TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1224
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....torial area of Ghaziabad, Delhi and Noida. In response to the notice issued u/s 153A dated 26th July, 2017, the assessee filed its return of income on 11th August, 2017, declaring total income at Rs. 5,05,16,000/-. During the course of assessment proceedings, the AO noted that the assessee has issued 8% non-cumulative preferential shares of its companies to below mentioned companies at a premium of Rs. 90/- per share, the details of which are as under:- Subscriber Name Addition during the year Share Capital @ Rs. 10/- per share Share Premium @ Rs. 90/- per share Cindy Goods & Supply Pvt. Ltd. 14,50,00,000/- 1,45,00,000/- 13,05,00,000/- M/s Pabla Leasing & Finance Pvt. Ltd. 15,00,00,000/- 1,50,00,000/- 13,50,00,000/- 29,50,00,000/- 2,95,00,000/- 26,55,00,000/- 4. He, therefore, asked the assessee to furnish the details of share capital/share premium and source of investment. In response to the same, the assessee submitted copies of share certificates, copy of bank statements, income-tax return and audited balance sheet. It was submitted that all the share subscription money were received through banking channel only. The subscribers are available o....
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....ommodation entry operators to facilitate accommodation entry operators. Further, the Directors of these companies have admitted that they were involved in providing accommodation entries on commission basis to IITL Nimbus group of companies. 8. To verify the source of the investment of the above companies, the AO obtained information u/s 133(6) of the Act from the respective banks and noted that there are back to back transactions of same amount i.e., credit and debit of the same amount on the same dates/following dates with several other deposits and withdrawals. The AO, therefore, confronted the assessee and asked him to explain the identity and credit worthiness of the investor companies and genuineness of the transactions. Rejecting the various explanations given by the assessee and relying on the decision of the Hon'ble Supreme Court in the case of B. Kishore Kumar vs. DCIT, the AO made addition of Rs. 29,50,00,000/- to the total income of the assessee being the amount of share capital and share premium of Rs. 15 crore received from M/s Pabla Leasing & Finance Pvt. Ltd., and Rs. 14,50,00,000/- being the share capital and share premium received from M/s Cindy Goods & Supply P....
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....n and framing the impugned assessment order u/s 153A, is bad in law and against the facts and circumstances of the case and the same is not sustainable on various legal and factual grounds. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making aggregate addition of Rs. 29,50,00,000/- on account of non cumulative redeemable preference share capital/share premium by treating it as alleged unexplained transaction u/s 68 of the Act, more so when no incriminating material has been found as a result of search and impugned addition has been made by recording incorrect facts and findings and without providing the entire adverse material on record and without observing the principles of natural justice. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in aggregate making addition of Rs. 29,50,00,000/- on account of non cumulative redeemable preference share capital/share premium u/s 68 of the Act, is bad in law and against the facts and circumstances of the case. 5. That in any case and in any view of the matter, addition made in t....
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....ew of the matter, addition made in the impugned assessment order are beyond jurisdiction and illegal also for the reason that these could not have been made since no incriminating material has been found as a result of search. 6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not quashing the impugned assessment order passed by Ld. AO without obtaining the valid approval u/s 153D as per law. 7. That having regard to the facts and circumstances of the case, Ld.CIT(A) has erred in law and on facts in not reversing the action of Ld.AO in charging interest u/s 234A, 234B, 234C & 234D of Income Tax Act, 1961. 8. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other." 12. The ld. Counsel for the assessee, at the time of hearing, fairly conceded that grounds of appeal N. 1 and 2 by the assessee for both the assessment years challenging the validity of assessment u/s 153A of the Act in absence of any incriminating material is decided against the assessee by the decision of the Hon'ble Allahabad Hig....
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....f M/s Pabla Leasing & Finance Pvt. Ltd., which substantiates its identity. Referring to page 513 of the paper book, he drew the attention of Bench to the order passed u/s 144 of the Act in the case of M/s Pabla Leasing & Finance Pvt. Ltd., wherein the AO has determined the total income of the assessee at Rs. 47,59,260/- as against the returned income of Rs. 30,85,540/-. Referring to page 264 of the paper book, he drew the attention of the Bench to the notice issued by the AO u/s 133(6) to M/s Pabla Leasing & Finance Pvt. Ltd. Referring to page 265 to 334 of the paper book, he drew the attention of the Bench to the various documents filed by the said company before the AO substantiating the identity and credit worthiness of the investor company and the genuineness of the transaction. Referring to page 335 to 337 of the paper book, he drew the attention of the Bench to the statement of Shri Virendra Tripathy, Managing Director of M/s Pabla Leasing & Finance Pvt. Ltd., whose statement was recorded u/s 131 of the Act by the AO wherein he has admitted to have invested the amount in the assessee company. 15. So far as M/s Cindy Goods & Supply Pvt. Ltd., is concerned, the ld. Counsel f....
