TaxTMI 
TaxTMI 
2019 (12) TMI 573
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....hat the assessee claimed an expenditure of Rs. 21,800/- as preliminary expenses written off which is not an allowable deduction u/s.35D of the Act. Subsequently notices u/s.143(2) & 142(1) of the Act were issued. Thereafter the AO framed assessment u/s.147/143(3) of the Act assessing the total income at Rs. 18,738/-. Subsequently, the CIT invoking powers u/s.263 of the Act set aside the order passed by the AO u/s.147/143(3) of the Act for denovo assessment holding that the order passed by the AO is erroneous and prejudicial to the interest of revenue lacking complete enquiry. Accordingly, on the direction of CIT, the AO issued notice to the assessee to produce all evidences as to why the transactions with the said parties (shareholders) should not be treated as bogus and share application money received by the assessee should not be treated as unaccounted money converted in the form of share capital and undisclosed income. Accordingly, the AO made addition of Rs. 13,95,18,738/- as unexplained cash credit and passed order u/s.143(3)/147 r.w.s263 of the Act, dated 28.03.2014. 3. Feeling aggrieved from the order of AO, the assessee appealed before the CIT(A) and the CIT(A) after co....
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....ness of the transactions. In view of this and respectfully following the judgements of the Apex Court, various High Courts as well as the jurisdictional High Court including the Tribunals of several Benches, the AO, therefore, was not within his jurisdiction in treating such share capital and share premium as unaccounted cash credit of the appellant-company and adding the same u/s the Act. Therefore, addition made on this score is directed to be deleted and this ground of appeal is allowed. " Case of the A.O at page 6 of the assessment order According to the A.O in view of specific direction of the CIT in order u/s 263, notices u/s. 131 were issue and sent to share holders asking them to personally appear to verify their identity and creditworthiness and genuineness of the transaction. In response to above non-appeared. Further, show cause letters were issued to assessee company to produce all the share holders with evidence otherwise the transaction with the share holders will be treated as bogus and share application money should be treated as undisclosed income. The A.O has also directed the assessee in the said show cause to produce managing director ....
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....t order was passed on 28.03.2014. There is no allegation as to non-service of summons u/s 131 issued by the A.O. on 21.03.2014 on the respective share holder either in the order sheet or in the impugned assessment order. On consideration of peculiar facts available on record the Ld. CIT(A) has deleted the addition by holding that the onus casted upon by Section 68 stands discharged. The Apex Court had an occasion to consider a case where the assessee has discharged its onus by providing names and addresses of the creditors along with their income tax file numbers. On the basis of the information supplied the Assessing Officer issued notices u/s 131 and thereafter did not pursue the matter any further. On this factual matrix the Hon'ble Supreme Court has been pleased to delete the addition by holding - "In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assessees. Their Index No. were in the file of the Revenue. The Revenue, apart from issuing notices u/s 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not ex....
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....143(3) and 147/143(3)/263] which can be requisitioned. The share subscriber of the appellant company have also submitted compliances to DDIT(Inv.), Kolkata in February, 2016. The appellant carve leave to produce the compliances so made by the subscribing company before the DDIT(Inv.), Kolkata. On the basis of evidence already on record it is established beyond all reasonable doubt that the appellant has discharged its onus of proving identity, genuineness of transaction and creditworthiness in respect of the share application / capital including premium and hence the finding of the A.O. that identity, genuineness of transaction and/or creditworthiness could not be verified is contrary to the evidences / material already on record. It is respectfully submitted that the case of the appellant is squarely covered by the judgment of the jurisdictional High Court in the case reported in 154 ITR 244 (Pat) -ACIT Vs Bahri Brothers wherein their lordships have held as under : "In the instant case, the transaction were completed through account payee cheque. The creditors gave the amount in question to the assessee by account payee cheque which were encashed by the ....
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....suing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment. The Tribunal reversed this decision for reasons which we need not go into. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. In our opinion, no question of law arises and the petition is, therefore, dismissed. " Further, the view taken by the Hon'ble Delhi High Court, as aforesaid, ....
