AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2020 (1) TMI 161
X X X X Extracts X X X X
X X X X Extracts X X X X
....93,533/-.It therefore pleads that such addition amount of unexplained cash credits u/s 68 ought not have been held eligible for set off of loss under business head as per hon'ble Kerala high court's judgment in Commissioner of income Tax vs. Kerala Sponge Iron Ltd. (2017) 79 taxmann.com 350 (Ker). 3. The assessee's former grievance in its appeal ITA No.1187/Kol/2019 challenges correctness of both the lower authorities action treating its share capital sum of Rs.3.25 crores as unexplained cash credits. It is in this backdrop of facts that we proceed to examine this common issue of unexplained of assessee's share capital amounting to Rs.3.25 crores as unexplained cash credits. 4. There is no dispute about the impugned sum to have come from three parties M/s Celebration Vintrade Pvt. Ltd., M/s Nice Commotrade Pvt. Ltd., and M/s Samrat Rice Mill Pvt. Ltd., involving 21,50,000, 7,00,000 & 4,00,000 shares sold for Rs.2,15,00,000/-, Rs.7,00,000/- & Rs.4,00,000/-; respectively. We are taken to CIT(A)'s detailed discussion affirming Assessing Officer's action to this effect reading as under:- "4.2 Ground of appeal No. 2 to 5: These grounds relate to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubscription transactions on the facts of this case. Assessee does not know anything about the investor companies. Onus of the assessee of explaining nature and source of credit does not get discharged merely by filing confirmatory letters or demonstrating that the transactions are done through the banking channels or even by filing the income-tax assessment particulars. Therefore, addition in respect of the alleged share subscription received from the said two companies is upheld. 4.4 It is also worthwhile to refer to the judgment of the Hon'ble High Court in the case of CIT vs. Ruby Traders and Exporters Ltd. [134 Taxman 29 (cal)] wherein it was held that it is incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the Assessing officer to find out whether on these materials. It is for the Assessing officer to find out as to whether these materials, the assessee as able to establish the ingredients mentioned above. It is significant to note that the company, which is a private limited com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nto the company for conducting the legitimate business." A perusal of the Balance sheet and Profit & Loss account in the case of the assessee shows that the share application monies received by the assessee along with the premium are represented in the Balance sheet in the form of current assets being the unquoted equity shares in other such companies. That is the share application money received by the assessee is used for making further investments in other such similar shell companies from whom cash is taken and rerouted through cheques. These shell companies which are acquired by the interested third parties purchase these companies at a fractional amount of the value of the shares. That means a company whose share value is Rs. 10/-, the share is issued at a premium of Rs. 490/- total value of the share becomes Rs. 500/-. This contains first portion of the unaccounted cash brought in or converted through the accommodation entry. Now this 500 rupees shared is purchased by the third party or the interested person in taken over the company of the purpose of utilizing its capital. It may be two rupees or three rupees per share. Here the purchase price is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... These were subsequently transferred at face value or even at discount. This means that on transfer of shares the allotee did not receive any premium. This means that huge amount was received and paid as share premium with full knowledge that there will no recovery or there is no scope of recovery of share premium. This was designed facilitate the transfer of these companies to other persons on payment of nominal discounted value of shares. In other words the value embedded in the share premium, was meant to be transferred under hand, an prima facie it appears that transfer took place upon payment of under hand money. This is a classic case of money laundering and the share premium was being revived and paid to launder back money. This happens at the second lib i.e., when the directors change and company changes hand." Further, the observation of the Hon'ble ITAT Kolkata, in the case of Bishakha Sales Pvt., on non-compliance against summons u/s 131, may be reproduced as under:- ''This also clearly shows the revisionary tactics that are being adopted to wriggle way out of the corner it has put itself into by its own acts and commissions. A pecu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case, in some cases, the onus may be heavy whereas, in others, it may be nominal. There is nothing rigid about it." 4.7 It is also well settled law that onus of proving credits in its book of accounts lies squarely on the assessee and such proof consist 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 of the creditor is ne sufficient. This is the ratio in a large number of decision held by various courts in the following case including Shankar Industries Vs. CIT (1978) 114 ITR 689 (Cal); C. Kant & Co. Vs. CIT, (1980) 126 ITR 63 (Cal); Prakash Textile Agency Vs. CIT, (1980) 121 ITR 890 (Cal); Oriental wire Industries P. Ltd. Vs. CIT, (1981) 131 ITR 688 (Cal); CIT Vs. United Commercial & Industries Co. (P) Ltd., (1991) 187 ITR 596, 599 (Cal); M.A. UnneeriKutti Vs. CIT, (1992) 198 ITR 147,150....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ix. And the assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. Therefore, the additions made by the Assessing officer were justified and sustainable. 