TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 51
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....garding nature and source of share application money was not found to be satisfactory by the assessing officer. iii) That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that section 68 would not apply on these transactions as they come within the definition of barter/exchange by misinterpreting the provisions of the said section. iv) That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 3. From a perusal of the aforesaid three grounds of appeal it is discerned that the sole issue raised by the Revenue, is against the deletion of addition of Rs. 50.30 crores made by the AO u/s 68 of the Income Tax Act, 1961 (hereinafter referred to as the Act) on account of unexplained share application money. 4. Brief facts as noted by the AO on this issue is that in response to the notices issued to the assessee company, the Ld. A.R Shri Bisweswar Ghosh appeared before him and produced books of accounts, copy of audited accounts and other related details and documents. According to AO, the same was test checked. Further he observed that the assessee company has s....
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....ectors therefore had no alternative but to file written submission on 23.02.2015 along with papers as per direction of the AO. The remand report was filed by the AO on 27.09.2016 in which he had submitted that the appellant was never prevented from producing any evidence before the AO. The AO had also requested that no fresh evidence be admitted under Rule 46A in the course of appellate proceedings. The remand report was submitted through Addl. CIT, Range-1, Kolkata vide letter dated 04.10.2016. Subsequently a second remand report was sought from the AO vide letter dated 21.09.2017 for verification of the submissions made by the appellant. The AO was directed to submit a para-wise report on the following points: i) To verify the genuineness of the sources of addition to the share capital/premium amounting to Rs. 50,30,00,000/- during the A.Y. 2012- 13 after issue of summons u/s 131 to verify the genuineness of the impugned cash creditors in respect of payments made by the Directors/subscribers to share capital, their identity, capacity/sources and mode of payments for impugned amounts added u/s 68 to the total income of the assessee company. ii) To make independent enquiries ....
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....h relevant annexure vide its letter received by this office on 09.10.2017 wherein it had been enclosed copies of relevant PAN cards, copy of ITR for the relevant assessment year 2012-13, copy of relevant Balance Sheet, computation of total income, copy of relevant ledger showing investment in shares of M/s Ganesh Cement Pvt Ltd and also copy of letter disclosing source of funds for payment of relevant shares application in respect of all the four directors of the appellant assessee company. In respect of other share subscribing company viz. M/s SKJ Coke Industries Ltd., the appellant assessee company vide its aforesaid written submission made certain statement, the relevant portion of which is reproduced as under: a. that earlier SKJ Coke Industries Limited was proprietor of Jupiter Cement Industries thereafter converted the said proprietorship into partnership business by taking Sri Ganesh Cement Private Limited as Partner. Thereafter, by mutual discussion the said partnership firm has been dissolved and Sri Ganesh Cement Pvt Ltd has become the Proprietor of Jupiter Cement Industries by taken over all assets and liabilities of Partnership. b. That SKJ Coke Industries Limited....
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....50 crores in Jupiter Cement Industries from A.Y. 2007-08 to A.Y. 2012-13. The said investment was converted into equity shares of Sri Ganesh Cement Pvt Ltd as per agreement dated 28.11.2011. The investments made by SKJ Coke Industries in Jupiter Cement Industries were reflected in the balance sheet of SKJ Coke Industries from A.Y. 2007-08 to A.Y. 2012-13. It is also pertinent to note that the assessment of SKJ Coke Industries for A.Y. 2012-13 was completed u/s 143(3) of the I T Act, 1961 vide order dated 23/03/2015 by the DCIT, Circle-1(2), Kolkata under the Jurisdiction of Range-1, Kolkata under whom the appellant company was also assessed. The AO had not made any adverse comments about the investment made by the SKJ Coke Industries Ltd in the appellant company and had made disallowance u/s 14A of the I T Act on investment of Rs. 50 crores in shares of Sri Ganesh Cement Pvt Ltd. Therefore, in light of the above remand report, it cannot be held that the appellant had failed to discharge its responsibility for proving the identity, creditworthiness and genuineness of the transactions. The AO had not made further enquiries but had prematurely concluded that fresh capital amounting to....
