TaxTMI 
TaxTMI 
2019 (6) TMI 158
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....hat the facts are identical in both the cases and the decision of ITA No. 50/Kol/2016 would have to be applied for ITA No. 51/Kol/2016 with equal force except with variance in figures and hence the appeal in ITA No. 50/Kol/2016 is taken as the lead case. 3. The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the addition made u/s 68 of the Act towards share capital and share premium in the facts and circumstances of the case. 4. The brief facts of this issue are that the assessee company is engaged in the business of generation of power and energy and had filed its return of income for the Asst Year 2012-13 on 25.9.2012 declaring total loss of Rs. 8,87,88,588/-. The ld AO observed that during the period 1.4.2011 to 31.3.2012, the assessee company had issued equity shares of Rs. 10 each with a premium of Rs. 50 per share totaling to Rs. 120 crores. The ld AO observed that the entire share capital and share premium was raised through private placement. The ld AO called for the details of the shareholders and their share subscriptions to the assessee company. The assessee provided the requisite details called for. The ld AO observ....
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....rking companies i.e SGJHL and EFJL. Further the business of these SPVs is essentially to stay invested in the project companies and get the benefits and gains upon the event of stake sale of this project to new investors. These SPV companies vis a vis shareholding companies, which were duly registered under Registrar of Companies (ROC) are as under:- a) M/s Shirdi Commodities Pvt Ltd b) M/s Shirdi Commosale Pvt Ltd c) M/s Alex Mercury Pvt Ltd d) M/s Carvan Creation Pvt Ltd (NBFC) e) M/s Alex Energy Pvt Ltd 5.2. The assessee company, investing company SGJHL, SGJHL's 100% subsidiary EFJL and the aforesaid 5 SPVs have common directors and management to facilitate day to day activities of the companies. Therefore, so far as investment in the project from equity contribution is concerned, the same was funded by the group companies only and no other outside company or agency was involved in such equity funding. In terms of the above arrangement or funding, the assessee company received Rs. 120 crores from 5 SPVs on different dates through banking channels as under:- M/s Carvan Creation Pvt Ltd - Rs. 30,00,00,000 M/s Alex Mercury Po....
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....identity and existence of these companies. The high net worth of SGJHL and EFJL substantiate the creditworthiness of those entities to advance monies to the aforesaid SPV companies. All the transactions were routed through regular banking channels and hence the genuineness of the transactions are also proved beyond doubt. 7. The assessee also explained the immediate source of credit for each of the shareholder companies together with their respective bank statements for making investment in the assessee company. The ld CITA appreciated the aforesaid documents and on detailed examination vis a vis the respective sources for the shareholder companies came to the conclusion that the assessee in the instant case had duly proved the three ingredients of section 68 of the Act viz. identity of the shareholders, creditworthiness of the shareholders and genuineness of the transactions. Accordingly, he deleted the addition made in the sum of Rs. 120 crores u/s 68 of the Act in the assessment. Aggrieved, the revenue is in appeal before us. 8. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee comprisi....
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....MW solar power plant to be commissioned within 31st December 2011 in terms of expressed agreement with Gujarat Urja Vikas Nigam Limited ('GUVNL'), a State Government Undertaking. Pursuant to the contract for setting up solar power plant, the assessee had obtained a land for lease and also entered into power purchase agreement with GUVNL. The total project cost was worked out at Rs. 400 crores. The assessee was successfully able to obtain bank finance for 70% of the total project cost. For the remaining 30% of the project outlay, the appellant company partnered with Shree Ganesh Jewellery House (I) Ltd. (SGJHL) for investment in equity share capital of the company who showed their interest as well as intention to invest in the solar power project. However instead of directly contributing in the share capital, SGJHL and the assessee company reached an agreement wherein it was decided that SGJHL would provide loans, either directly or indirectly to other companies who in turn will invest in the equity share capital of the assessee company. 8.2. Accordingly, 4 special purpose vehicle (SPVs) were formed specially to hold 75% of the shares of the project company, i.e. Alex Ast....
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....id shareholders, PAN, ITR acknowledgements, bank statements of shareholder companies, name of the bank in which the amounts received were credited in the bank of assessee ; audited financial statements and bank statements together with confirmation from banks in respect of transactions of M/s SGJHL and EFJL. However, the learned AO was of the view that the companies who invested in the share capital of the assessee company exist only on papers and none of these companies were even operational or capable to do the business before making such huge investment in the form of share capital. But we find from the materials available on record that the assessee company, investing company SGJHL, EFJL and the aforesaid five shareholder companies have common directors or management to facilitate day to day activities of the companies and that the entire investment by way of equity contribution in the assessee company was funded by the group companies of SGJHL only and no other outside agency was involved in such equity funding. We find that the assessee had furnished the details of funds for each of the shareholder companies as under:- A. Alex Mercury Power Pvt. Ltd. During the year, Al....
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....d proved the source of SGJHL (i.e source of source) also in the instant case to the extent of Rs. 35,88,00,000/-. B. M/s. Shirdi Commodities Pvt. Ltd. During the year, M/s. Shirdi Commodities Pvt. Ltd made an equity investment of Rs. 12 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Year 2011-12 were enclosed. The amounts invested by this company in the assessee company is duly reflected in its balance sheet. The source of funds from which equity investment was made are as follows: - Loan from Easy Fit Jewellery Limited (EFJL) (Subsidiary of SGJHL) - Rs. 12,00,00,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. From the balance sheet of EFJL, we find that the own funds of the said company is Rs. 84,68,26,000/- i.e. 84.68 crores. This very clearly shows the high networth and the creditworthiness of EFJL to advance loans to M/s Shirdi Commodities Pvt Ltd. The company reported Gross Total Income of Rs. 48,75,807/- in t....