2. CIT vs. Nivun Builders & Developers (p) Ltd (350 ITR 407):- where Hori'ble High Court held that where assessee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. 3. CIT vs. Nova Promoters & Finlease (D) Ltd.(342 ITR 169):- Wherein Hon'ble Delhi High Court held that amount received by assessee from accommodation entry provider in garb of share application money, was to be added to its taxable income under section 68. 4. CIT vs. Ultra Modern Exports (D) Ltd. (220 taxman 165):- Where Hon'ble Delhi High Court held that where in order to ascertain genuineness of assessee's claim relating to receipt of share application money, Assessing officer sent notices to share applicants which returned unserved, however assessee still managed to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssee is engaged in the business of manufacturing Kraft paper. (ii)The appellant has claimed for allowing the set off of the impugned addition made on account of alleged ingenuine transactions(with the three sundry creditors) u/s 68 with the assessed business loss during the relevant financial years (iii) It is seen that the entire amount has been credited in the books of account of the assessee. Therefore, it can be implied that these receipts are in the nature of business receipts. This view is supported by the decision of the Honble Supreme Court in the case of Lakshmichand Baijnath vs. CIT 35 ITR 416 where sums found credited in the books of account of the assessee were treated as business profits Similar view has also been taken by Hon'ble Calcutta High Court in the case of CIT vs Margttret's Hope Tea Co. Ltd. 201 ITR 747 and Mansfield and Sons vs. CIT 48 ITR 254. The Hon'ble Calcutta High Court observed :- 7. A similar question came up before this court in I. T.Ref. No. 5 of 1984 (CIT vs. Hasimara Industries Ltd.), where tile judgement by this Bench was delivered 011 July 25, 1989. There, tile Bench, after, considering the decisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2014 amounting to Rs.7,00,000/- for M/s Nice Commotrade Pvt. Ltd. & dated 10.08.2010 pertaining to M/s Samrat Rice Mill Pvt. Ltd. of Rs.40,00,000/-; respectively. We make it clear that the Revenue is fair enough in not disputing the clinching factual aspects of addition of the corresponding fixed assets. Nor there is any evidence that the assessee's assets do not exist as per physical verification. We are of the view in this factual backdrop that both the lower authorities have erred in law and on facts in treating the above purchase of fixed assets followed payment by way of share capital subscription as an instance of unexplained cash credits u/s. 68 of the Act. This tribunal's co-ordinate bench's decision in Income Tax Officer Ward-5(3) vs. M/s Bhagwat Marcom Pvt. Ltd., in ITA No.2236/Kol/2017 decided on 31.07.2019 has taken into consideration the entire case law to conclude that such an instance not involving any cash credits pursuing cannot be treated as unexplained u/s 68 of the Act as under:- "4. The learned DR submitted that the share capital and share premium amount credited in the books of account of the assessee company represented cash credit u/s 68 and since t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....volved in these transactions, section 68 was not applicable as rightly held by the Ld. CIT(A) by relying on the decision of Hon'ble Calcutta High Court in the case of Jatia Investment Co. He contended that the ratio of the said decision of the Hon'ble jurisdictional High Court is squarely applicable to the facts of the present case and distinction sought to be made by the learned DR is not correct. He also invited our attention to the voluminous papers placed in the Paper Book and submitted that the same filed before the AO as well as before the Ld. CIT(A) were sufficient to establish the identity and capacity of the concerned share applicants as well as the genuineness of the relevant transactions. He contended that the AO completely overlooked this vital and relevant documentary evidence filed by the assessee while the Ld. CIT(A) considered and appreciated the same in the right perspective to arrive at the conclusion that the primary onus to establish the identity and capacity of the concerned share applicants as well as genuineness of the relevant transactions having been established by the assessee on evidence, addition made by the AO us 68 was not sustainable on merit ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es and there was no cash available with the NBFCs to repay the loans, the shares held by the three NBFCs were transferred to a partnership firm namely Jatia Investment Co., and the amount receivable against the said sale of shares was adjusted by the NBFCs against the loan amount payable to proprietary concern. The partnership firm of M/s. Jatia Investment Co. thus received shares from the three NBFCs and also took over the loans payable by the said NBFCs to the proprietary concern. These transactions were entered into in its books of account by the partnership firm through cash book by debiting the investment in shares and crediting the loan amount f the proprietary concern. This credit appearing in the books of account of the partnership firm, M/s. Jatia Investment Co. was treated by the AO as unexplained cash credit u/s 68 and on confirmation of the same, when the matter reached to the Hon'ble Calcutta High Court, it is held by their lordship that when the cash did not pass at any stage and since the respective parties did not receive cash nor did pay any cash, there was no real credit of cash in the cash book and the question of inclusion of the amount of the entry as unexp....