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.... i.e., M/s. Creative Financial Services Pvt. Ltd. ; M/s. Rahul Finlease P. Ltd. ; M/s. Shri Niwas Leasing Finance Ltd. ; M/s. Meghdoot Express P. Ltd. and M/s. Niti Housing Development and Finance Corporation Ltd. 3. The Assessing Officer (AO) was of the opinion that such large amounts of share application money need to be probed further and, therefore, required the assessee to furnish particulars, which it did. 4. The assessee, inter alia, provided details relating to the share application money provided by each of the entities confirmation letters ; board resolutions from each company ; PAN card details ; copies of the memorandum and articles of association ; Forms 18 and 32 and audited financial statements for the years 2004, 2005 and 2006 ; copies of pay orders which were used for the share application money. In addition, the affidavits of the directors and share investors were also furnished. 5. The Assessing Officer was not satisfied with the materials furnished and held that the assessee had not discharged the onus/burden of proving the genuineness of the identity of the applicants, the genuineness of the transactions or the credi....
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....2] 18 taxmann.com 217 wherein the court has observed that cases of this type cannot be decided only on the basis of documentary evidences above and there is need to take into account the surrounding circumstances ? Verdict of the court 5. The Assessing Officer added Rs. 95 lakhs as income under section 68 of the Income-tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6. The Tribunal has considered that the assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, ....
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....subscribing the share capital. A chart summarizing the source from where the subscribing companies have received the fund was also submitted. Copy of the chart along with bank statement of the companies from whom the subscribing companies have received the funds is enclosed at page 33 to 68 of PB. As submitted elsewhere in this submission, there is no cash deposit in the bank account of investor companies prior to subscribing the fund towards share capital. It would be evident from perusal of the bank statement of the companies from whom the subscribing company has received the fund that there is no cash deposit in the bank account of such companies as well. Thus the appellant has not only been able to explain the source of deposit in its bank account but has also established the source of the source i.e. availability of fund in the hands of the investor companies. The Ld. CIT(A) has recorded a categorical finding at page 34 para 4.48 which reads "in absence of such categorical or circumstantial finding on record, any action in bringing this amount to tax would fall in the category of conjuncture, suspicion and surmises which has not found favour of the Apex Court, various....
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....ove identity, genuineness and creditworthiness of the share applicants has been given by the Tribunal ? (Hi) Whether the order passed by the Tribunal is perverse and contrary to the specific findings recorded by the Commissioner of Income-tax (Appeals) as well as the Assessing Officer and the asses see's own statements recorded during survey ? (iv) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law ? " Verdict of Court 10. Taking into consideration the observations made by the twin decisions as observed by the Tribunal that all the share applicants stand identified. The assessee has provided permanent account numbers of the share applicants. The mode of payment has also been explained. There is no direct or indirect relation between the assessee-company and the share applicants. The statements recorded during survey has got no evidentiary value without any supporting documents or evidence. Further, the A.O. has not treated the bank account of investing company as benami bank account of the appellant and hence, the addition in the hands of....
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....urns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90,00,000 to Rs. 95,00,000 in the Assessment Year 2009-10, for purchase of shares at such a high premium. For example: Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income of Rs. 9,744/-for A. Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. - Kolkatta filed a NIL return, but had purchased Shares worth Rs. 95,00,000 in the Assessee Company - Respondent. Another example is of Ganga Builders Ltd. - Kolkatta which had filed a return for Rs. 5,850 but invested in shares to the tune of Rs. 90,00,000 in the Assessee Company -Respondent, etc. iii.There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share. iv.Further more, none of the so-called investor companies established the source of funds from which the high share premium was invested. ....
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....uestions involved in the case in which it is rendered and, while applying the decision to a later case, the Court must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning." Thus with due respect and reverence to the Apex Court it is humbly submitted that the above said judgment is starkly distinguishable on facts and hence will not come to the rescue of the revenue. The Kolkata bench of ITAT had an occasion to consider the above said judgment of the Supreme Court i.e. NRA Iron & Steel Pvt. Ltd. in one of its order dated 05.04.2019 (copy placed at pages 69 to 81 of PB) wherein at para 6.17, the Hon'ble Tribunal has found the said judgment to be not-applicable on the facts of the case before them and has accordingly deleted the addition. The relevant portion in this regard is quoted below :- Para-6.17 "We have gone through the said judgment and we find in that case, the Ld. AO has made extensive enquiries and from that he had found that some of the in....
