TaxTMI 
TaxTMI 
2018 (1) TMI 1618
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....nd No. 1 and 2 : - "1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in admitting new evidences with regard to the parties which had purportedly subscribed to the issue of the shares at a premium, despite adequate opportunity having been granted during the assessment proceedings. 2. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred deleting the addition made u/s. 68 of the I.T. Act, of Rs. 22,04,40,000/- without considering that the genuineness of the transactions and creditworthiness of the subscribers to the shares was to be determined on the touchstone of human probabilities and the surrounding circumstances of the case and ignoring the fact that the bulk of the subscribers had minimal business operations, the financials of the assessee company could not justify the exorbitant premium paid by them and substantial funds invested by them appeared to have bee sourced, in turn by the way of share capital, premium." 3. Briefly stated facts are that the AO during the course of assessment proceedings noticed from the balance sheet that the assessee company has received an amount of Rs. 27,06,00,000/- on accoun....
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....e Certificate, return of allotment filed with ROC forms, etc. were also been furnished to AO. (c) As far as Credit worthiness of shareholders is concerned, the Company has demonstrated the sonic by producing the bank statement of the subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. " 5. But the AO, was of the view that the assessee has not filed any details despite of giving various opportunities. For this he observed in Para 4.6 as under: - "4.6 As such the assessee was required to produce the identity of the person who had applied for the shares giving the name, address and PA Number. But no such details have been tiled by the assessee Inspite of giving various opportunities. Further the assessee was required to give the genuineness of the transaction showing that the assessee has received the money from the person who have applied for shares giving the cheque No., Bank details, etc. Further in order to prove this creditworthiness, the assessee should have produced the Balance Sheet or Bank of Account of the person who have applied the shares to show that he had sufficient balance in his accounts to enable him....
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.... reply by the appellant. Firstly, I take up the doubts created by the AO on premium charged by the appellant company. In the remand report dated 27 October 2014 the AO has submitted that premium of Rs. 1,100 charged by the appellant company is without any basis and the earnings per share, ratio of profit before tax, no dividend history of future years etc. do not support premium received by the appellant company. In my opinion valuation of the company need not be decided exclusively on the present position but the future potential also has to be looked into. ln the case of the appellant company the management estimated the share premium at the rate of Rs. 1100 on the basis of various plots and parcels of land in different villages of Taluka Khalapur. There was proposal to develop the project spread over those plots under one scheme/ Project. The company was planning to make necessary applications for conversion to non-agricultural use by making necessary payments for the conversion. Schedule E forming part of the balance sheet shows that under the head "advances against plot" Rs. 14,33,73,009 is stated. This schedule refers to note 5. Note 5 gives details of the advances paid for p....
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....lves shares at a premium and the assesse company has taken bogus entries to rotate its own money and those companies have no creditworthiness. 5.5 In the case of M/s. Prabhav Industries Limited, Baroda (Rs. 5,00,40,000/-) it is seen that the company was incorporated on 08/12/1995 as per PAN card. Thus this is an old company. The financial statement of the said company reveals the following: i. Equity share capital of Rs. 46,08,91,000 with high reserves and surplus of Rs. 1,02,58,57,000/-. ii. Fixed Assets of Rs. 3,74,78,065/- including additions made in the current year of Rs. 3,73,84,398/- majorly in buildings, plant & machinery and electrical instalments. iii. The company has huge cash and bank balance of Rs. 93,05,748/-.- iv. It has also paid right issue and bank balance of Rs. 4,14,159/- and penalty to Stock Exchange of Rs. 4,80,000 which proves that it's a running concern. 5.5. This proves the capacity to make investment in the appellant company and also issue shares at premium. The said company is holding shares till date of the appellant company. Thus there is no rotation of money 5.5.2 Also Addl. Director of Income Tax (Investigation), Baroda, has sent his rep....
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....rease the top link of bank and other credit proposal the said company has made bogus purchases and sales to other companies. It does not mean that this company has also made bogus investment in M/s. Citygold Education Research Ltd. Also in the statement recorded u/s. 131 nowhere it is mentioned that investment made is bogus. 5.6.5 As regards Ahmedabad Investigating Wing's action u/s. 132 that Shri Devang Dinesh Chandra Master is only a entry providerthe said company has made bogus purchases and sales to other companies, which does not mean that it has made bogus investment too. 5.6.6 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at page 40 of PB. Therefore, statement of Shri Devang Dinesh Chandra Master, Director of Empower Industries India Limited is not called for. 5.6.7 The amount which has been paid by the said company never came back to the appellant company. The said company are holding till date the shares of the appellant company. 5.6.8 Hence addition made in the assessment is not correct. 5.7 As regards Harekrishna Securities Private Ltd, Mumbai (Rs....
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....ant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money. 5.8.5 Hence, addition made in the assessment is not correct. 5.9 As regards Sonal Cosmetics (Export) Limited, Ahmedabad (Rs.2,50,80,000/-), the said company has given 18th Annual Report in the year under consideration. This shows that it is an old company. The financial statement of the said company reveals the following. i. Equity share capital of Rs. 12,06,00,000 and securities premium of Rs. 12,06,00,000. ii. Gross Block of Fixed Assets of Rs. 3,21,21,1 62 iii. The company has huge investments of Rs. 11,07,19,768, 5.9.1 The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium. 5.9.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. 5.9.3 As regards no increase in investments for F.Y.200940 as compared to investments in F.Y. 2008-09 and Cash Flow Statement as on 31" March 2010 not showing any investments made during F.Y.2009-10, the appellant had filed ....