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....nvestments are reflected in the company's audited balance sheet. The company's return was assessed u/s 143(3) of the I T Act, 1961 for A.Y. 2012-13. Therefore, there could be no ground on which it could be held that the share applicants were bogus or that the share capital was the appellant's own money routed through the share holders. The identity, capacity and genuineness of the four promoters/directors/share applicants could not be doubted; all four are income tax assessee's who have been regularly filing income tax return reflecting substantial income. The AO could not establish the lack of creditworthiness and mere alleged none compliance of summons issued by the AO u/s 131 of the Act, per se will not be a sufficient ground to draw any adverse inference against the appellant. There are catena of laws which have held that no addition can be made on the basis of suspicion, conjectures and surmise. The AO has to bring material on record in support of his findings, that the transactions are bogus and represents the assessee's income from undisclosed sources. The Apex Court in the case of K.P. Varghese Vs. Income Tax Officer (SC) (1981) 131 ITR 0597 has held ....
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....he appellant company Sri Ganesh Cement Pvt Ltd. was incorporated on 25.11.2011 as per Certificate of Incorporation issued by ROC West Bengal with authorised share capital of Rs. 20 lakhs. The Directors of the company are Shri Hansraj Jain, Sri Sanjay Jain, Sri Ajay Kumar Jam and Sri Navin Kumar Jain. These four directors are also the directors of SKJ Coke Industries Pvt Ltd. The Board of Directors of the company vide Resolution dated 26.11.2011 resolved to increase the authorised share capital from Rs. 20 lakhs to Rs. 50,50,00,000/-. Form no. 5 was filed with ROC West Bengal on 28.11.2011. The appellant company had paid ROC fees of Rs. 25,85,000/- for increasing authorised share capital by Rs. 50,30,00,000/-. The payment was made vide demand draft No. 024621 dated 26.11.2011 which was deposited on 28.11.2011. The Board of Directors subsequently vide resolution dated 28.11.2011 had resolved to issue 5 crores equity shares of Rs. 10/- each equivalent to share capital of Rs. 50 crores in favour of SKJ Coke Industries Ltd in lieu of purchase of the undertaking namely M/s Jupiter Cement Industries from the said company. The respective Form 2 has been filed with ROC West Bengal and ROC f....
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.... any ground to interfere with the impugned order. The Special leave petition is, accordingly, dismissed." The A/R of the appellant had cited the decision of the Jurisdictional Tribunal in the case of M/s Star Griha Pravesh Pvt Ltd vs CIT, I.T. A No. 1244/Kol/2013 and M/s Bisakha Sales Pvt Ltd v CIT, I.T.A. No,1493/Kol/2013, in the assessment order to hold that share capital of Rs. 50,30,00,000/- is unexplained cash credit found in the books of the appellant. These two case laws of the Jurisdictional Tribunal are distinguished. They relate to the revisionary powers of the CIT u/s 263 of the Act. In both cases, the Jurisdictional Tribunal had adjudicated on the jurisdiction of the Commissioner to pass an order u/s 263 of the I T Act. They have not adjudicated on the facts of the case. Secondly, in both cases cited by the AO, the shares were issued at premium as no specific investigation has been done by the AO on share application received from alleged shell companies. In conclusion, it has to be held that the AO has not brought any clinching evidence on record in support of his findings that the appellant had used the route of fresh share capital to introduce his unaccounted m....
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....has reproduced the remand report (final remand report) (supra) from which it is discerned that the Ld. A.R of the assessee Shri R. Dubey appeared before the AO and had filed details and documents in support of claim and thereafter on 19.01.2017, the promoter directors of the assessee company namely Shri Hansraj Jain, Shri Sanjay Jain, Shri Ajay Kumar Jain and Shri Navin Kr. Jain appeared before the AO and in support of its claim had furnished copy of respective Aadhar Cards to substantiate their identities. Further, the AO notes that the assessee had filed on 19.10.2017 (i) copy of relevant PAN cards, (ii) copy of ITR for AY 2012-13, (iii) copy of relevant balance sheet along with copy of computation of total income, copy of ledger showing investment in shares of M/s Shri Ganesh Cement Pvt. Ltd. and (iv) copy of letter disclosing source of funds for payment of relevant application in respect of all the four directors of the assessee company. Be that as it may be, we note the following facts as found by the Ld CIT(A) that the assessee company has abided with all the legal formalities/requirements under the Companies Act, 1956, while increasing its authorized share capital and for th....
