applicant company are also not paper companies and that they have substantial net worth and have responded to the notice issued by the Assessing officer and have filed letters confirming the transaction in question. He submitted that they had also filed, copies of acknowledgement of ITR's filed, copies of computation of income, balance sheet and profit and loss account as well as tax audit report. We pointed out from the order of the assessing officer that the basis of addition is that, the directors of the share holder companies have not proved their creditworthiness. He submitted that what is to be looked into is the creditworthiness of the company which has applied for and got allotted sh....
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....uate funds via equity as well as debts. Gradually with adequacy of investment and manpower the turnover of the company has raised which leads to increase in profit of the company which is shown in table below: The above table shows that the company is a fast moving company. The Net Asset value of the company's share was 132.95 in the financial year 2011-12 and moreover the company was planning to invest in the Solar Plant for which it requires heavy investment. Since the NAV of the company's share was Rs. 132.95, issuance of Shares at a premium of Rs. 190 is justified. As the company already having high interest burden so any further increase in the debt will lead to an increase in the risk and ultimately the company will fall in debt trap. We hope that the above information will serve your purpose." 8. A perusal of the same demonstrates that it is not a case where share premium has been charged at an exorbitant rate which cannot be justified. Hence we have no reason to doubt the justification of the issue of shares by this company at premium of Rs. 190 per share on the facts of this case. 9. All the companies which have applied for and got allotted shares a....
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....ess of the investor is demonstrated. No adverse material is brought on record by the revenue to negate this claim. iv) Shlok Fashion Pvt. Ltd.: This company has invested an amount of Rs. 40 lakhs in the assessee company. In response to notice u/s 133(6) of the Act, it was explained to the assessing officer that the source of funds were, Rs. 15 lakhs received from Yashika Financial Advisory Pvt. Ltd., Rs. 23 lakhs received from M/s Yashika Corporate Advisory Pvt. Ltd. and Rs. 2 lakhs received from M/s Sanmati Printers Pvt. Ltd. We find that this investor company has shareholder funds of Rs. 5.96 crores as against investment of Rs. 40 lakhs only. Hence in our view, the assessee has demonstrated the creditworthiness of the investor company as well as source of source. No adverse material is brought on record by the revenue to negate this claim. v) Sanskrita Properties Pvt. Ltd.: This company has invested an amount of Rs. 50 lakhs in the assessee company. In reply to notice u/s 133(6) of the Act, it was explained that the source of funds were receipt from M/s Yashika Financial Advisory Pvt. Ltd. Rs. 20 lakhs and an amount of Rs. 29 lakhs received from Yashika Corporat....
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....t, the assessee has to prove the three necessary ingredients i.e identity of share applicants, genuineness of transactions and creditworthiness of share applicants. The identity of share applicants is proved beyond doubt by the assessee by furnishing the name, address, PAN of share applicants together with the copies of balance sheets and income tax returns. With regard to the creditworthiness of share applicants, these companies are having capital in several crores of rupees and the investment made in the assessee company is a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants. By this, the creditworthiness of share applicants is also proved beyond doubt. With regard to genuineness of transactions, the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their respective bank accounts. We find that the assessee had even proved the source of money deposited into the respective bank accounts of share applicants, which in turn had been used by them to subscribe to the assessee company as share application. Hence the source of source of source is a....
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....tion the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere noncompliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Asses....
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.... held as under:- "The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank' accounts was generated from the appellant and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read as under: "4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom. 361 : 1987 Mah. 725: 1987 Bank J 552."....
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....he language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: "Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. " ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom....
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.... ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the ....
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....ated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness." 5.7. We find that the Hon'ble Jurisdictional High Court in the case of S.K. Bothra & Sons, HUF v. Income-tax Officer, Ward- 46(3), Kolkata reported in 347 ITR 347(Cal) wherein the Court held as follows: "15. It is now a settled law that while considering the question whether the alleg....
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.... the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals). 9. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT [19671 66 ITR 462. In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must In deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law. 10. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Inco....
