TaxTMI 
TaxTMI 
2018 (1) TMI 1618
X X X X Extracts X X X X
X X X X Extracts X X X X
....For this Revenue has raised following ground 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 comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction such as copies of the share application, Share 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., ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on various case laws in support that the appellant has failed to fulfil the onus casted on it. Before dealing with the case laws it is necessary to appreciate the development after admission of the additional evidences and reports received from the AO and its 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-agricult....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t company. 5.4 Now, I take up of the observations oil shareholder's case by the AO. In the remand report the AO has given his observations against all the 9 shareholders. His main submissions are that all these companies have not generated any profit and hence could not have issued themselves 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 whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....res. But there is no entry in bank accounts which reflects that the appellant company has paid back the amount of investment. 5.6.4 As regards the statement of Shri Devang Dinesh Chandra Master, Director of Empower Industries India Limited recorded u/s. 131 on 12.03.2013 where he admitted. that the entire trading activity in sale and purchase of computer hardware and software is bogus and this was mainly done to increase 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the said company. The above details prove the genuineness of the transaction. 5.8.3 As regards an increase of Rs. 1,78,51,000/- only whereas the investment of Rs. 2,00,40,000/- in the appellant company agree with the submission of the appellant that the said company might have sold few of its investment. The appellant company has received money from the said company and it is reflected in the bank account of the said company and also in appellant company. 5.8.4 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. 5.8.5 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....87,98,000/- but not showing Profit(net) on sale of Investment, it has been stated that investment in M/s. City Gold Education Research Private Limited is reflecting in the books of MIS. Raw Gold Securities Pvt Ltd. I agree with the appellant that selling the investments with Nil profit has nothing to do with the genuineness of the transaction of investing in shares of appellant company. Company has certified of having paid for preference shares by RTGS from Kotak Mahindra Bank. 5.10.4 Further, Report of the DDIT,(Inv) Unit I-(3) dated 2-3-2015 is submitted by the AO. The DDIT (INV), Ahmedabad has also forwarded the statement of Shri Hiren C Chhatrawala, authorized by the Board 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0,000/- with M/s Citygold Education Research Limited during A.Y.2010-11, the appellant had filed confirmation on page 193 of PB where the above company has confirmed of having applied for the preference share at premium of Rs. 1,100/-. It has also confirmed that payments are made through RTGS from its Kotak Mahindra Bank. 5.11.4 As regards the observation of the AO that during the course of search and seizure action u/s 132 of the Act in the case of MIs J Kumar lnfra projects Ltd. (formerly known as J Kumar & Co) and its associate cases on 25.08.2009, it emerged that M/s SonaliSilChem Limited was one of the entities which provided bogus entries I agree with the appellant that merely because the said company was providing bogus entries to M/s. Kumar Infraprojects Lts, it does not prove that the 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 f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is alter the date of search i.e.25.08.2009. 5.12.5 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at page 224 of PB and also in the statement recorded on oath of u/s. 131 of Shri. Vimal Gala, authorized for the deposition by Dynachem Pharmaceuticals (Exports) 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 oil However now, there is no room for doubt. 5.12.6 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. 5.12.7 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt of the DDITI(INV) Unit 1-(3) dated 23-2015 is submitted by the AC). The DDIT (INV), Ahmedabad has also forwarded the statement of Shri VimalNemchand Gala, director and authorised for the deposition by MIs Dynachem Pharmaceuticals (Exports) Limited, Sonal International Limited, SonalSil - Chem Limited, Sonal Cosmetic (Exports) Limited. 5.15 From the statement of Shri VimalNemchand Gala it can be noticed as follows: i. Business activities of the companies were explained. They are engaged in business of trading in chemicals ( Ans to Q 4) ii. Confirmed the transaction of subscribing preference share of the appellant company. (Ans to Q 8) iii. Details about business activities (Real estate) of appellant catchpenny were also provided iv. The shares were subscribed for the purpose of investment and through common acquaintances. v. Investment registers, audited accounts, return of income and bank statement were provided for the FY 2009-10 of all four companies. vi. Source 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-t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e shares at premium. c) The valuation of share premium at which shares were issued by the Said company was never disputed. Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. d) As regards the submission of the AO the said company has shown a decrease in Investment though it claims to make an Investment with M/s Citygold Education and Research Limited during A? 2010-11. This strengthens the finding that the transactions entered into by M/s Alken Management and Financial Services Ltd. are not genuine and are in the nature of accommodation entry. e) It is seen that in the bank statement of the appellant company, payment received from the said company is reflected. f) The AO has stated that during the course of search and seizure action u/s 132 of the Act in the case of M/s J Kumar Infraprojects Ltd (formerly known as Kumar & Co) and its associate cases on 25.08.2009, it emerged that M/s Alken Management and Financial Services Pvt. Ltd. was one of the entities which provided bogus entries. g) I agree with the appellant that merely because the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y never came back to the appellant company. Also the said company are holding till (late 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 6. Moreover, during the original assessment the Ld AO was satisfied with identity and creditworthiness of the above two parties and also genuineness of the transaction with them. The situation still remains the same as compared to the original assessment. Moreover, on the basis of the above analysis, I am of the opinion that the enhancement of addition is not required." Aggrieved, now Revenue is in second appeal before Tribunal. 6. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the remand report of the AO no. ITO-8(1)(2)/Remand Report/ Citygold-10-11/13-14 dtd. 27.10.14, the AO in para 3 has recorded the complete details i.e. the names and address of parties and issued & notices served on 4 parties namely HareKrishna Securities Pvt. Ltd., Empower Indus Ltd., Prabha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and they have arrived at conclusions contrary to the legal principles on the subject. Further, they are finding fault with the assessee for the alleged failure of its investors in proving beyond doubt that they have the capacity to invest at the moment they did in the assessee. The Assessee is not expected to perform a near impossibility. 8. From the above, it is clear that the assessee has completely produced the evidences before the AO i.e. the identity of the shareholder by filing the registered address with ROC, PAN No. along with copy of returns of income furnished with particular Ward of the department of the investors. The assessee has also received money from shareholders through account payee cheque and issued documents such as share certificate, return of allotment filed with ROC forms which were filed before the AO. The assessee has also filed copies of bank statement of the subscribers showing that it had sufficient balance in its accounts to enabled the subscriber to subscribe the share capital. In view of these facts and circumstances, once the AO has not rebutted the evidences, the AO cannot disbelieve the same. This issue is squarely covered by the decision of H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, in recent decision of Hon'ble Bombay High Court in the case of CIT vs. Orchid Industries Pvt. Ltd (2017) 397 ITR 136 (Bom), following the case law of Gagandeep Infrastructure Pvt. Ltd deleted the addition by observing in as under: - "5] ' The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 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 shares i.e. allotment of shares to these parties, their share application forms, allot....