TaxTMI 
TaxTMI 
2020 (3) TMI 574
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....he disallowance made by the A.O. u/s 14A of the Act read with Rule 8D of the IT Rules, 1962. 5. The order passed by the ld. CIT(A) is in violation of principles of natural justice and bad in law. 6. The appellant craves leave to add, to amend alter or delete all or any of the foregoing grounds of appeal." 2. Rival contentions have been heard and record perused. Brief facts of the case are that a search & seizure action u/s.132(1) of the I.T. Act, 1961 was conducted in the Anand Rathi Group alongwith the other group concerns on 24/09/2013. During the course of search proceeding, it was noticed that the assessee had raised preference share capital of Rs. 2,60,000/- in the form of 26,000 redeemable preference shares bearing face value of Rs. 10/- each on which the assessee has shown to have received share premium of Rs. 19,50,000/- as on 31.03.2010. The assessee company issued preference shares to M/s. Ken Securities and M/s Nexus Software Ltd. AO observed that in A.Y.2010-11, 14 companies including the assessee company of Anand Rathi Group (hereinafter: (ARG') had raised the capital of Rs. 13,67,25,000/-. Therefore, 14 companies of ARG subscribed the shares with face value o....
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....ocuments, including PAN number and ITR acknowledgement and financial statements along with bank statement of subscribers, but when, it comes to genuineness of transactions and creditworthiness of the parties, except filing financial statements, no other evidences has been filed to prove that share capital received from subscribers is genuine in nature, which is supported by necessary evidences. The AO has also taken support from the findings recorded, during the course of survey and statement recorded from certain persons, including director and key employee of Anand Rathi Group to come to the conclusion that the assessee has entered into an arranged transactions with certain companies, in order to convert its own unaccounted income in the form of share capital, which is evident from the fact that the assessee has issued share capital with a huge premium of Rs. 30 to Rs. 72 per share, even though, the financial of those companies is not supporting such a huge valuation. Further, the AO has taken support from the statement of Director, during the course of search where, he had not explained share capital, including premium received for the year under consideration. 13. The provisi....
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....t best it could do and filed, whatever information available with it, in order to satisfy the AO. In case, the AO is not satisfied with documents furnished by the assessee, then he is free to carry out his own investigations by exercising powers conferred u/s 131 or u/s 133(6) of the I.T.Act, 1961. In this case, the AO, except issue of 133(6) notices nothing has been done to find out, the nature of transactions between the parties. Therefore, we are of the considered view that when, assessee has filed complete details to prove identity, genuineness of transactions and creditworthiness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium is unexplained only for the reason that during the search proceedings, the director of the company had admitted that he cannot explain reasons why blank forms are kept in his possession, ignoring the fact that such admission has been retracted by filing affidavit along with letter explaining reasons fro such admission during search proceedings. Further, additions made by the AO cannot be sustained even on this count because, the AO has relied upon statement of third paryies to make add....
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....on 68 by insertion of a proviso by the Finance At 2012 w.e.f. 01.04.2013 as per which the assessee company (not being a company in which public are substantially interested) and sums so credited consists of share application money, share capital , share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless the person being, a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and such explanation in the opinion of the AO aforesaid has been found to be satisfactory. On perusal of amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of section 56(2)(viib) and section 68 of the Act, it is very clear that where the assessee has issued shares at premium and also received share capital and if such company do not offer any explanation about the nature and source, then sum so received may be regarded as income of the assessee from undisclosed sources. In other words, the purpose of insertion of proviso is to examine the source of investment by subscriber to the share c....
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....n such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act,, 1961 neither suffers from any perversity nor gives rise to any substantial question of law." CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born- High Court) "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, w hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately re....
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....t the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was paid towards the share application money. The Tribunal thereafter relied upon the judgment of the Supreme Court in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned, The Tribunal has relied upon an order of the Supreme Court in case o f CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer." ACIT vs. Ven....
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....hands of persons who had invested" CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court) "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68- Revenue has all the power and wherewithal to trace any person-Moreover, it is settled law that the assessee need not to prove the 'source of source'- In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding that the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques." CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court) "In the present case also, the respondent assessee has received share application money from different sub scribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In some cases such replies were not received through posts. Rs. 9 lacs represented those assessees who denied having made any investment altogether. T....
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....s had not appeared before Assessing Officer or Commissioner (Appeals), it could not be concluded that purchases were not made by assessee - Held, Yes.... Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee" CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) "Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequen....
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....mplete set of documents, but the AO neither carried out any investigation nor issued notices u/s. 133(6) or summons u/s. 131(1) to examine the veracity of documents furnished by the assessee. Unless, the AO carried out further investigations to ascertain true nature of transactions, he cannot come to the conclusion merely on the basis of documents submitted by the assessee. Therefore, after considering relevant facts, the co-ordinate Bench came to the conclusion that decision rendered by Hon'ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (supra) has no application, where the AO has not carried out any inquiries. The relevant findings of the Tribunal re as under: "8. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had borrowed loans from the aforesaid loan creditors and had duly repaid the same in subsequent years by account payee cheques, for which evidences are already on record before us. It is also not in dispute that the assessee had paid interest on the aforesaid loans which had been allowed as a deduction by the lower authorities. We are unable to persuade ourselves as to how the intere....