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....ment, Form 2 filed with the ROC, etc., to substantiate the identity and the credit worthiness of the investor company and genuineness of the transaction. Referring to paper book page 254, he submitted that Giri Financial Services (P) Ltd., is registered with RBI as a NBFC w.e.f. 16.02.2001. He submitted that in response to notice u/s 133(6), the director of the company Mr. Anshul Mittal had appeared and filed relevant document and he had confirmed to have invested in the assessee company. He submitted that in the A.Y. 2015-16, the AO, in the order passed u/s 153A/143(3) has accepted a sum of Rs. 11.34 crores towards share capital and share premium in the assessee company and no adverse view has been taken. Further, the investor company is showing continuous substantial income and, therefore, no addition is called for u/s 68 of the Act when the assessee has proved the three ingredients of section 68 of the IT Act, 1961. 17. So far as the addition made by the AO and continued by the CIT(A) are concerned, he submitted that it is the allegation of the lower authorities that these companies were used by different accommodation entry operators to facilitate accommodation entries in dif....
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....of the Bench to the copy of the assessment order passed u/s 143(3) in the case of M/s Pabla Leasing & Finance Pvt. Ltd., for A.Y. 2014-15 and submitted that the AO in the assessment order has considered the opening investment of Rs. 41.20 crores as on 01.04.2013 and Rs. 42.70 crores as on 31.03.2014 for the purpose of computation of disallowance u/s 14A. 19. So far as the allegation of the AO that Director of the assessee company was required to be produced for recording his statement and the allegation that no investor would invest crores of rupees in a non-listed company without any return and the recipient company even does not have the particulars/contact details of such investments and failed to justify the share premium by filing valuation report/documents, etc., is concerned, he submitted that the director of the investor company was not only produced, but his statement was recorded on oath wherein he has admitted to have invested in the share capital of the assessee company. This has also been admitted by the AO in the assessment order. Referring to the statement recorded by the AO, he submitted that not a single question was asked by the AO to the directors of the investo....
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....ential Share Capital) Rs. 11,34,00,000/- (Equity Share Capital) Accepted and no addition made 2. M/s Cindy Goods & Supply Pvt. Ltd. 164 of PB for AY 2013-14 Rs. 3,50,00,000/- Accepted and no addition made Rs. 14,50,00,000/- Rs. 2,75,00,000/- Accepted and no addition made 3. M/s Giri Financial Services Pvt. Ltd. (PB 255 of PB for AY 2014-15) - - Rs. 18,00,00,000/- Rs. 11,34,00,000/- accepted and no addition made Assessment status Assessed u/s 153A and no addition has been made Year under appeal Year under appeal Assessed and accepted in AY 2015-16 by order passed u/s 153A/143(3) (PB 503-506 of PB for AY 2013-14) 21. Referring to the decision of the Kolkata Bench of the Tribunal in the case M/s Baba Bhootnath Trade & Commerce Ltd. vs. ITO, vide ITA No.1494/Kol/2017, order dated 5th April, 2019, he submitted that under identical circumstances the ITAT has deleted the addition made by the AO u/s 68 and upheld by the CIT(A) after considering the decision of the Hon'ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. and various other decisions. 22. The ld. DR, on the other hand, heavily relied on the orders of the AO and CIT(A). He ....
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....inder, submitted that the various decisions relied on the ld. DR are distinguishable and not applicable to the facts of the present case. So far as the decision of the Hon'ble Supreme Court in the case of NRA Iron & Steel (P) Ltd. (supra) is concerned, he submitted that the said decision does not apply to the facts of the present case, since the said decision was an ex parte decision and the Hon'ble Supreme Court in the said decision at more than one place has held that the said decision is relevant only in the facts and circumstances of this case. In that case, the investors did not appear in response to the summons, whereas, in the present case, the directors of the investor companies have appeared in response to the notice u/s 133(6) and their statements were recorded wherein they have admitted to have invested in the assessee company. In the case of NRA Iron &Steel (supra), the field enquiries conducted by the AO revealed that notices were not served on such investor companies and none of the investors produced the bank statement to establish the source of funds in making such huge investment in shares and they were showing meager income in their return of income. However, in t....
