TaxTMI 
TaxTMI 
2021 (2) TMI 1077
X X X X Extracts X X X X
X X X X Extracts X X X X
....e to the shares of the assessee company by the subscriber entities were securities premium received at a substantial premium during their existence in West Bengal despite being paper entities with no business activities, complete lack of worth in terms of financial performance, and no assets to justify receipt of such large share premium 2.Whether the Ld. CIT(A) erred grossly in adjudicating the creditworthiness of the subscriber HUF entity and the genuineness of the transactions, and in not appreciating the I fact that the subscriber HUF entity failed to explain the source of source, etc. of the funds utilized for investing in the assessee company. 3.Whether the Ld. CITCA) erred grossly in appreciating the significance of the Proviso to Section 68 of the IT Act, 1961 which states that the explanation of the creditor, especially regarding her creditworthiness, and the genuineness of the transactions, need to be, "in the opinion of the Assessing Officer, satisfactory", which it wasn't found to be in this case. 4. Whether the Ld.CIT(A) ignored landmark 'decisions of the Apex Court such as Commissioner of Income-Tax vs. Durga Prasad More (214 ITR 801....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he meaning of the provisions of section 68 of the Act. Ld. Assessing Officer completed the assessment after making addition for the alleged bogus share premium/share capital u/s 68 of the Act at Rs. 3,47,01,225/- and assessed the income at Rs. 4,28,05,387/-. The addition of bogus share premium/share capital u/s 68 of the Act was made towards the following amount: Name No. of shares subscribed Amount paid @ Rs. 75/- per share Pritesh Jain HUF 93,333 69,99,975 Armaan Barter Pvt. Ltd. 76,000 57,00,000 Pushpak Fincon Pvt. Ltd. 2,93,350 2,20,01,250 Total 3,47,01,225/- 4. Aggrieved, assessee preferred an appeal before the ld. CIT(A) and filed detailed submissions along with giving trail of transaction so as to prove source of share of the share capital and capital premium received. Details were also filed for the two shareholders which were Private Limited Companies and were existing shareholders and 3rd investor namely Pritesh Jain HUF was relative of the assessee having sufficient financial sources. Reliance was also placed on plethora of judgments. Ld. CIT(A) after considering the same and analysing the facts in the light of the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....into books. The entire amount received from the share applicants was already appearing in the books of the assessee and its sister concerns. All such concerns are regularly assessed to tax and there was no unaccounted fund. All the subscriber have already invested in the assessee in the earlier years. Para 4.2 - Page 10 Shri Jain & Family chose to invest in a non descript company situated in far flung Kolkata with no business activity or future prospects, that too at such a high premium, remained a mystery. Shri Rajendra Jain & Family have invested in the company during the FY 2008-09 looking to the fact that the company was a registered NBFC which is instrumental in inter group movement of funds. Shri Rajendra Jain & Family has invested in the shares of the company and therefore there appears to be no reason to consider the amount as unaccounted funds. Para 4.3 - Page 11 Only a paper company which has been running solely for the purpose of laundering the promoter's unaccounted wealth and routing his unaccounted money back into the books of the assessee company. The company is a registered NBFC whose major source of income is interest on Loans & Advances. No....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... identity, genuineness and creditworthiness of the transaction was also not established. The query was not raised to the assessee during the assessment proceedings. The amount received from Sarthak was repayment of loan given to the party on 21.07.14 for an amount of Rs. 45,00,000/- on which interest of Rs. 2,70,000/- has been charged, TDS of Rs. 27,000/- has been deducted and reflected in the computation of income. Establishing identity, genuineness and creditworthiness is not applicable as transaction is repayment of loan given and not loan taken. Para 5.4 - Page 16 Thus, Proviso to Section 68 is clear: the creditworthiness and genuineness of the subscriber entities needs to be proved in the year under consideration, the year in which they are paying that money. The Ld. AO has very categorically stated that the transactions needs to be tested within the vigor of Sec.68 during the year in which transaction is executed. The assessee and the share subscriber have furnished the source of money, source of source of money and source of source of source of money for more than three transactions and other details for the year under consideration. Despite of the above....