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..... The source of funds from which equity investment was made are as follows: - Loan from M/s K & R Associates - Rs. 32,35,91,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. From the balance sheet of K & R Associates, we find that the firm has given a loan of Rs. 40,13,91,000/- to M/s. Caravan Creation Pvt. Ltd out of unsecured loan received from its partner Kumud Parekh to the tune of Rs. 42,98,91,000/-. M/s. K & R Associates is a partnership firm, wherein Smt. Kumud Parekh (since deceased) and Smt. Ratna Parekh were partners. Late Kumud Parekh was the mother of Shri Nilesh Parekh and Smt Ratna Parekh is the wife of Shri Nilesh Parekh. Shri Nilesh Parekh is the Director of SGJHL. This partnership firm holds 100% shareholding in M/s Caravan Creation Pvt. Ltd. As such, M/s Caravan Creation Pvt. Ltd., is indirectly controlled and managed by Shri Nilesh Parekh, director of SGJHL. Hence we find that the assessee had proved the source of K & R Associates (i.e source of source) also in the instant case to the extent of Rs. 32,35,91,000/-. E. M....
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....ny and one of the pioneers in manufacturing of jewellery generating huge surplus and having sufficient cash flows. The company reported Gross Total Income of Rs. 4,07,79,517/- in the Income Tax Return filed for the year. Loan given to M/s Alex Energy Pvt Ltd is shown in the balance sheet of SGJHL. Hence we find that the assessee had proved the source of SGJHL (i.e source of source) also in the instant case to the extent of Rs. 12,00,00,000/-. 8.8. We find from the aforesaid documents and evidences available on record that the following facts emerge :- a) The five shareholder companies, SGJHL, EFJL, K & R Associates, Radiant Equity Management Pvt Ltd and Kumud Parekh are regular income tax assessees as is evident from their respective ITR acknowledgements. This proves the identity of all those parties. b) The aforesaid transactions are duly recorded in their respective books of accounts as is evident from their respective annual accounts and all the transactions are routed through regular banking channels by way of account payee cheques or the online transactions as the case may be. This clearly proves the genuineness of the transactions. c) The five sh....
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....scribing the history of SGJHL and background of their business along with the details of Easy Fit Jewellery Private Limited (herein after called as EFJPL) but has shown very little interest to substantiate the creditworthiness of alleged share capital credited in the books of accounts "of so called share applicant companies ". In this regard, we find that out of five, four of the share applicant companies were specially formed as SPVs for the purpose of making private investment in equity share capital. Hence, they were newly incorporated and as such were not having sufficient funds to invest in the equity share capital of the company. The fifth company, M/s Caravan Creation Pvt Limited is an NBFC company and an associate concern of SGJHL. As per the arrangement of funding entered into between SGJHL and the assessee company, SGJHL group met almost the entire equity fund requirement either directly or indirectly by advancing loans to the share applicant companies to enable them to make the required equity investment in the assessee company. 8.11. With regard to the contention of the ld AO that Shri Nilesh Parekh, director of SGJHL failed to appear in response to summons issued u/....
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....course of assessment proceedings and it could only be said that the same were not properly appreciated by the ld AO. 8.13. We also find from the summons issued u/s 131 of the Act to the director of the company to furnish the details of companies floated by him with certain specified individuals, details of his personal investments in shares of companies, details of amounts ploughed back in companies other than the assessee where he was a director, why and how SGFHL controls the assessee company and his personal income & expenditure account and balance sheet for the period 01.04.2009 to 31.03.2012. We are not able to persuade ourselves to understand as to what relevance these questions have got to understand the veracity and genuineness of share capital and share premium received by the assessee company from five share applicant companies, more so, in the light of various details already filed on record by the assessee before the ld AO. In our considered opinion, the answers to the aforesaid questions sought for by the ld AO would lead to no inference for determination of the issue under dispute before him viz the genuineness of share capital received from corporate shareholders.....
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....ecify as to what discreet enquiries he had made so as to conclude that the share subscriptions were in nature of accommodation entries. The ld AO also failed to explain as to why the tangible material & documents placed by the assessee was only sufficient to discharge onus on paper but not in reality. Undisputedly the ld AO is fully empowered in law to make discreet as well as indiscreet enquiries and investigate into the affairs of an assessee. However the ld AO is duty bound to confront the assessee with the enquiries made and information gathered and the principal of nature justice demands that the assessee should be allowed an opportunity to give its rebuttal and/or explain its case in light of the enquiries allegedly made by the ld AO. In the present case, we find that the ld AO merely stated that he had made "discreet enquiries" which led to him forming conclusion that the share application monies received during the year were in nature of accommodation entries. However the nature & findings of enquiries were unknown. The ld AO never confronted the assessee with the information borne out of the so called "discreet enquiries". In fact from the material on record, we f....
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....s. The transactions were carried through banking channels. Although the documents were submitted before the ld AO, no enquiry was conducted by the ld AO either from the Departmental records or from the bankers of the share subscribers. Hence it could be safely concluded that the adverse inference drawn by the ld AO was based on surmise & conjecture having no relation whatsoever with the facts of the case. 8.15. In view of our aforesaid findings in the peculiar facts and circumstances of the instant case, taking into consideration the totality of the facts discussed as above, it is well established that the assessee by producing necessary documents viz. detailed chart of inflow and outflow of funds, IT records, audited Balance Sheets, bank statement copy etc of self and all other parties involved., has sufficiently established the identity and creditworthiness of the share subscribers and the genuineness of the share transaction. As such, the addition made by the ld AO is sheerly based on surmises and wrong appreciation of the facts of the case. Hence we find that the ld CITA had rightly appreciated the contentions of the assessee, which in our considered opinion, does not requir....