TaxTMI 
TaxTMI 
2020 (1) TMI 782
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....ash credits u/s. 68 of the Act learned CIT-DR submitted in support of the impugned addition that it has failed to prove identity, genuineness and creditworthiness of its investor parties. His further case is that the assessee had also not put in appearance before the CIT(A) as well despite having been afforded adequate opportunities of hearing which culminated in the impugned addition affirmed vide lower appellate order passed ex parte as under:- "III. Decision: In this appeal the assessee has raised a number of grounds. However, the main issue is regarding the addition made by the AO on account of unexplained fresh share capital along with premium received by the assessee during the previous year of Rs. 21,00,00,000/-. The appellant company filed its return of income for the impugned assessment year on 21.12.2012 declaring total income of Rs. 0/-. The directors of the appellant company and the directors of the companies who had subscribed to the shares of the appellant were not produced before the AO. The appellant failed to establish the genuineness of the share capital and premium received during the previous year. The AO passed order u/s. 143(3) wherein he mad....
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....of Lovely Exports (supra) & Steller Investment (supra) the order under Section 263 directing further investigation is legal? (b) Is the finding of the Commissioner of Income Tax that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo motu perverse? (c) Whether the order passed by the assessing officer under Section 143(3)/147 of the Income Tax Act is erroneous and also prejudicial to the interest of the revenue? (d) Whether the impugned judgement of the learned Tribunal is perverse? [22] We shall consider the second question first. In a commentary on the Prevention of Money Laundering Act, 2002 by Dr. M. C. Mehanathan published by Lexis Nexis, 2014, the steps of money laundering are described as follows:- "STEPS OF MONEY-LAUNDERING Although money-laundering often involves a complex series of transactions, it generally includes the following three basic steps: 1. Placement it involves introduction of the proceeds of crime into the financial system. This is a....
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....etween the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled through special anti-money-laundering laws. " - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - ------------------------------------------------ (24) From the aforesaid evidence the following, prima facie, inferences can safely be drawn.- (a)The promoter/directors of the assessee and their close relatives and friends had united with the common object of creating at least 20 (19+1) companies apparently having a large capital base, but, in fact these are mere paper companies having no real worth. The transaction of sale and purchase of shares was nominal rather than real. (b)The allegation, in response to the notice to show-cause u/s. 263 that "it bears importance to state here that the investor companies of shares were interested to subscribe shares of the assessee company as, according to them, the assessee company had prospect in future", is a plain lie. (c) The blank share application forms etc. tabulated above go to show that the alleged application for shares and the alleged allotment were not in ....
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....t. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." In the case of Sumati Dayal-Vs- CIT reported in (1995) 214 ITR 801 (SC) Their Lordships held that a capital receipt can become taxable if the explanation offered by the assessee about the nature and source thereof is not satisfactorily explained. The judgement in the case of CIT -Vs- Lovely Exports Pvt. Ltd.. reported in (2008) 299 ITR 268 lends no assistance to the assessee because in that case the Division Bench reiterated that omission to make an enquiry, where such an exercise is provoked, shall render the order of the....
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....fficer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself - - - - - - - - - - - - - - - - - - - - - - - ----------------------------------- [28] We find no substance in the submission that the order of the learned Tribunal is perverse, after examining all the submissions advanced by Mr. Poddar. [29] Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of &.1.36 crores raised nearly a sum ofRs. 32 crores on account of premium and chose not to go in for i....
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....er investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. The judgement in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspicion held that this was or could be a case of money laundering. We as a matter of fact have discussed this issue in great detail and need not reiterate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the assessing officer. It is true that the assessing officer had requisitioned the necessary details by his notice u/s.142 (1) but he thereafter did not apply his mind thereto. The judgement in the case of J. L. Morrison (India) Ltd. has no manner of applicati....
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....genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case. The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved. 12. These being companies, which are registered with ROC, are artificial individual persons and hence, their identity has been proved Coming to the creditworthiness of the creditor, the examin....
