AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (2) TMI 1077
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....riber 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), Sumati Dayal vs. Commissioner of Income-tax 1995 AIR 2109, McDowell & ....
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....r 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 settled judicial precedence was of the view that Ld. Assessing Officer was not justified in making the addition u/s 68 of the Act at Rs. 3,47,01,225/-....
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.... 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 fresh funds have been received in the company since last 7-8 years and therefore no amount was brought in books. No evidence / information was given as to which money was la....
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....ak 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, the Ld. AO is seeking rationale behind investment by made Shri Rajendra Jain & family in these companies way back in FY 07-08 which is not required by the Law. Para 5.5 - Page 17 Further apprehension, suc....
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....ion 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 capital and share premium received from following parties: 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.....
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....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 summons to the above share applicants, who appeared and gave their statement and confirmed the transactions with the appellant company. 7.5 The identity of the share applicants was also established through the PAN card, income tax return and the balance sheet of the share applicant as on 31.0....
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....he 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 the perusal of the audited balance sheet of the company as on 31.03.2014, it is seen that the company had subscribed capital of Rs. 11,OO,OOO/- and accumulated reserve of Rs. 3,60,09,238/- i.e. a total funds of Rs. 4,29,69,238/-. Out of the total funds of Rs. 429.69. Lacs, at the beginning of the year the company had already inve....
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....o 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 companyL was in the process of expansion and in order to meet the requirement of the banks for increasing the share capital, strengthening the debt equity ratio, the appellant company returned the funds back to the firm, which in turn returned the capital investment made by its partners i.e. the subscriber companies. These companies in turn invested in th....
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....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 the source of source, source of source of source and so on up to three level during the course of the assessment proceedings. It was stated that the funds have been lying in the appellant companies and its sister concern M/s. Vijayshri Note Books Pvt. Ltd which were repaid back to various firms from which the same were borrowed by them, which in turn were returned to the investor, which was utilized....
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....ellant 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 ,itself or with one of its another sister concern Vijayshri Note Book Pvt. Ltd. have only flown back to the appellant. In such eventuality when no fresh funds have come into the system at any point of time, the question of introducing unaccounted money does not arise. It is paramount proposition that only if any fresh funds from any outsider or third party would have come into the system at. any point of time, then only tile issue of i....
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....g 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 creditworthiness of the share applicant for the year under consideration in which the transactions with the appellant took place and is required to substantiate the genuineness of the particular transaction under consideration, which all conditions, in my considered view have been duly met by the appellant. The AO was not justified in making the additions u/s 68 in the year under consideration merely on the basis of suspicion and doubts in respect of transactions of the share applicant which to....
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....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 source but also the ultimate source, as also accepted by the AO, on this proposition alone the addition made u/s 68 ought not to have been so made. 7.25 The reliance placed on various judicial pronouncement in respect of surrounding circumstances, preponderance of probabilities, lifting the veil etc such as Durga Prasad More, Hershwin Chadha, Sumiti Dayal and Me Dowell, it would be suffice to hold that the propositions laid down in these cases does not apply to the instant case since the facts are clearly....
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.... 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 Bombay in the case Of Vodafone India Services Pvt. Ltd for A. Y. 2009-10 (WP No.871j2014) = 2014-TH-19-HC-MUM-TP, wherein in the Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. .. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgement, it is directed that the ratio decided of the judgement must b....
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....f 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 of the Ld CIT(A). Ground No.l is accordingly dismissed. " (iv) In the case of Green Infra Ltd vs. ITO reported in 38 taxmann.com 253-ITATdated 23/812013, Hon'ble Mumbai ITAT decided that "During previous year ending on 31-3-2009, it had collected share premium on allotment of shares of face value of Rs. 10 each at a premium of Rs. 490 per share - It had credited said amount in balance-sheet under head share premium account - It claimed that shore premium was a capital receipt not exigible to tax - Assessing Officer had taxed share premium under section 56(1) as assessee'....
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....e 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 High Court in the case of CIT vs. Eleciro polychem Ltd. 294 ITR 661 and Hon'ble Allahabad HighCourt in the case of Jaya Securities Ltd. 166 Taxman 7 that no addition can be made on account of share application money even if subscriber to capital are not genuine. The above said judgements were challenged by the Department by way of SLP before Supreme Court of India and SLP has been dismissed by Supreme Court in both the cases. In view of above said facts of case and position of law, I hereby direct the AO to delete the addition of Rs. 69,75,000/-. (viii) In the case of Cl'T v . Vacmet Packaging (India) Pvt Ltd reported in 88 CCH 06....
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....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 Kolkata based companies. As the facts and circumstances of the case the assessee M/ s Vijayshri Packaging Ltd. are identical to that of the above landmark judgment (which has not become a settled position of law, revenue would like to place reliance on the same in this case. Thus, the under signed request your to kindly take cognizance of the same while deciding the matter, in addition to the original. I look forward to justice being. delivered through your good office in .this case which is based on a sinister design to" cheat the revenue authorities and other arms of the Government, conversion of unaccounted money, and wilful evasion of taxes though deliberate plannin....
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....tity 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 companies, their income tax return acknowledgements with PAN, copies of their bank account to show that entire amount had been paid through normal banking channels and therefore has satisfactorily discharged the initial onus as envisaged u/ s 68 of the Act for establishing the credibility and identity of the shareholders. e. On appeal by the Department, the Tribunal also- upheld the action Ld. CIT(A) and held that the assessee had discharged their primary onus to establish the identity and creditworthiness of the investors, especially when the investor companies had filed their returns and were being- assessed. f. On further appeal preferred by the Department, the Hon'ble High Court. affirmed the decision of Tribunal on the ground th....
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....ries 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 (i) There was no material to prove or to suggest that the share money was received from independent entities. The genuineness of the transaction was found to be completely doubtful. (ii) The investor companies had filed returns for a negligible taxable income which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90 to Rs. 95_lakhs. (iii) . There was no explanation offered regarding why the investor companies had applied for shares of the Assessee company at a high premium of Rs. 190/- per share, even though the face value of the share was Rs. 10/- per share. (iv) The investor companies did not establish their source of funds from which the high share premium was invested. (v) The mere mention of the income tax number of an investor was not sufficient to discharge the onus under Section 68 of the Act. The lowe....
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....ppellant 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 no outside party involved in the transaction. And the sources of capital of the subscribers were established during the respective assessment proceedings and hence the appellant co. has discharge the onus cast upon it However in the case before the Honourable Apex Court most of the investors did not even filed their bank statements and declared very meager income. (iii) In respect of justification of Price, it was submitted that the fair market value of shares of the appellant co. as on 31.03.2014 was Rs. 76.06 per shares as per the formula prescribed u/» 56(2)(viib) r.w.Rule11UA and the detailed calculation was also provided to the A.O. (Refer para 2.2 on page 4 of the assessment order). However, the appellant co. has allotted its shares at a price of Rs. 75 per share which is lower than the fair market price and hence the provisions of sec. 56 (2)(viib) are not applicable to the share premium received and hence share premi....
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.... 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 identified entities, in fact they were already existing shareholders of the appellant even prior to the issuance of share capital under consideration and all of them produced themselves before the AO and their statements were recorded. Thus, the identity of the investors was never an issue in the present appeal. Further the investment in shares of NRA was made at a premium of Rs. 190 per share and evidently there was no justification for such a high premium whereas in the present appeal the shares are issued of a flagship company of the group having substantial turnover and also profitability over the years and the shares have been issued at the FMV worked out on the basis of prevalent provisions and applicable rules which also stand accepted without any adverse remarks. It is also seen that the investors in the case of NRA did not med their bank statements to substantiate the source of funds whereas in the present case not only the bank statements and other financial details were m....
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....ng 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 finding in the order that lender is not credit worthy. It is noted that that the AO has doubted the transaction and tried to establish that the companies are not creditworthy as there was no rationale behind obtaining control of the companies based at West Bengal. However, he has failed to establish that a transaction which was done 10 years back could affect the transaction of share application received during the year. If at all, any consideration needs to be taken for the above transaction of obtaining control of the companies, the same is required to be done in the hands of the share holders in the year in which the control was obtained and is not relevant in the case of appellant company for the year under consideration. Therefore, considering the above discussion the addition made by the AO is deleted. These grounds of appeal are accordingly allowed. 8.0 Ground No.4. Addition on account of share capital and share premium of Rs. 3,47,01,225/- received on basis of statemen....
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.... time to time: S. No. Particulars (i) Copy of share application form. (ii) Details of applicants, their addresses, PAN no., no. of share, amount etc. (iii) Copies of ITRs of share applicants. (iv) Board resolutions for share allotment. (v) Form PAS-3 for allotment filed with ROC. (vi) Audited balance sheets of the share applicants. (vii) Bank statements of the share applicants reflecting the movements of funds. (viii) Bank statement of the assessee company. (ix) Copies of MOA and AOA of the share applicants companies. (x) NBFC registration certificate issued by RBI and copies of returns filed with RBI in case of M/s Pushpak Fincon Pvt. Ltd. (xi) Details about the source of money in the hands of the share applicants. (xii) Copies of order passed by the Regional Director, Company Law Board West Bengal shifting the registered office of the share applicant companies to the state of Madhya Pradesh. (xiii) Relevant abstract of statutory registers of the share applicant companies to establish the fact that no fresh share capital money was introduced in these two companies in last 8 - 10 years. (xiv) To prove source of source and source thereof ....
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..... 9,33,330/- towards the share capital and Rs. 60,66,645/- towards share premium as mentioned above, the copy of Income Tax PAN card, copy of income tax return and bank statement reflecting the transaction was furnished. Karta of HUF is relative of Mr. Rajendra Jian who is director in the assessee company. So genuineness of transaction is proved being carried at through banking channel and with a related party who knows the assessee company. As regards the creditworthiness and the source of funds used to make investment tail of fund has been provided in this case also which is summarized as under: Pritesh Jain - Rs. 98 Lacs (Introduction of funds in assessee by way of unsecured loans) Vijayshri Packaging Limited - Rs. 150 Lacs (Transfer of amount alongwith balance in Cash Credit Account as inter unit transaction) R.R. Packaging (I) Pvt. Ltd - Rs. 76.11 Lacs (Repayment of unsecured loan lying with the company) Pritesh Jain HUF - Rs. 69.99 Lacs (Share Application money given to the assessee) Share capital of Vijayshri Packaging Limited 15. The above details of funds leave no scope to doubt the genuineness of creditworthiness of the investor P....