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.... It is, therefore, requested that your honour would be kind enough to dismiss the departmental appeal. To support his contentions, ld. AR relied on the decision of coordinate bench of the Tribunal in the case of M/s Baba Bhootnath Trade & Commerce Ltd., ITA No.1494/Kol/2017, order dated 05.04.2019. 6. On the other hand, ld. DR supported the order of the AO and submitted that as per the direction by CIT, notices under section 131 were issued and sent to shareholders asking them to personally appear before the AO to verify the identity and creditworthiness of the shareholders and genuineness of the transaction made by them in the assessee company. However, the assessee could not prove the identity and creditworthiness of the shareholders and genuineness of the transaction. Even the assessee could not produce subscribers in response to the aforesaid show cause letter. Apart from this, ld. DR also submitted the CIT(A) has erred in deleting the disallowance made on account of share capital and share premium amounting to Rs. 13,95,00,000/-observing that the AO neither spelt out the dissatisfaction about the compliance of the requirements of section 68 nor brought out any cogent mat....
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....to the floating company, no any dividends have been distributed by the assessee company. It is well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC) that the true nature of transactions has to be ascertained in the light of surrounding circumstances. It needs to be emphasized that stand of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstances to find out that the reality of the transaction by applying the test of human probability. This was the principle laid down by the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540(SC). It is also well settled law that onus of proving credits in its book of accounts lies squarely on the assessee and such proof consists of proving the identity of the subscriber or creditor, capacity of such creditor or subscriber to make payment and also to prove the genuineness of the transaction. It is only when the assessee discharges this primary onus, that onus shifts to the department. Merely establishing the identity ....
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....Metcalfe Street, 2nd Floor, Room No. 206, Kolkata 420/- 10. Kuber Residency (P) Ltd.,C/o B.K. Chatterjee & Compnay, Old Court House Street, 2nd Floor, B.B.D Bag, Kolkata 676/- 11. Kasturi Home (P) Ltd. ,85 Metcalfe Street, 2nd Floor, Room No. 206, Kolkata 211/- 12. Puspak Commercial (P) Ltd., 2nd Floor, Saklat Place, Chandni Chowk, Kolkata Nil 13. Charms Suppliers Pvt. Ltd. 4th Floor, Anjali Apartment, R.B.C. Road, Dumdum, Kolkata 36,240/- 14. Adishwar Trade Link(P) Ltd., 6th Floor, P-41, Princep Street, Chandni Chowk, Kolkata- PIN-700072 36,310/- From the above share applicants companies it is clear that they have meagre income or nil income. While going through the bank statements submitted by the assessee for a small period, which have been placed on record, we find that huge transactions have been made and the amount i.e. more or less have been withdrawn on the same day. The ld. AR of the assessee also unable to satisfy that the share applicant companies have genuineness business activities. However, before us, ld. AR could not submit any financial statements to substantiate the creditworthiness of the share applicants. Our abo....
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....the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. 8.3 With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. The Delhi High Court in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 9 taxmann.com 179/198 Taxman 247/333 ITR 119, held that : "The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise." It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. In Shankar Ghosh v. ITO [1985] 13 ITD 440 (Cal.), the assessee fa....
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....e- tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.' (emphasis supplied) iii. The Delhi High Court in a recent judgment delivered in PR.CIT v. NDR Promoters (P.) Ltd. [2019] 102 taxmann.com 182/410 ITR 379 upheld the additions made ....
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....ssee was examined in the context of Section 68 are Lovely Exposes (P.) Ltd. Divine Leasing & Financing Ltd. (supra), and CIT v. Value Capital Service (P.) Ltd. [2008] 307 ITR 334 (Delhi) 11. The principles which emerge where sums of money are credited as Share Capital/Premium are i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 12. ....
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....ion 68 of the Act. 13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company - Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assessee Company -Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful ....