TaxTMI 
TaxTMI 
2020 (6) TMI 133
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....und to be bogus. Further, all the share applicants are assessed to income tax and the entire share application money was received through proper banking channels. Thus, addition made by Ld. AO and confirmed by Ld. CIT(A) is unjustified and needs to be deleted." 3. Facts in brief is that the assessee vide its return of income for the AY 2012-13 on 07.09.2012 showing an income of Rs. 2,18,95,330/-. Later the case was selected for scrutiny and after issue of statutory notice, the AO notes that the assessee had introduced Rs. 16 crores as share application money into the company from two (2) Private Limited companies (i) M/s. Set Square Holding Pvt. Ltd. (M/s. SSHPL) total amount received Rs. 5 cr. and (ii) M/s. Highlight Goods Pvt. Ltd. (M/s. Highlight) Rs. 11 cr.[Total Rs. 16 cr] The AO was of the opinion that the assessee had introduced its undisclosed income in the guise of share application money into its own company. So, he issued notice to the assessee and conveyed to them that he wants to meet the directors of the share applicant companies and also wanted to examine/cross examine (in order to find out the genuineness of the transaction). However, the AO notes that in response....
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.... the investor group companies have enough creditworthiness to invest in the assessee company and drew our attention to the fact that M/s. SSHPL has capital with free reserve and surplus of Rs. 48,89,59,014/- as on 31.03.2012 and M/s. Highlight has paid up capital with free reserve and surplus of Rs. 16,69,60,353/- as on 31.03.2012. And according to Ld. AR, the entire payment has been made through banking channel and, therefore, the transactions are genuine. It was also brought to our notice that no cash was deposited before the transfer of the amounts to the assessee companies and drew our attention to the balance sheet to show that the free reserve and capital are coming from the earlier years onwards. According to the Ld. AR, M/s. SSHPL has been incorporated on 09.02.1987 [AY 1987-88] and M/s. Highlight on 21.07.2008 [AY 2009-10] and both of them have CIN and separate PAN and are regular income tax assessees and M/s. SSHPL is under the jurisdiction of ITO, Ward-5(4), Kolkata and M/s. Highlight is under the jurisdiction of ITO, Ward-1(1), Kolkata. Therefore, in the light of the aforesaid facts and since the investor company's directors are also the assessee company's directors and....
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.... documents to prove their creditworthiness, the AO made the addition which has been rightly confirmed by the Ld. CIT(A) which decision should not be interfered with by this Tribunal. 6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO has taken note that the assessee company had filed the return of income showing an income of Rs. 2.18 cr. for the AY under consideration i.e. AY 2012-13. We note that the assessee company was incorporated on 19.08.2004 (AY 2005-06) for manufacture of iron and steel. The audited financials of the assessee company are found placed in the paper book from pages 72 to 94. On perusal of the balance sheet of the assessee company it reveals that as on 31.03.2011 (earlier AY 2011-12) the assessee had a share capital of Rs. 6,72,20,000/- and reserve and surplus of Rs. 30,45,14,918/- thus a total shareholders' fund comes to Rs. 37,17,34,918/-; and this year the share capital and reserve and surplus as on 31.03.2012 has raised to Rs. 55,45,48,441/-. The assessee company's receipt from operations less excise duty as on 31.03.2011 (earlier year) is Rs. 81,17,45,076/- and revenue from operations net is Rs....
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.... the relationship can be seen/explained by the chart infra which is as under: Name of the share applicant Name of director Relation Set Square Holdings Pvt. Ltd. a) Pawapuri Mercantiles Pvt. Ltd. (page No. 42 of paper book) b) Liska Trading Pvt. Ltd. c) Almal Financiers & Consultants Pvt. Ltd. d) Benzmark Credit Capital Pvt. Ltd. Shareholder of the assessee company (page no. 81 of paper book) Shareholder of the assessee company (page no. 81 of paper book) Rahul Agarwal is a common director Shareholder of the assessee company (page no. 81 of paper book) Gopal Kumar Agarwal (Father of Rahul Agarwal) is a Director Highlight Goods Pvt. Ltd. e) Energy Marketing Pvt. Ltd. f) Indu Dalmia Manish Dalmia (cousin brother of Rajiv Dalmia) is a director Wife of Rajiv Dalmia (director of assessee company) 10. With the aid of the aforesaid charts, the Ld. AR of the assessee pointed out to us that all the share applicants/directors belong to the same family and also they function as a group concerns and, therefore, the entire money received by the assessee company is from its own group companies and individuals who are relatives only. 11. In order to show the creditworthiness o....