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.... 13. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. 5.9. It is not in dispute that all the share applicant companies in the instant case before us are assessed to income tax and assessments framed on some of them by the revenue. We find that the assessee had duly proved the source of source of source in the instant case. Even if the creditworthiness of the share applicants are to be doubted , then it would be the duty of the ld AO of the assessee to make enquiries through the ld AO of the concerned share applicants. Once the relevant details are filed by the assessee before the ld AO to prove the creditworthiness of share applicants, then the same cannot be questioned / disputed by the ld AO of the assessee as the same would be travelling beyond his jurisdiction. In other words, the creditworthiness of the share applicant companies would have to be examined by the Assessing Officer of those companies and not by the Assessing Officer of the assessee herein. However, it would be incumbent on the part of the ld AO....
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....any during the year under consideration had brought Rs. 4, 00, 000/- and Rs. 20,00,000/- towards share capital and share premium respectively amounting to Rs. 24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Assessing Officer, therefore, concluded that nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs. 24,00,000/-. On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company. As indicated earlier, the Tribunal below....
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....e case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Incometax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law. 5.12. We also find that the co-ordinate bench of this tribunal in the case of VSP Steel P Ltd (formerly M/s Tikmani Metal P Ltd) in ITA No. 741/Kol/2014 for Asst Year 2010-11 had held as under:- "We have heard the rival submissions. We find that the ld DR argued that the assessee had not proved the source of source of share applicants who had invested share application monies in the assessee company and accordingly prayed that the addi....
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....dered by this tribunal in Subhalakshmi Vanijya relied upon by the ld DR was rendered in the context of validity of revision proceedings u/s 263 of the Act and not on the merits of the case. This tribunal in that case decided the validity of invoking revisionary jurisdiction u/s 263 of the Act by the ld CIT and whether adequate enquiries were made by the ld AO in the facts and circumstances of that case. This tribunal in Subhalakshmi Vanijya case supra never had an occasion to look into the merits of the addition proposed to be made towards share capital in the facts and circumstances of that case and no decision was rendered thereon on merits of the issue. Hence the reliance placed thereon by the ld DR does not advance the case of the revenue. In the instant case, we find that the share applicants have not denied the fact of making investment in share application monies in assessee company, which is evident from the fact that they had confirmed in writing in response to notice issued u/s 133(6) of the Act which was admittedly done behind the back of the assessee. There is no whisper in the entire assessment order to doubt the veracity of the transactions and genuineness of share ap....
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.... of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held by Hon'ble jurisdictional High Court in CIT vs DATAWARE (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which we note that the monies have been directly paid to the assessee company by account payee cheques out o....
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....,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs. 55,50,000/-. The assessee has further tries to explain the source of this amount of Rs. 55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs. 5~50/000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately. The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that....
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....a). The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. " 34. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by ....
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....31.12.2015 for the Asst Year 2013-14 by the Income Tax Officer, Ward -1(1), Kolkata, which are enclosed in pages 221 to 226 of paper book filed before us. It is not in dispute that the share subscribing companies are in existence. It is not in dispute that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record . We also find that the ld CITA had categorically stated that the scrutiny assessments were framed on the share subscribing companies for the Asst Year 2012-13 which shows their existence is genuine and transactions carried out by them were the subject matter of examination by the income tax department in scrutiny proceedings. This fact is not controverted by the revenue before us. Hence it could be safely concluded that they are genuine shareholders and not bogus and fictitious. Accordingly, the ratio laid down by the Hon'ble Apex Court in the case of M/s Earthmetal Electricals P Ltd supra would be squarely applicable to the facts of the instant case. 5.15. We find that the director of the assessee company Shri Hemant L ....
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.... were duly provided in time. Even the director of the assessee company appeared before the ld AO and a statement was recorded from him in the course of assessment proceedings. Then the onus shifts to the ld AO. The ld AO without making any independent enquiries, if any, from his side, directed the assessee to produce the directors of the share subscribing companies, which remain uncomplied by the assessee company and which eventually led to the ld AO drawing adverse inference about the transaction of receipt of share capital and share premium by the assessee company. This process followed by the ld AO , in our considered opinion, is not in accordance with the due process of law. Even for one share subscribing company where the notice u/s 133(6) of the Act remain uncomplied with, the details were filed by the assessee such as ITR acknowledgement, certificate of incorporation of the said company, audited financial statements, details of bank balances , loans and advances, cash flow statement, share allotment advice, bank statements and certificate for source of source together with confirmation of having made the investment in shares at premium with the assessee company. It is not in....