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e course of the assessment proceedings regarding funds flowing to the assessee company and to Vijasyhri Note Books through several layers, originally linked to sale of same land. But this claims were not substantiated The observation is wrong and not as per the facts of the case. Details in respect of transaction of land was explained vide reply dt. 29.12.17 which is appearing at page no.79 of paper book. It was explained that the family members had earned a capital gain of Rs. 3,40,31,055/- on sale of land and the amount so earned and received during the year was utilized for making advances to various group entities. Therefore, this allegation of the Learned AO is not correct. 8. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred by the lower authorities as well as the assessee in its written submissions filed before the Ld. CIT(A). The revenue's sole grievance is against the finding of Ld. CIT(A) deleting the addition of Rs. 3,47,01,225/- made by the assessing officer invoking the provisions of section 68 of the Act with regard to the cash credit received during the year in the form of equity share ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant company are also director. Further, Pritesh Jain HUF, is HUF of Pritesh Jain, who is also one of the director of the appellant companyL The two companies which have subscribed to the share application viz M/s. Armaan Barter Pvt. Ltd., Pushpak Pincon Pvt, Ltd. were already the share holders of the appellant company before the issuance of fresh shares under consideration. Further, Pritesh Jain is a director and shareholder of the appellant company and has subscribed to the share application of the appellant company in the capacity of Karta of Pritesh Jain HUF. None of the party from whom the share application money was received was a third party or an outsider. These facts are undisputed. 7.4 Identity of the share applicant established - All the share applicants are part of the group of the appellant which fact has been stated by the appellant company during the assessment proceedings and has been well accepted by the AO. Two out of the three share applicants were existing shareholders of the appellant and the third is a HUF of one of the director of the appellant. On the perusal of the submission, it is evident that during the assessment proceedings, the AO has issued ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment in the partnership firm M/s. Accrual Estate & Developers and withdrew an amount of Rs. 57 Lacs and had utilised the same for making investment in the appellant. Thus, at the end of the year out of the total funds of Rs.I00.07 Lacs, an amount of Rs. 97 Lacs was invested in share capital of the appellant firm. The company is an investment arm and the only activity undertaken is investment in the group concern. The appellant has also emphasized the fact that this share applicant has not introduced any fresh funds either in the form of share capital or in the form of loans during last ten years, which fact further substantiate the creditworthiness of the share applicant. b)Pushpak Fincon Pvt. Ltd. - The company was incorporated in March 1993 and was taken over by Shri Rajendra Jain, director of the appellant company and his family members during the FY 08-09. The company is registered as Non- Banking Finance Company (NBFC) with Reserve Bank of India which has acknowledged the change of management. Various documents have been filed which establishes that Shri Rajendra Jain and his family members have been controlling the company since taking over the company. On t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ciate concerns and there was no fresh funds received from any third party by these investors for making investment in the appellant. Further there were no instances of cash deposit in the bank. 7.8 Transaction established as genuine - The appellant company has furnished a pictorial chart as well as a tabular chart of the movement of funds to and from the share applicant~ which has also been abstracted by the AO in his assessment order and accepted as well which reflects that the amount which were utilized for. subscribing to the share application was already lying with the appellant company or its sister concern M/s. Vijayshri Note Books Pvt. Ltd. The appellant company and both the impugned share holder companies were partner in M/s. Accrual Estate & Developers and M/s. Raj Enterprises. These firms are under the same management, in which the surplus funds available with the share applicant companies were invested earlier as their capital. The partnership firm in earlier year had given funds to the appellant company (which is also a partner in the firm] and was reflected as overdrawn amount from the firm in the audited accounts of the appellant company. The appellant compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... required u/s 56(2)(viib) r.w.r. rule -11UA(2) was furnished during the assessment proceedings which works out to Rs. 76.06 per share as on 31.03.14. Thus, the price at which shares have been allotted by the appellant company is in accordance with the provisions 1pf Income Tax Act and the Rules framed there under and the amount so received was not excessive. The valuation worked out by the appellant stand accepted by the AO in para 2.2 of the assessment order and there are no adverse comments in this regard. During the course of the discussion it was emphasized that the price at which the shares have '!been issued is the lowest price at which the shares could have been allotted, as it was based 'upon, the b.9ok values of various assets and liabilities of the appellant company which did not factor in the goodwill, technical knowhow, appreciation in the value of the assets which could have been used for augmenting the price had the appellant company obtained a valuation certificate from the accountant or merchant banker. 