TaxTMI 
TaxTMI 
2019 (1) TMI 797
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....ated 31st May, 2016. He stated in the preceding year that the ITAT accepted the payment of license fee of Rs. 2 Crore per month from 1st February, 2006. The above order of ITAT is approved by the Hon'ble jurisdictional High Court vide order dated 6.11.2017 and also by the Hon'ble Apex Court. He stated that when in the immediately preceding year payment of licence fee of @ Rs. 2 Crore per month is accepted by the ITAT which is approved by the Hon'ble High Court and Supreme Court. There is no justification for allowing of license fee @ 50 Lac per month. 4. The learned DR on the other hand relied upon the order of the Assessing Officer and she stated that the assessee has not even produced the copy of lease agreement between the assessee and M/s Flex Industries Limited. When the assessee had not even produced the primary document, the AO was fully justified in disallowing the increase in the license fee from Rs. 50 Lac per month to Rs. 2 Crore per month. She, therefore, stated that the order of the AO may be sustained and the order of the CIT(A) should be reversed. 5. We have carefully considered the arguments of both the sides and perused the material placed before us. The fact....
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.... Group of Companies. During the Assessment Years in question, the fee was revised mid-term to Rs. 2 crores per month. The AO add Rs. 9 crores, upon an understanding that the licence fee increased was arbitrary. The CIT(Appeals), however, deleted this entire amount. The Revenue's Appeal succeeded substantially to the extent of Rs. 6 crores. 8. Having regard to these circumstances, the Court finds no justification to interfere with the ITAT's findings, which are also factual as far as this issue goes." 7. The Revenue filed the SLP before the Hon'ble Apex Court which was dismissed by their Lordships vide order dated 26.10.2018. Thus the issue of increase of the license fee from Rs. 50 Lac per month to Rs. 2 Crore per month was examined by the ITAT in the immediately preceding year. The ITAT after considering the facts and submissions of both the parties deem it appropriate to allow the increase of license fee from 1st February, 2006. The order of ITAT is approved by Hon'ble High Court and Supreme Court. Therefore, from 1.4.2006 some licence fee i.e. @ Rs. 2 crore per annum is to be allowed. So far as the contention of the learned DR with regard to furnishing of lease agree....
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....ed that copy of account of subsequent year were never produced before the AO therefore, the same was additional evidence and if the CIT(A) had admitted additional evidence, he should have allowed an opportunity to the AO to examine the same. She therefore stated that the admission of additional evidence and reliance thereon by the CIT(A) without allowing any opportunity to the Assessing Officer is in violation of Rule 46A. She accordingly submitted that the order of the CIT(A) on this point may be reversed and that of AO may be restored. 10. The learned counsel for the assessee on the other hand stated that this issue is also squarely covered in favour of the assessee by the decision of ITAT in assessee's own case for assessment year 2006-07. He also stated that the copy of the account of the customer from the assessee's books of account of subsequent year cannot be said to be additional evidence and therefore, there was no violation of Rule 46A. 11. We have carefully considered the submissions of both the sides. We find that the ITAT has considered this issue in the immediately preceding year. The relevant portion of the ITAT order is reproduced below for ready reference:- ....
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....f the AO that the assessee has not been able to produce confirmations from few of the parties cannot be the basis to arrive at a conclusion that these are unverifiable and unconfirmed. 20.2 In view of the above findings and observations we are of the considered opinion to uphold the findings of the Ld. CIT(A). Accordingly ground No. 5 raised by the revenue for assessment year 2006-07 stands dismissed." 12. From the perusal of the above order of the ITAT, it is evident that in the preceding year, the CIT(A) had allowed the opportunity to the AO and has decided the issue only after taking into consideration the remand report submitted by the Assessing Officer. However, in the year under consideration, the CIT(A) has allowed no opportunity to the AO to examine the copy of account of the customer in subsequent years and no remand report is called for. In view of the above, we deem it appropriate to set aside the order of the CIT(A) on this point and restore the matter back to the file of the AO. We direct the assessee to produce the copy of account of above three customers for subsequent years before the AO thereafter the AO will examine whether the above three parties are ....