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....turn endorses this cheque to the fourth company towards consideration of allotment of shares at a huge premium by the fourth company. The fourth company in turn endorses this cheque to the first company as consideration for the allotment of shares at a huge premium by the first company to the fourth company. By this process the circuitous route of round tripping is completed. Through this process all the four companies have huge share capital and reserves and corresponding asset by way of investments in shares of the other group companies. We come to understand the modus Operandi is to sell these companies having huge share capital and investments, to persons who have unaccounted money, by transfer of the shares at a nominal amount. The shares in these companies are sold at a ridiculously low value and consequently the management and control of this company is transferred. The purchasers of shares of the companies thereafter show bogus sale of the investments held by such company to third parties through a chain of transactions. by way of layering and bring in their unaccounted money into that company. 14.1. Such practices have to be depreciated. In such cases the assessee....
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....he accepted methods to determine premium chargeable on share capital. Certain other methods have also been prescribed. Premium cannot be charged as per the whims and fancies of the company. In cases where explanation or justification of the valuation of shares is given. to explain the basis on which share premium has been fixed, then no addition can be made as the genuineness of the transaction can be held as explained. In this case no explanation whatsoever has been given. Under these circumstances we are of the considered opinion that the assessee has not discharged the burden that lay on it in proving the genuineness of the cash credits. We also find that the AO was right in holding that the assessee has not proved the creditworthiness of the share holder companies. The balance sheets. income tax assessments etc. show that the resources of these companies are limited. We now discuss the case law on the subject. 28. In the case of Nova Promoters and Finlease (P) Ltd. the Hon'ble Delhi High Court at para 18 and 19 held as follows: "18. In the course of the assessment proceedings. the assessee had adduced documentary evidence in an attempt to prove al....
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....urt should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be "In the same case Lord Radcliffe expressed himself in the following words: "If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come 10 the determination under appeal. In those circumstances, too, the court must intervene. "Reference was also made 10 the observations of Bhagwati, J. (speaking for the majority) in the case of Mehia Partkh & Co. v. CIT (1956)30 ITR 181 (SC), which are as under:- "It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact-findi....
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....e monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 29. At para 41 he further held as follows ;- "41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so- called "share subscription monies" to the assessee. There was thus specific involvement of the assessee-company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P) Lld (supra)." 30. The case on hand the assessee company has links with the entry operator of Shri S.K. Jain. This is evident from the details filed by the assessee company in the form of assessment orders of the companies which have made share a....
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....arties approached each other, whether the transaction was entered into through written documents to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient the object and purpose for which payment was made etc. These fact are primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Thus, mere reliance on neutral documentary evidence cannot always be regarded a satisfactory discharge of onus. 12. Investment decisions, that too of investing in share capital at a premium in a private limited company, in the normal circumstances, unless there are other peculiar or personal reasons, entails due diligence by both the share applicant and the recipient company. This implies inquiry and verification by the persons behind the artificial entity. There have been a spate of cases where private limited companies have purportedly received share application money from unconcerned, unrelated parties without securing adequate protection of their investment and with other surrounding circumstances clearly indicative of racket or a seam. We reproduce a portion t....
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....e case referred above and the surrounding facts and circumstances considered by it are applicable to the facts and circumstances of the assessee company. On a careful consideration of the documents filed by the assessee and the explanations given by it, and without reference to evidences in the form of statement recorded from Shri S. K. Jain or the material seized by the investigation wing to the extent used against the assessee, we hold that the assessee has not discharged the burden of proof that lay out on it, to prove the genuineness of these cash credits as well as the creditworthiness of the share applicant companies. In view of the above discussions, the addition made by the AO u/s 68 of the Act is upheld and the order of the Ld. C1T(A) is vacated. 33. In the result we set aside the order of the Ld. CIT(A) and restore the order of the AO The appeals of the revenue are allowed." 15. Respectfully applying the propositions of law laid down by the co-ordinate bench of the Tribunal to the facts of the case, we find that Section 68 of the Act applies to the facts of this case as a sum of money was credited, in the books of the assessee and the assessee could not ....