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....29,50,00,000/- to the total income of the assessee being the amount of Rs. 14,50,00,000/- from M/s Cindy Goods & Supply Pvt. Ltd., and Rs. 15 crores from M/s Pabla Leasing & Finance Pvt. Ltd., on account of non-genuine share premium/share capital. Similarly for A.Y. 2014-15, the AO made an addition of Rs. 20,51,00,000/- being an amount of Rs. 2,51,00,000/- received from M/s Pabla Leasing & Finance Pvt. Ltd. and Rs. 18 crores from Giri Financial Services Pvt. Ltd. treating the same as non-genuine and by invoking the provisions of section 68 of the IT Act. We find the ld.CIT(A) upheld the addition so made by the AO. It is the submission of the ld. Counsel for the assessee that the assessee has filed the requisite details such as copy of the bank account, copy of the Income-tax returns, copy of confirmations, details of allotment of shares, etc. before the AO to substantiate the identity and credit worthiness of the investor companies and the genuineness of the transaction. It is also his submission that the directors of the investor companies were produced before the AO whose statements were recorded u/s 131 in which they have confirmed to have invested in the shares of the assessee ....
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....d by different accommodation entry operators to facilitate accommodation entries in different forms to various beneficiary groups is factually incorrect in view of the orders passed in case of these investor companies in preceding and subsequent years. 29. From a perusal of the assessment orders passed in the case of these investor companies, we find the AO in all those cases has considered the investments held by those companies for the purpose of computing the disallowance u/s 14A read with Rule 8D. In the orders passed u/s 143(3) in the case of those investor companies, the AO has considered the opening balance of investment and closing balance of investments to arrive at the equity investments for computing the disallowance u/s 14A r.w. Rule 8D. Therefore, when the AO of the investor companies was aware of the huge investments made by them and has considered the same for computing disallowance u/s 14A r.w. Rule 8D, we find merit in the arguments of the ld. Counsel for the assessee that the investments made by the investor companies are genuine. 30. Further, a perusal of the income declared by the investor companies shows except for A.Y. 2014-15 in the case of M/s Pabla Leasin....
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....that the investor companies have withdrawn money from companies where funds were invested earlier and they invested money in the assessee company in the shape of preference shares and, therefore, this prudent financial planning should not be viewed adversely and, rather, it supports the case of the assessee that there was source of funds invested by the investor company in the shares of the assessee company. We further find the various inferences/statements/materials which were the basis for the addition by the AO were never confronted to the assessee before being used by the AO against the assessee. 32. From the various details furnished by the assessee, we find the assessee, in the instant case, has discharged the onus cast on it by producing the directors of the investor companies whose statements were recorded and who have admitted to have invested in the assessee company. The directors have explained the source of such investment by producing relevant details such as bank statements, copy of the income-tax returns, audited accounts of the investor companies, etc. to substantiate the identity and credit worthiness of the loan creditor and genuineness of the loan transaction. F....
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....ind that the ld AO had observed that the share applicants did not have creditworthiness to make investment in assessee company. We find that the assessee company had received share capital and premium in the sum of Rs. 2,04,00,000/- during the year under consideration from 23 companies who had sufficient creditworthiness as under:- ............................................................................................... 6.2. From the aforesaid details, we find that in case of all the share applicants - a) The share application form and allotment letters are available. b) The share applicants are income tax assessees and had filed their income tax returns regularly. c) The investment in share application money were made out by account payee cheques. d) The bank accounts of the share applicants reveal that there were no deposits of cash before issue of cheques to the assessee company. e) The share applicants are having substantial creditworthiness in the form of free reserves and capital in their balance sheet. 6.3. As per the mandate of section 68 of the Act, the nature and source of credit in the books of the assessee company has been duly explained by the ass....
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....cheques to the appellant. For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:- "4. Mode of proof of entries in bankers' books Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise." Following the said provisions, the co-ordinate bench of Allahabad Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All-Trib) 191 held as under:- "The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record whi....
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.... account payee cheques, no doubt, prima facie, discharged the initial burden and those materials disclosed by the assessee prompted the Assessing Officer to enquire through the Inspector to verify the statements." 6.6. We find that the Hon'ble Jurisdictional High Court in yet another case of Crystal Networks (P) Ltd vs CIT reported in 353 ITR 171 (Cal) had held that when the basic evidences are on record, the mere failure of the creditor to appear before the Assessing Officer cannot be the basis to make addition. The relevant observations of the Hon'ble Court are as under:- .............................................................................................. The assessee's case before us stands on a much better footing in as much as the directors of share subscribing companies also appeared in person before the ld AO and offered themselves for examination after providing the requisite details that were called for by the ld AO. These facts are duly recorded in page 1 para 1 of the assessment order itself. 6.7. It is not in dispute that all the share applicant companies in the instant case before us are assessed to income tax. We find that the assessee ha....