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.... iv. The reasons why M/s Adhyay Equi Pref Pvt.Ltd. chose to invest a heavy amount of Rs. 20,00,00,000/- at a such a high premium in the assessee company have not been properly explained. v. The amount of Rs. 20,00,00,000/- has been paid by M/s Adhyay Equi Pref Pvt.Ltd. through cheques between the period from 20.2.2007 to 13.3.2007. From a perusal of the concerned bank account of this company, it is noticed that as on 19.2.2007, the credit balance was nil. On 21.2.2007, there are credits of Rs. 3,00,00,000/- by way of two cheques but full description of the source is not there. It is after this period that the funds have started flowing into the bank account of M/s Adhyay Equi Pref Pvt.Ltd. and out of those funds, the payments have been made to the assessee company. In many cases of credit entries, only cheque numbers have been mentioned and the exact nature of source of these funds is not clear. Under these circumstances, the financial worthiness of M/s Adhyay Equi Pref Pvt.Ltd. is not satisfactorily established and resultantly genuineness of transactions made with the assessee company is also not satisfactorily established. vi. It is also noticed from the....
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.... Rs. 310.77 per share. The value of shares was decided after a long deliberations with the investor, and ultimately, value based on NAV linked to book value multiply method was chosen, which comes to Rs. 200.52 per share and accordingly, the shares were issued at a premium of Rs. 190/- per share. 2. The second observation of the AO is that the assessee has not issued shares to any other person during the year under consideration, so that get a comparable instance to justify the assessee's claim. That in this regard it has been submitted before the AO as well that the assessee had also received an amount of Rs. 5,00,00,000/- as share application money from M/s D.J. Infotech Pvt.Ltd. against allotment of 3,12,500 shares of Rs. 10/- per share and a premium of @ Rs. 150/- per share. Since, the value of shares of the appellant company was determined to be Rs. 200/- per share and accordingly the same were allotted at a premium of Rs. 190/- to M/s Adhyay Equi Pref Pvt.Ltd., the assessee didn't accept the share application money from M/s D.J. Infotech and had subsequently refunded the same, the details whereof have provided to the AO as also attached at ....
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....he credit balance was Nil. On 21.02.2007, there are credit of Rs. 3.00 crores by way of two cheques but full description of the source is not there. Further, it was observed by the AO after this period, the fund started flowing in the bank account of Investor Company and out of these fund, the payment have been made to the assessee company. That in many cases of credit entries only cheque Nos. have been mentioned and exact nature of source of these funds is not clear. That first of all, the assessee is not supposed to establish the source of source. (Please refer to judgment of Guwahati High Court in the case of Nemichand Kothari 264 ITR 254). The assessee has received payment towards Share Application Money from M/s Adhyay Equi Pref Pvt.Ltd. by way of account payee cheque and issued the equity shares against the same. Accordingly, as per the requirement of Section 68, the assessee has fulfill its onus as to the nature and source of credit in the books of account of the assessee. Secondly, the assessee has submitted complete bank statement of the shareholder company from February, 2007 to March 31, 2007. On 5th February, there is an opening credit balance of Rs. 2....
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....s of the investor can be doubted. 7. In Para - (vii), the AO had observed some transactions of Flex/Uflex Group and Kolkata based companies from whom Flex/Uflex Group had received share capital in the Asst. Year 2006-07. The AO had stated that M/s Adhyay Equi Pref Pvt.Ltd. is also a Kolkata based company and the appellant and Uflex group are closely related. That the AO had not stated that is amongst the other Kolkata based companies from where Uflex group received share capital. In fact from the perusal of Adhyay Equi Pref Pvt.Ltd., it may kindly be observed that this investor company had never invested in Uflex Group Companies. It is also submitted that the appellant is entirely a different company and does not have any kind of relation either ownership or otherwise with Flex/Uflex group. That there is no basis for this apprehension of AO. It is beyond the understanding of assessee as to how Flex Group is related to the assessee. Flex Group is entirely different to assessee and none of live or non live entity of Flex Group is shareholder or director or in any manner exercise control on the appellant. What Flex Group is doing is entirel....
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....e learned CIT(A), the assessee has explained each and every allegation levelled against the assessee by the Assessing Officer. He stated that the shares of Rs. 10/- each were issued for Rs. 200/- each i.e., at a premium of Rs. 190/- per share. That the valuation of shares of the assessee company was got done through the expert viz., Chaturvedi & Partners, Chartered Accountants. That the said expert had valued the shares by adopting three different methods viz., Net Asset Value (NAV), Earnings Per Share (EPS) and Discounted Cash Flow (DCF) method. That as per NAV method, the value of the shares was determined at Rs. 200.52 per share. As per EPS method, the value of the shares was determined at Rs. 363.60 per share and as per DCF method, the value of the shares was determined at Rs. 310.77 per share. Copy of such valuation report was furnished before the Assessing Officer and he has not pointed out any defect therein. He also stated that the said valuation report is produced before the ITAT in the assessee's paper book from pages 194 to 213. With regard to low cash balance in the assessee's bank account, he stated that the AEPP is an investment company and it gets its money either in....