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....before ITO Ward 5(4), Kolkata and was having PAN AADCS4693P. This company was having a paid up capital with free reserves and surplus of Rs. 48,89,51,014/- as on 31/03/2012. The copy of the bank statement of the Company is duly available in the paper book. The details of source of funds from which this company had made the share application are also shown in documents filed in the paper book. 15. In respect of the shareholder M/s. Highlight Goods Pvt. Ltd., we find that the relevant documents are placed at pages 1- 35A of the paper book wherein it can be seen that this company invested a sum of Rs. 11,00,00,000/- in the assessee company. The share application was made by account payee cheque. This company was incorporated on 21.07.2008 and was having company identification number U51101WB2008PTC127695. This company duly filed its return of income before ITO Ward 1(1), Kolkata and was having PAN AACCH1378M. This company was having a paid up capital with free reserves and surplus of Rs. 16,69,60,353/- as on 31/03/2012. The copy of the bank statement of the Company is duly available in the paper book. The details of source of funds from which this company had made the share applicati....
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.... him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. " The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ITR 570. We note that against the said decision of Hon'ble Gujarat High Court the special leave petition filed by the Revenue has also been dismissed by the Hon'ble Apex Court. 19. The main plank on which the A....
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....0. Our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd dated 2 December, 2013 in INCOME TAX APPEAL NO.52 OF 2001 wherein the Court held as follows: "The Assessing Officer was of the view that the increase in share capital by Rs. 52,03,500/- was nothing but the introduction of the assessee's own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong. The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of Rs. 52, 03,500/- to the income of the assessee company during the As....
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....on Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction. The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment. By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of Rs. 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the vie....
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....her 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 with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law. 22. Our attention was also drawn to the decision of the Hon'ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this s....
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....t in the case of Cl. T. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 24. In the light of the aforesaid decisions of the Hon'ble Apex and jurisdictional High court, let us examine the present case in hand. We will examine each share subscribers totalling two (2). The Ld. AR took pains to bring out the relevant facts in respect of each share subscribers which will throw light as to the identity, creditworthiness and genuineness of the share subscribers. We note from pages 36 to 62A of the paper book wherein the details of M/s. Set Square Holding Pvt. Ltd. are furnished. This company invested a sum of Rs. 5,00,00,000/- in the assessee company. The share application was made by account payee cheque. This company was incorporated on 09.02.1987 and was having company identification number UO 1134WB1987PTCQ41856. This company duly has filed its return of income before ITO Ward 5(4), Kolkata and was having PAN AADCS4693P.....
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....pplication are also shown in documents filed in the paper book. And it is a group entity with common share holders who all are income tax assessee's and their details are with the department and discussed in detail supra. 26. From the details as aforesaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee's, (ii) they are filing their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above.(viii) And all the directors and share holders are relatives and regular income tax assessee's (ix) Both companies are group entities having common relatives are share holders. (x) Cannot be termed as jamma karchi companies 27. As noted from the judicial pre....
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....in response to the notice u/s 133(6) of the Act and have also confirmed the payments which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. 28. We also note that recently the ITAT Kolkata in several cases has deleted the addition on account of share application in similar circumstances. The relevant portion of the decisions are as follows: (a) The Ld ITAT Kolkata. in DC IT Vs Global Mercantiles Pvt.Ltd in ITA No. 1669/Kol/2009 dated 13-01-2016. In this the decision the Ld. Tribunal held as follows: "3.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much m....