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....thorities." 6.8. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in ITAT No. 241 of 2010 dated 10.1.2011 , while relying on the Hon'ble Supreme Court in the case of Lovely Exports reported in 216 CTR 295 (SC) , had held :- "On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT (A) ought to have held that the assessee had not established the genuineness of the transaction. " It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought Rs. 4, 00, 000/- and Rs. 20,00,000/- towards share capital and share premium respectively amounting to Rs. 24,00, 000/- from four shareholders being private limited companies. The Assessing Officer on his part called for the details from the assessee and also from the share applicants and analyzed the facts and ultimately observed certain abnormal features, which were mentioned in the assessment order. The Asse....
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....the fund. In our opinion, both the Commissioner of Income-tax (Appeals) and the Tribunal below were justified in holding that after disclosure of the full particulars indicated above, the initial onus of the assessee was shifted and it was the duty of the Assessing Officer to enquire whether those particulars were correct or not and if the Assessing Officer was of the view that the particulars supplied were insufficient to detect the real share applicants, to ask for further particulars. The Assessing Officer has not adopted either of the aforesaid courses but has simply blamed the assessee for not producing those share applicants. In our view, in the case before us so long the Assessing Officer was unable to arrive at a finding that the particulars given by the assessee were false, there was no scope of adding those money under section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere wi....
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.... applicants for making investment in share application monies of assessee company is also proved. By this, the creditworthiness of the share applicants is also proved beyond doubt. Third ingredient is genuineness of the transactions. We find that the five share applicants had paid the monies to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts, which are quite evident from the bank statements enclosed in the paper book. We agree with the arguments of the ld AR that the source of source of share applicants need not be proved by the assessee herein. We hold that the decision rendered by this tribunal in Subhalakshmi Vanijya relied upon by the ld DR was rendered in the context of validity of revision proceedings u/s 263 of the Act and not on the merits of the case. This tribunal in that case decided the validity of invoking revisionary jurisdiction u/s 263 of the Act by the ld CIT and whether adequate enquiries were made by the ld AO in the facts and circumstances of that case. This tribunal in Subhalakshmi Vanijya case supra never had an occasion to look into the merits of the addition proposed to be made towards share ca....
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....(vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. 29. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assessee has to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small ....
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....the assessment order to the following effect:- ''Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs. 1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs. 55,50,000/- and not Rs. 1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs. 55,50,000/-. The assessee has further tries to explain the source of this amount of Rs. 55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. Th....
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....tors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be present in the case of Nova Promoters & Finlease (P) Ltd. (supra) relied upon by the revenue. We are....
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.... had held as under:- ORDER Delay condoned. Leave granted. Heard learned counsel on both sides. We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside. The appeal is allowed accordingly. No order as to costs. In the instant case before us, the share subscribing companies are duly assessed to income tax. It is not in dispute that the share subscribing companies are in existence. It is not in dispute that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record . Hence it could be safely concluded that they are genuine shareholders and not bogus and fictitious. The directors of share subscribing companies also presented themselves before the ld AO in response to summons issued u/s 131 of the Act in the instant case. Accordingly, the ratio laid down by the Hon'ble Apex Court in the case of M/s Earthmetal Electricals P Ltd supra would be squarely applicable to the facts of the instant case. 6.13. We would like to add t....
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....se of Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 103 taxmann.com 48 (SC) wherein the decision on addition made towards cash credit was rendered in favour of the revenue. We have gone through the said judgement and we find in that case, the ld AO had made extensive enquiries and from that he had found that some of the investor companies were non-existent which is not the case before us. Certain investor companies did not produce their bank statements proving the source for making investments in assessee company which is not the case before us. Source of funds were never established by the investor companies in the case before the Hon'ble Apex Court, whereas in the instant case, the entire details of source of source were duly furnished by all the respective share subscribing companies before the ld AO in response to summons u/s 131 of the Act by complying with the personal appearance of directors. Hence the decision relied upon by the ld DR is factually distinguishable and does not advance the case of the revenue. 6.18. We also find that the Hon'ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.co....
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....e three ingredients of section 68 of the IT Act and moreover, such amount has been refunded to the investor companies in subsequent years which is much prior to the date of search. 35. So far as the decision relied on by the ld. DR in the case of NRA Iron & Steel (P) Ltd. (supra) is concerned, the same, in our opinion, is not applicable to the facts of the present case since, in that case, the investor did not appear in response to the summons, the AO got field enquiries conducted in respect of investor companies and notices were not served on such investor companies. None of the investors produced the bank statements to establish the source of funds in making such huge investments and investors were showing meager income in the return. However, in the instant case, the directors/MDs of the investor companies appeared before the AO in response to notice u/s 133(6) and their statements u/s 131 were recorded and they have confirmed to have invested in the shares of the assessee company. The investor companies have produced their bank statements and were showing substantial income and, moreover, the AO, in the preceding or succeeding year in the case of the investor companies have ac....