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....t of shares. (x) Copy of Form 2 for allotment of shares. (xi) Copy of allotment register with certificate & distinctive no. of shares. (xii) Certificate true copy of resolution passed by Board of Directors for allotment of shares to Adhyay Equi Pref Pvt.Ltd." 19. That Hon'ble Jurisdictional High Court in the case of CIT Vs. Oasis Hospitalities P.Ltd. - [2011] 333 ITR 119 (Delhi) has laid down the guidelines for examining the cash credit in any assessee's books of account. They have laid down that the burden is upon the assessee to explain the nature and source of share application money and, to discharge such burden, the assessee has to prove the identity of the shareholder, genuineness of the transaction and creditworthiness of the shareholder. They have also laid down that what evidence is to be produced by the assessee to prove the identity of the shareholder, genuineness of the transaction and creditworthiness of the shareholder. That the evidences furnished by the assessee clearly establish that the assessee has duly discharged the onus which lay upon it. Similar view is reiterated by Hon'ble Delhi High Court in the case of CIT (Central)-I....
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....g that the assessee had, in fact, received money from the said shareholder and it came from the coffers of that very shareholder. The Division Bench held that when the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be copies of the shareholders register, share application forms, share transfer register, etc. As far as creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditor/subscriber showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there have to be some cogent reasons and materials for t....
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....ed to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. As held concurrently by the CIT (Appeals) and the ITAT, these conclusions were clearly baseless and false. This Court is constrained to observe that the AO utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. We place these observations on the record and direct a copy of the judgment to be furnished to the concerned income tax authorities for appropriate action towards reflecting these observations suitably in service record of the concerned AO to avoid such instances in the future." 24. So far as this legal issue is concerned that the initial burden is upon the assessee to explain the nature and source of the credit in the assessee's books of account and what assessee has to do in order to discharge such burden, there is no dispute. Therefore, now in each case, the facts are to be examined so as to arrive at the conclusion whether the assessee has been able to discharge the initial burden of credit in his books of account. In the light of above guidelines of Hon'ble Jur....
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.... share (iii) As per Discounted Cash Flow (DCF) method - Rs.310.77 per share 27. This valuation report is filed before the Assessing Officer and he has not given any adverse comments on the same. Thus, the assessee has duly furnished the justification for the issue of shares at a high premium. We further find that Hon'ble Jurisdictional High Court in the case of Anshika Consultants Pvt.Ltd. (supra) has considered the issue of high premium and observed as under :- "Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of ....
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....uld be proved by producing the bank statement of the share applicant showing that it has sufficient balance in its account to enable it to subscribe to the share capital. In the case under consideration before us, the assessee has produced the bank account of AEPP. Though there were credits in the said bank account before issuing cheques to the assessee, however, AEPP has furnished the details of each and every cheque received by it and credited in its bank account. Such details were furnished before the Assessing Officer and copy of the same is also produced before us at pages 156 to 159 of the paper book. Moreover, AEPP is assessed to income tax, its PAN details were furnished before the Assessing Officer. The director of AEPP appeared before the Assessing Officer and the Assessing Officer asked questions relating to creditworthiness of the company. Question No.12 and reply thereto would be relevant. We reproduce the same herein below :- "Q12. What is the net worth of your Company? Was any cash deposited in the bank account before depositing the share application money to M/s Montage Enterprises Pvt.Ltd.? Ans. The net worth of our Company is more than Rs. 100.00....
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....ame. Aggrieved with the same, the Revenue is in appeal before us. 35. We find that the identical issue has been considered by the ITAT in assessee's own case for assessment year 2006-07 vide ITA No.2106/Del/2010 and similar disallowance made in the last year was deleted by the ITAT. We further find that this issue is squarely covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court in the case of CIT Vs. Dharam Pal Prem Chand Ltd. - [2009] 317 ITR 353 (Delhi), wherein their Lordships held as under :- "Held, (i) that the authorities below found that the refund of excise duty was pivoted on the manufacturing activity carried on by the assessee. The concurrent finding of the authorities was that the assessee had adopted an incorrect accounting methodology. The assessee had on the payment of excise duty debited the profit and loss account and upon receipt of refund credited the profit and loss account. The net effect on the profit and loss was nil on account of the methodology followed by the assessee. Therefore, there was no reason to exclude the amount of refund of excise duty in arriving at "profit derived" for the purpose of claiming de....