7.13 Source of Source and so on - The appellant company during the course of its submission before me had stated that it has established th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ght into the books through the impugned share allotment transactions. From the observations made in Para 4.1 to 4.3 of the assessment order regarding the share applicant M/ s Pushpak Fincon Pvt. Ltd. it is seen that the share applicant is assumed to be a paper company and a serious allegation is made that the company is solely running for the' purpose of routing unaccounted money into the books of the appellant company. Identical observations have been made in respect of Arman Barter Pvt. Ltd. in Para 4.4 to 4.6 of the assessment order. 7.16 However, neither there is any cogent material brought on record nor any other basis given in the order which could support such serious allegation. In fact, the flow of funds i.e. the initial point from where the funds moved to the final destination has been properly substantiated by the appellant. The chain of events culminating into the final receipt of funds by the appellant has also been abstracted on page 6 & 7 of the assessment order by the AO himself, from where it is seen that there is no scope for infusion of any fresh funds into the system in the entire chain, as the funds lying with the appellant ,itsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n respect of shares issued by Pushpak and share premium received thereon six years back and on the basis of this doubt has tried to hold that the money introduced SIX years ago in Pushpak is the source of the money being introduced in the year under consideration in the appellant company in the form of share capital and share premium, This observation establishes the contention of the appellant that no fresh funds have been introduced in the share applicant companies during last many years and also suggests that this fact was also clear in the mind of the AO. In my considered view raising any doubt in respect of transactions which took place six years ago cannot justify the addition made in the year under consideration. 7.21 The AO has further observed that in terms of section 68 the creditworthiness of the subscriber entities and genuineness of the transactions needs to be proved in the year under consideration i.e. the year in which they have made investment in the appellant. I fully agree with this contention of the AO which is the crux of the matter while dealing with the transactions covered u/s 68. The appellant is required to explain the identity and creditworthines....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessment order regarding the office premises of the two share applicant companies are also too farfetched in the light of the fact that the identity of both the companies was established on record being existing shareholders and also being part of the promoter group and is undisputed. The submission of the appellant on this issue with regard to shifting of the registered office of both the share applicant companies to Indore and the explanation filed during the assessment proceedings (at page no. 85 of paper book) sufficiently takes care of the concerns raised in this behalf. 7.24 It is seen that in Para 5.12 the AO has stated that looking at the source, source of source, and so on, of the funds made available to all the three share applicants, they can all be traced eventually to the funds of the appellant company or its sister concerns M/s Vijayshri Notebook Pvt. Ltd. The appellant emphasized that this observation of the AO in the assessment order explained the entire case of the appellant and categorically establishes that the source and also source of source stood examined and accepted by the AO. In my opinion once the appellant has explained not only the immediate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) of the. Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received an application of ALP. Therefore, absent express legislation.. no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. Court finds considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equ.ity shares to its holding company, a non resident entity, nor the alleged short [all between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act." (ii) The CBDT vide instructions No - 02/2015 dated 29/1/2015 directed the revenue not to file the SLP before directed Ld .AOs to accept the HIgh Court order. The relevant instructions is as under:- "1n reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A. y. 2014-15, In so Jar as the year under consideration is consideration is concerned, the transaction has to considered in the light of the provision of Sec, 68 of the Act, There IS no dIspute that the assessee has given details of names and addresses of the shareholders, their PAN Nos, the bank details and the confirmatory letters. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, 'if the identity is proved, no addition can be made u/ s: 68 of the Act. We draw support from the- decision of the Hon'ble Supreme Court in the case of Lovely Exports Put Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the round that, even if it be assumed that the subscribers to the increased capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for. " (vii) In the case of CIT vs. Expo Globe India Ltd reported in 361 ITR 147, Hon'ble Delhi High Court decided that "It has been held by Hon'ble Supreme Court and various High Courts that no addition can be made on account of share application money once the names of the share applicants are given. In the instant case, identity of these persons are not on doubt and assessment particulars of all the persons are on record and there is no material to hold that creditworthiness of these persons are not established. The judgment of Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also the judgment of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt Lid 307 ITR 334 are relevant on this issue. It was held by Hon'ble Madras Hig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nderstood within the meaning of proviso to Section 68 of the IT Act. 1961. of the three (3) subscriber entities which had introduced share premium and share capital during KY 2014-15. Therefore, the amounts received from these entities, under the garb of share capital and securities premium, i.e. Rs. 3,47,01,225/L, was treated as unexplained cash credits u/s 68 of the IT Act, and added to the total income of the assessee. A detailed speaking order has been passed in this ease which has conclusively established the bogus nature of the share premium and share capital. Remand reports have also been sent in this case on two earlier occasions, as per your directions. In furtherance of the above. 1 would like to draw your honour's attention to the recent landmark judgment of the Hon'ble supreme Court dated 05.03.2019. wherein the order of the AO was upheld and restored by the Apex Court despite being dismissed by the Hon'ble High Court, and previously by the Hon'ble ITAT and the Ld. CIT (A).L This is in the case of Pr. CIT Central vs. NRA Iron and Steel Put Ltd. / TSL 106-SCL 2019]. In this case, addition was made u/ s 68 of share capital and premium received from Ko....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that the onus on the assessee co. stood fully discharged. c. However, the learned A 0. did not consider the above and conducted independent field enquiries with respect to the identity and creditworthiness of the investor and genuineness of the transaction. The AO issued summons to the representative of the investor companies and none appeared and in few cases, submissions were received only through DAK without justifying making the investment at such a high premium of Rs. 190/ - and nor produced bank statements to substantiate the source of funds for making such a huge investment in shares while they were declaring a very meagre income in their returns. Hence, the AO. held that the assessee failed to prove the identity and creditworthiness of the investor co. and genuineness of the transaction and hence added back the amount of Rs. 17,60, 00,000/L to the total income of the assessee co. d. On appeal by the assessee co., the CJT (A) deleted the addition made by the A.O. by following the decision of the Delhi High Court m the case of CIT v Lovely Exports Ltd. (2008) 299 JTR 268 (Del.)on the ground that the assessee , had filed confirmations from investor companie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onse through mail. RULING OF THE SUPREME COURT On the SLP filed by the Revenue, where the assessee was not represented despite notice, the Supreme Court laid down three principles after analyzing various decisions with reference to treatment of sums of money credited as Share Capital/ Premium: (i) The _Assessee is under a 1egal obligation to prove the genuineness of the transaction, the identity of the creditors, and the credit worthiness of the investors who should have had the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. (ii) The assessing officer is duty bound ID investigate the creditworthiness of the creditor / Subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or there are bogus entries of name- lenders. (iii) if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit worthiness, then the genuineness of the transaction would not be established. The Supreme Court applied the aforesaid principles of the facts and concluded that (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the factL was that certain notices returned unserved and the share applicants were either not traceable or nonexistent Some of the share holders did not filed any response to the summons. issued and some of the share holders who . responded did not produced their bank: statements. Therefore, the facts of the appellant are clearly distinguishable and are on a very strong footing. (ii) With respect to the financial capacity/ Source of investment, the appellant co. has submitted clear explanation before the AD. alongwith the documentary evidences such as Balance sheet / bank statements of the subscribers to state that the investors M/ s. Pushpak Fincon Put. Ltd. had assets worth Rs. 4.33 crores and M/s. Armaan Barter Put: Ltd. had assets worth Rs.l.00 crores which by no imagination can be stated nominal (Refer para 2.10 on page 4 and 2.15 on page 5 of the 6th submission before the A. 0.). Apart from the creditworthiness, the appellant also explained the source of the source, that these funds were lying in the group only, which have been optimally utilized and transaction rerouted so that the different balance lying in various companies/ firms are reduced. Also that there are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alley. On the. contrary the case of NRA Iron and Steel Pvt. Ltd supports the case of the appellant when tested on the touch stone of the principles laid by the Honourable Apex Court in its latest decision as already discussed above." 7.31 In my considered view, the appellant has clearly demonstrated that the ratio propounded by the Hon'ble Apex Court in the case of NRA Iron and Steel Pvt. Ltd. cannot be applied in its case as the facts or are on a totally divergent alley. The undisputed facts are that in the case of NRA Iron and Steel Pvt. Ltd. shares were issued to as many as 19 companies which were all outsiders and not related to the assessee at all and on top of this when summons were issued to the investors companies, nobody appeared on their behalf. In some cases, submissions were filed through dak. Even on making independent filed enquiries, some of the notices were not served as the entities were not found at the given address, in some cases in spite of service of notice, the same were not responded and replies were not filed. These facts are in clear contrast to the facts of the present case before me where the investors are not only clearly identifie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of the facts so as to stand the test of judicial scrutiny and facts. In the instant case, the AO has overlooked the submission made by the appellant and has generically stated that it has failed to establish the genuineness of the transactions and creditworthiness of the subscriber. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors / subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. Thus element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are majorly owned by Mr. Rajendra Jain ( who is also the director of respondent assessee) and family since the year close 2009. Important features of the two corporate subscribers can be tabulated in following form: S. No. Particulars Arman Barter Pvt. Ltd Pushpak Fincon Pvt. Ltd. 1 Date of Incorporation 09/03/2007 31/03/1993 2 Present address Amalgamated with Pushpak Fincon Pvt. Ltd. w.e.f. 01/04/2016 61/4, R. R. Industrial Park Near Super Corridor ROB Village Bardari 3 Directors Rajendra Jain Pritesh Jain Rajendra Jain Pritesh Jain 4 Owned by Shri Rajendra Jain & family since 09/02/2009 31/03/2009 5 Net Worth as on 31.03.2014 1,00,37,394/- 4,29,69,238/- 6 Last Share Capital raised on 31/03/2007 31/03/2008 11. In order to establish the genuineness of the transactions of the said two investor companies with the assessee companies, following documents were furnished from time to time: S. No. Particulars (i) Copy of share applica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee) Share capital of Vijayshri Packaging Limited Transaction 2 Vijayshri Note Books Private Limited - Rs. 140 Lacs (Repayment of debit balance in firm) Accrual Estate & Developers - Rs. 134 Lacs (Repayment of credit balance in firm) Blaise Distributors Private Limited - Rs. 134 Lacs (Capital introduction in firm) Shree Raj Enterprises - Rs. 131.62 Lacs (Repayment of credit balance in firm) Pushpak Fincon Private Limited - Rs. 133.00 Lacs (Share Application money given to the assessee) Share capital of Vijayshri Packaging Limited 13. The above flow of funds shows that major fund was already lying with the assessee company in the form of loans/advance from partnership firms where the assessee is partners which was refunded to the respective entities and were received back from the share applicants in the form of share application money by the assessee. So there remains no question of doubt about the genuineness of alleged transaction and creditworthiness of the two investor Pvt. Ltd. companies with regard to share capital and share premium received from them during the year. 14. As regards 3rd investor namely Pritesh Jain HUF w....