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....he earlier year which were kept in share application money account. During the asst year under appeal, the assessee allotted shares to these 20 individuals out of transferring the monies from share application money account to share capital account. The details of 20 individuals are reflected in page 6 & 7 of the Learned CIT(A) order. The Learned AO asked the assessee to produce the shareholders before him. He found that the assessee did not do so but furnished copies of pay orders used for payments to the assessee company and also furnished income tax particulars and balance sheets of all the shareholders. The Learned AO on analyzing all the balance sheets observed that the shareholders have paltry income and small savings and none of them have any bank account and huge cash balances were shown in their hands out of which Pay orders were obtained. Based on this, the Learned AO concluded that these shareholders do not have creditworthiness to invest in the assessee company and brought the entire sum of Rs. 57,00,000/- to tax as unexplained cash credit u/s 68 of the Act. 4.2. On first appeal, the Learned CIT(A) observed that entire share application monies of Rs. 57,00,000/- we re....
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....m 20 individuals in the sum of Rs. 57,00,000/- has been received by the assessee during the financial year 2004-05 relevant to Asst Year 2005-06 and only the shares were allotted to them during the asst year under appeal. Admittedly no monies were received during the asst year under appeal and hence there is no scope for invoking the provisions of section 68 of the Act. Hence we hold that the order passed by the Learned CITA in this regard does not require any interference. Accordingly the ground no. 3 raised by the Revenue is dismissed. (b) The ITAT Kolkata in R.B Horticulture & Animal Projects Co. Ltd, ITA No. 632/Koll2011 dated 13-01-2016. In this the decision the Ld. Tribunal held as follows: "6. We have heard the Learned DR and when the case was called on for hearing , none was present on behalf of the assessee. However, we find from the file that the assessee had filed a detailed paper book and written submissions. Hence the case is disposed off based on the arguments of the Learned DR and written submissions and paper book already available on record. The facts stated in the Learned CIT(A) were not controverted by the Learned DR before us. We find that the assessee h....
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....accepting the explanation and ITA No. 632/KoI12011--C-AM M/s. R.B Horticulture 6 & Animal Proj. Co. Ltd the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal: Held, dismissing the appeal, that the additional burden was on the department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose. " 6.3. We find that the argument of the Learned DR to set aside this issue to the file of the Learned AO for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In v....
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.... in the address, people instruct the incumbents at old addresses not to refuse the receipt of letters and receive the same. Just because, a letter was received at the old address instead of present address, it cannot be said that the identity of the applicant has not been verified. All of these companies had duly replied to notice u/s. 133(6) and confirmed the transaction with all the evidences. The AO has not raised any objection on any of the information furnished before him. The AO has not asked the respective Company applicants also to explain the alleged discrepancy in the address. The AO has not brought any material on account of record to disbelief the evidences furnished with him and treat the transaction as not genuine. The assessee submitted the following material at the time of assessment. a) Copy of share applications from the share applicants (copies enclosed) b) Copy of Form 2 filed with Registrar of Companies, West Bengal (copy enclosed) c) Copy of Form 18 about the Registered Office of the applicants for change of address subsequent to the date of allotment, i.e. 31.03.2009 (copies enclosed) d) Members register e) Share application & Allotment Register ....
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....tions. It is observed that all the three share applicant companies i.e. M/s. Shree Shyam Trexim Pvt. Ltd., M/s Navalco Commodities Pvt. Ltd. and M/s. Jewellock Trexim Pvt. Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant -company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s. 143(3) of the I. T Act for AY 2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY 2005-06 was completed by the ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A. Y.2005-06 and AY.2004-05 respectively were completed by the I TO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as....
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....e Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue. " 29. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee and the documents produced by the assessee cannot be brushed aside by the AO to draw adverse view, which action of AO cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we are of the considered view that addition cannot be sustained merely based on inferences drawn by circumstance. Applying the law laid down in these case laws to the facts of this case, we are inclined to interfere with the order of the Ld. Commissioner of Income Tax (Appeals) and give relief to the assessee. 30. To s....