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.... record to hold such finding of Ld CIT(A) to be perverse. 8. In the aforesaid factual back ground we further examined about the share subscribing company namely M/s SKJ Coke Industries Ltd. In the final remand report, the AO notes that the assessee company has filed the written submission from which following facts can be discerned which is seen at page 39 of Ld. CIT(A)'s impugned order wherein remand report of AO being reproduced again for ready reference: a. that earlier SKJ Coke Industries Limited was proprietor of Jupiter Cement Industries thereafter converted the said proprietorship into partnership business by taking Sri Ganesh Cement Private Limited as Partner. Thereafter, by mutual discussion the said partnership firm has been dissolved and Sri Ganesh Cement Pvt Ltd has become the Proprietor of Jupiter Cement Industries by taken over all assets and liabilities of Partnership. b. That SKJ Coke Industries Limited was made the Investment in said proprietorship business since financial year 2006-07 on ward and said investment was converted into equity shares of Sri Ganesh Cement Private Limited which are as under: Source of Investment Amount Financial year ....
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....n made between the Two parties FIRST & SECOND PART which is executed on 28.11.2011 and both the parties have decided further to modify / rectify the terms and conditions as mentioned in Original Deed of Agreement. WHEREAS the parties here to have considered it desirable to have written instrument of embodying the terms and conditions already settled agreed upon them. NOW THIS INDENTURE OF AGREEMENT WITNESSTH AS FOLLOWS: 1. That this Supplemental Deed of Agreement shall be effective from 09.12.2011 from which date the parties are abiding by the terms and condition of this documents. 2. That the party of the FIRST PART M/S SKJ COKE INDUSTRIES LIMITED agreed to transfer the property of both Tangible & Intangible M/S JUPITER CEMENT INDUSTRIES to the SECOND PART. 3. That on the date of dissolution, all the Liabilities of M/s JUPITER CEMENT INDUSTRIES approx assessed value of Rs. 50.00 crore(Rupees Fifty Crore only) and Assets of M/s JUPITER CEMENT INDUSTRIES approx assessed value of Rs. 50.00 crore transferred to the SECOND PART. 4. That the SECOND PART agreed to satisfy the Liabilities of FIRST PART as on date of dissolution by allotting 5,00,00,000 Equity Shares of Rs. ....
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....greement dated 28.11.2011 which fact of investment made by M/s SKJ Coke Industries Ltd. in M/s Jupiter Cement Industries were duly reflected in the balance sheet of M/s SKJ Coke Industries from AY 2007- 08 to AY 2012-13. The Ld. CIT(A) also took note of the fact that the scrutiny assessment in respect of the share subscribing company M/s SKJ Coke Industries Ltd. for the relevant AY 2012-13 was completed u/s 143(3) of the Act by order dated 23.03.2015 by the DCIT, Circle-1(2), Kolkata who is under the jurisdiction of Range-1, Kolkata under whom the assessee company was also assessed. The Ld. CIT(A) took note of the fact that the AO of the share subscribing company M/s SKJ Coke Industries Ltd. has not made any adverse inference/view about the investment made by share subscribing company in the assessee company and in the scrutiny assessment has made disallowance u/s 14A of the Act on investment of Rs. 50 crores which the share subscribing company has made in the shares of the assessee company. The Ld. CIT(A) in the light of the aforesaid facts emanating from the remand report (supra) and the documents filed by the assessee which is available in the assessment records corroborating th....
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....n the light of the aforesaid findings, the Ld. CIT(A) repelled the AO's observation that the share applicants were bogus. The Ld. CIT(A) has rightly observed that AO could not have made the addition only on the reason that the directors of the assessee / share subscribing companies did not turn up before him. However, the Ld. CIT(A) has noted that the directors of the assessee company had appeared before the AO in the remand proceedings as well as filed all the details to substantiate their identity, creditworthiness and genuinity of the share subscribing which they had made the their individual capacity of Rs. 30 Lakhs as well as the fact that the sole corporate subscriber M/s SKJ Coke Industries has been assessed u/s 143(3) of the Act for AY 2012-13 under the same Range Head, so he accepted the share subscription received by the assessee company to the tune of Rs. 50.30 crores, which finding we concur and more over, we find that both the assessee company and the share-subscribing company had common directors, and before us, the revenue failed to demonstrate that the factual finding of Ld CIT(A) in this respect is perverse. So, we up-hold the action of Ld CIT(A) and for that we re....
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.... the appellate company. The amounts have been received through banking channel. The same are duly reflected in the annual accounts of that company. The extracts of the bank statement which have been filed before me during the course of appellate proceedings as well as before the AO clearly show that there are no cash deposits as mentioned by the AO in the assessment order. The observation of the AO that the cash has been deposited and subsequently cheques were issued is factually incorrect. The director of the company also attended before AO and confirmed the fact. It is also noted that both the companies, that is the appellant company as well as the share applicant are managed by the same group of persons. Honourable High Court of Gujarat has consistently held that if the assessee has given sufficient proof in respect of the share application, no addition can be made in the hands of the assessee. If the AO has any doubt about the source of the share applicant further investigation can be made in the hands of the share applicant, but not in the case of the appellant. ." It can thus be seen that the entire issue is based on appreciation of material on record. CIT [A] and the T....
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....imited 34.15 Other 18.00 12. In the books of accounts of M/s.Shriram Auto Finance, a total amount of Rs. 60.67 crores was shown as receivable from the companies named above. This was reflected in the balance sheet of M/s.Shriram Auto Finance as on 1.3.2012. The above said companies assigned their liability payable to M/s.Shriram Auto Finance to the assessee by an agreement dated 1.3.2012. Therefore, in the book of accounts, the assessee had shown the amounts as due from the various companies and corresponding amount as payable to M/s.Shriram Auto Finance. Smt. Vathsala Ranganathan retired from the partnership of M/s.Shriram Auto Finance. On retirement of Smt. Vathsala Ranganathan, M/s.Shriram Auto Finance assigned the said amount of Rs. 60.67 Crores payable by the assessee to M/s.Shriram Auto Finance to Smt. Vathsala Ranganathan. Consequently, in the books of accounts of the assessee, the said amount was shown as due to Smt. Vathsala Ranganathan. 13. On retirement of Smt. Vathsala Ranganathan from M/s.Shriram Auto Finance, in all, a sum of Rs. 65.95 Crores became payable by the assessee to Smt. Vathsala Ranganathan. The assessee therefore, decided to allot its shares to Sm....
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.... had not shown any convincing reason as to how the share with a face value of Rs. 10/- could be valued at Rs. 5,400/- per share, despite several opportunities granted to it, and that the assessee had not submitted the particulars of its net worth. In effect, the Commissioner of Income Tax (Appeals held that the assessee had not proved the genuineness and credit worthiness of the credit entries in its books of accounts. Thus, CIT(A) upheld the addition of share premium and share capital as unexplained cash credit under Section 68 of the said Act and dismissed the appeal of the assessee. 17. On further appeal, the Tribunal, held that by way of introducing cash credit in the name of share premium and share capital, the appellant assessee is making attempts to reduce the tax liability. The Tribunal further held that when the Assessing Officer found credit in the books of account and the appellant assessee could not offer any satisfactory explanation, then the entries found in the books have to be treated as income of the appellant assessee and, thus, dismissed the appeal by confirming the orders passed by the authorities below. When the assessee assailed the decision of the Tribunal, ....
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....isting liability taxable as unexplained cash credit, does not involve any question of law, far less any substantial question of law. 25. However, the second question is answered in favour of the assessee and against the Revenue by the judgment of the Division Bench of this Court in Commissioner of Income Tax v. Electro Polychem Ltd., supra, and Commissioner of Income Tax v. Steller Investment Ltd., supra. 26. This case is distinguishable from the case of C.I.T. v. Lovely Expos Pvt. Ltd., reported in 216 CTR 195, in that the transactions were only book transactions, and there was no cash receipt. The decisions in (i) Commissioner of Income Tax v. Focus Exports Pvt. Ltd., reported in (2014) 90 CCH 0105 (Delhi); (ii) Commissioner of Income Tax v. Globus Securities & Finance Pvt. Ltd., reported in (2014) 264 CTR 481 (Delhi); (Hi) Onassis Axles Private Limited v. Commissioner of Income Tax, reported in (2014) 364 ITR 53 (Delhi); (iv) Olwin Tiles India (P) Ltd. v. Deputy Commissioner of Income Tax, reported in (2016) 382 ITR 291 (Gujarat); (v) B.R. Petrochem Pvt. Ltd. v. The Income Tax Officer, (Order dated 24.4.2017 in T.C.(A) No. 1498 of 2007; and (vi) Rajmandir Estates Private L....
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....ssee brought cash into the books of account for the purchase of shares but the source thereof was unexplained. The learned Commissioner of Income-tax (Appeals) was fully justified in endorsing the findings of the Income-tax Officer. We, therefore, do not see any reason to interfere with the orders of the authorities below. The appeal accordingly fails and is dismissed." 7. A miscellaneous application was filed urging that some arguments advanced by the assessee were not considered by the Tribunal. The Tribunal gave its findings as follows : "The assessee's representative, as is clear from our log books, clearly referred to rule 58A at the time of hearing. As there was no such rule in the Companies Act, the argument had to be ignored. Further, the document at page 7 of the paper book being the direction of the Reserve Bank to non-financial companies, was not considered as it was not produced before the authorities below. It was also not the case of the assessee before the authorities below that the entries were made in pursuance of the Reserve Bank's direction. The letters addressed by the three limited companies attempting to explain that the entries in their books we....
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....atia family as its partners. Within three days from the date of constitution of the firm, the said three companies showed sale of shares which it had been holding in various companies of the Jatia group to the firm. In exchange, as consideration, the firm made a credit entry in the cash book of an aggregate sum of Rs. 11.20 lakhs in favour of the said three companies. The said three companies, in turn, showed the credit entries in the cash books as repayment of loan aggregating in all to Rs. 11.20 lakhs. The assessee-firm showed the amount of consideration payable to the three companies as paid out of the loan from the said sole concern of Shri ). M. Jatia, viz., GB and Co., by making a debit entry in the cash book without, however, receiving any cash. Necessary entries relating to the transactions were passed in the books of account of the assessee, GB and Co., and the three companies through their respective cash books. Thus, the cash book showed that there was merely a circulation of cash ending at the point it began, the cumulative effect being that the assessee became a debtor to GB and Co. in place of the said three companies of the group. 10. This is the crux of the whole....
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....assessee-company merely substituted the said three companies as debtors to GB and Co. and received the shares for undertaking the liability. 15. Confronted with the question why the reduction of loan could not be achieved by straightaway transfer of the shares in question by the said three companies to GB and Co. in discharge of the loans, without creating a circuit, Shri Bajoria explained that such a course was not acceptable to all the members of the family as the lender, GB and Co., is the sole concern of Shri J.M. Jatia. To avoid the jeopardy of the other members of the Jatia family this arrangement had to be made, and the assessee-firm had to be created as a device to protect the interest of all members of the group. In any case, it. was urged that the transactions as also the creation of the assessee-firm were devices to avoid the mischief of the ceiling imposed by the Reserve Bank of India on the aforesaid three non-financial companies. The assessee-firm stepped into the shoes of the said three companies. The companies ceased to be debtors and, to that extent, the magnitude of its loan fell within the prescribed ratio. 16. It is finally emphasised by learned counsel fo....
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....rported motive of the entries being the reduction of loans of the three limited companies does not explain the whole matter, because the entries are cash entries. The fact remains that, at every stage, the parties showed the payments and receipts of cash even when there was no cash available for such entries. This quite justifies the addition as sustained by the Tribunal. 19. We have perused the assessment order carefully. We find that cash did not pass at any stage though entries were made in the cash book showing payments and receipts ; but since the entries made a complete round, no passing of cash was necessary for the purpose of making the entries. That there was no passing of cash is also admitted by the Income-tax Officer himself. We have already extracted the observation of the Income-tax Officer in paragraph 14 of his assessment order. The Income-tax Officer has clearly opined that all the respective parties did not receive cash nor did pay cash as none had any cash for the purpose. The only point in the assessment order is that the entries not involving the passing of cash should not have found a place in the cash book, but in the ledger account through journal entries....