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.... of Director for the deposition by M/s. Raw Gold Securities Pvt Ltd. following observations can be made from the statement of Shri 1-liren C. Chhatrewala: i. Business activities of the companies of trading in commodities especially through commodity exchanges were explained. (Ans to Q 4) ii. Confirmed the transaction of subscribing preference share of the appellant company and submitted share application form. .(Ans to Q 7) iii. Details about business activities of appellant company were also provided. (Ans to Q 8) iv. The shares were subscribed for the purpose of investment and through common acquaintances. (Ans to Q 8) V. Investment registers, audited accounts, return of income and bank statements were provided for the FY 2009-10 of all four companies. (Ans to Q9,1O) vi. Source of funds for making investment in the appellant company were explained. It was explained that the company had surplus funds in form of share capital. The said funds are extended as loans to various parties. The investments have been made out of the share capital and the short- term loans taken from other parties or loan repayments received by these companies. .(Ans to Q 12) vii. It was confirme....
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.... said company has made bogus investment in the appellant company. No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is after the date of search i.e. 25.08.2009. 5.11.5 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at PB page 193 and also in the staemeM recorded on oath of u/s. fl of Shri. Vimal Gala, director of SonalSilChem Limited, he has confirmed the transaction of investing in the preference shares of the appellant company. The observation made by the AO were before the above statement taken on oath. However now, there is no room for doubt. 5.11.6 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money. 5.11.7 Hence addition made in the assessment is not correct. 5.12 As regards Dynachem Pharmaceuticals (Exports) Limited, Ahmedabad (Rs. 50,40,000/-),the said company has given 18th Annual Report in the year under consideration. Thi....
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.... company. Thus there is no rotation of money. 5.12.7 Hence, the addition made in the assessment is incorrect. 5.13 As regards Sonal International Limited, Ahemdabad (Rs. 2,00,40,000/-), the said company has given 17th Annual Report in the year under consideration. This shows that the company is a very old company. The financial statement of the said company reveals the following: i. Equity share capital of Rs. 6,27,00,000. ii. Gross Block of Fixed assets of Rs. 2,92,33,813. iii. The company has huge investments of Rs. 3,13,62,987. 5.13.1 The above details prove that the company had capacity to make investment in the appellant's company. 5.13.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. 5.13.3 As regards Cash Flow Statement for the year ended 31st March 2010 showing that there is neither any new investment made nor any investment sold, Page 254 of PB shows that the company has confirmed that it has applied for preference shares at premium of Rs. 1,100/- and has paid through RTGS from its Kotak Mahindra Bank. 5.13.4 As regards the observation of the AO t....
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.... of funds for making investment in the appellant company were explained. It was explained that the funds have been paid out of the share capital and short-term loans and advances of the company. He submitted the bank statements of all the 4 companies highlighting the payments made to the appellant. .(Ans to Q 12). It was again stated that the companies had surplus funds in the form of share capital. The said funds were extended as loans to various parties. The investments have been made out of the share capital and the short-term loans taken from other parties or loan repayment is received by these companies (.( Ans to Q 13) vii. Justification of investing in the shares issued with premium of appellant company was provided. It is stated that the appellant company was coming up with a township at Khalapur and looking at the prospective profits of the said project they have invested in the said company. He submitted a copy of the project report of the said project. .( Ans to Q 17) viii. It was confirmed that shares are still held with the all four companies and share certificates issued by the appellant company to all the four companies were submitted..( Ans to Q 18,19) Thus, f....
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..... g) I agree with the appellant that merely because the said company was providing bogus entries to M/s. I Kumar Infraprojects Ltd, it does not prove that the said company has made bogus investment in the appellant company. h) No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is after the date of search i.e. 25.08.2009. i) The payment received by the appellant company from the above said company has been reflected in the bank account of the appellant company. j) The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money. In view of the above facts question of giving an enhancement notice does not arise and the AO is correct in the assessment order by not making addition on account of this company II. As regards Lilac Medicines Pvt. Limited, Mumbai (Rs. 2,50,80,000/-), as per the AO the ratio for profit before tax to the total credit to P&L is 0.98% for AY 2009-10 and 1.49% for AY 2010-11 and the earnings per share for AY 2010-11 is 0.28 whereas for A....
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....her five parties left the addresses given. The AO analysed each of the parties and their financials from the records of the company and also referred to additional DIT investigation Baroda, who confirmed that these parties have confirmed the transitions i.e. Prabhav Inds Ltd., Empower Indus India Ltd. Harekrishna securities Pvt. Ltd., Signora Finance Pvt. Ltd. Sonal Cosmetics (Exports) ltd., Raw Gold Securities Pvt. Ltd., Sonal Sil Chem Limited., Dynachem Pharmaceuticals (Exports) Ltd., Sonal International Ltd., Alken management and Financial Ltd. and Lilac Medicines Pvt. Ltd. All these parties have admitted the transactions and also filed financials of these companies showing the investment in shares of the assessee company. The CIT(A) after getting the remand report from the AO, deleted the addition. 7. We find that the AO proceeded to discredit the investors of the assessee, which is completely erroneous. The AO was looking for proof beyond doubt and proceeded on an element of suspicion that the amounts of investments are really those of the assessee, which have been ploughed back by the assessee. But the settle principle of law is that any amount of suspicion however, it stron....
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....Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bom), wherein Hon'ble High Court had held as under : - (e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of....