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....Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing M/s Shree Laxmi Developers accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The as....
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....hat both the companies have filed financial statements for the year ending 31-03-2006. Therefore, we are of the considered view that the assessee has discharged its initial burden cast u/s 68 by filing identity, genuineness of transaction and creditworthiness of the parties. Once, the assessee has discharged its initial burden, the burden shifts to the AO to prove otherwise. In this case, the AO made addition only on the basis M/s Shree Laxmi Developers of information received from Investigation Wing, but not based on any evidence to disprove the loan transaction from above companies are ingenuine. Therefore, we are of the view that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act. 7. Coming to the case laws relied upon by the assessee, the assessee has relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (2017) 394 ITR 680 (Bom). We have gone through the case laws relied upon by the assessee in the light of the facts of the present case and find that the Hon'ble High Court categorically observed that the Proviso to section 68 has been inserted by the Financ....
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....tries Pvt Ltd in ITA No1433/Mum/2014 dated 5th July, 2017. The Hon'ble Bombay High Court, after considering relevant facts and also by following judgement in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 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 share i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would M/s Shree Laxmi Developers b....
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....CIT vs NRA Iron & Steel Pvt Ltd arising out of SLP(Civil) No. 29855 of 2018 dated 5.3.2019 in support of contentions of the revenue on the impugned issue. In this regard, we find that the facts before the Hon'ble Supreme Court are clearly distinguishable on the following grounds:- a) In Para 3.6. of the said judgement of Hon'ble Supreme Court, it was mentioned that the entire share capital had been received by the assessee through normal banking channels by account payee cheques / demand drafts, and produced documents such as income tax return acknowledgements to establish identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to section 68 of the Act, and that the onus on the Assessee Company stood fully discharged. b) In Para 3.7. of the said judgement of Hon'ble Supreme Court, it was mentioned that the AO had issued summons to the representatives of the investor companies. Despite the summons having been served, nobody appeared on behalf of any of the investor companies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies. c) In Para 3.8. of the said judgem....
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....case of the assessee herein, we find that there were no cash deposits in the bank accounts of the lenders prior to issuance of loan to the assessee company. In the case before the Hon'ble Supreme Court, the AO in that case had made field enquiries at Mumbai, Kolkata and Guwahati where those investor companies were stated to be situated to examine their identity and credentials and the result of such enquiry had been summarized hereinabove. Whereas in the instant case before us, no such enquiries were conducted by the ld AO to doubt the veracity of the details and evidences filed by the loan creditors in response to notice u/s 133(6) of the Act directly before him. In the instant case before us, all the notices u/s 133(6) of the Act were duly served on all the aforesaid loan creditors and all of them had independently filed their replies directly before the ld AO. The bank statements were also duly furnished by the loan creditors to prove that they had sufficient creditworthiness to advance loan to the assessee company and since all the transactions were routed through regular banking channels by account payee cheques and in view of the fact that there were no cash deposits prior to....
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....ase of CIT vs. Lovely Exports (P) Ltd (supra), where the issue has been thoroughly examined in the light of provisions of section 68 of the Act, and held that if the share application money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their assessment in accordance with law, but sum received from share holders cannot be regarded as undisclosed income of the assessee. 18. In this view of the matter and considering the facts and circumstances of this case and also taking into consideration various case laws as discussed hereinabove, we are of the considered view that the assessee has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the parties by filing various documents. The AO, without carrying out further inquiries in order to ascertain the claim of the assessee, jumped into conclusion on the basis of financial statements of the subscribers that none of them had enough source of income to establish creditworthiness. Therefore, we are of the view that the AO was erred in making additions towards share capital u/s 68 of the In....
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....as specifically asked the Ld. DR about incriminating material, the Ld. DR failed to prove that the additions made by the AO towards disallowances of expenditure is supported by any incriminating material. Therefore, we are of the considered view that in absence of any incriminating material found as a result of search, no additions could be made in the assessment framed u/s 153A of the I.T.Act, 1961. This legal proposition is supported by the decision of Hon'ble jurisdictional Bombay High Court in the case of CIT vs Continental warehousing corporation (Nhava Sheva Ltd. (2015) 374 ITR 645, where the Hon'ble High Court clearly held that in absence of incriminating material no additions could be made, in respect of assessment which become final and no proceedings is pending, as on the date of search. Therefore, we are of the considered view that the AO was erred in making additions towards disallowances of expenditure, in relation to exempt income u/s 14A r.w.Rule 8D(2), in absence of seized materials. The Ld. CIT(A) without appreciating the facts simply upheld the additions made by the AO. Therefore, we reverse the findings of Ld.CIT(A) and delete additions made by the AO towards d....