TaxTMI 
TaxTMI 
2021 (3) TMI 51
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....3 without considering the fact that the explanations regarding 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....
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....onse to notice u/s 131 of the I T Act but the deposition was not taken. The directors 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 ....
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....t on record. During the present remand stage, the appellate assessee company filed one written submission along with 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 ....
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....ndustries which was converted into the partnership business by taking the appellant company as partner. SKJ Coke Industries Ltd had made investment amounting to Rs. 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 th....
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....o the AO during assessment stage. The share subscribers had also appeared before the AO during the remand stage. As regards the sole corporate share subscriber, all details of investments 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 transact....
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.... The appellant company has abided with all Codal formalities under the Companies Act, 1956, in increasing authorised share capital and for the allotment of shares by cash and consideration other than cash. The 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. ....
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....nue had filed SLP with the Apex Court against the order of the Bombay High Court which has been dismissed by the Apex Court vide SLP Diary (Civil) no. 12644/2018, Order dated 23.04.2018 with the observation that: "We do not find 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 fr....
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....otices/summons, none of the directors of the assessee company nor the directors of the share subscribing companies appeared before him, therefore he made an addition of Rs. 50.30 crores. On appeal the Ld. CIT(A) has called for remand report (twice) and 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 ....
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.... identity of the share applicants, genuineness of the transactions and creditworthiness of the applicants could not be disputed''. We note the revenue has not controverted or assailed these finding of facts and moreover, there is no evidence/material on 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 L....
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....ity Shares of Rs. 10.00 each of the company to the First Part. 10. The aforesaid mistake has been corrected by deed of agreement dated 09.12.2011, wherein the following has been added (corrected the mistake in the original agreement dated 28.11.2011) which reads as under: "WHEREAS A Deed of Agreement has been 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 CEM....
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....le in the assessment records. The Ld. CIT(A) also finds that the sole corporate share subscribers M/s SKJ Coke Industries Ltd. has made investment amounting to Rs. 50 crores in M/s Jupiter Cement Industries Ltd. for AY 2007-08 to AY 2012-13 and the said investment was converted in to the equity shares of assessee company [M/s Shri Ganesh Cement Pvt. Ltd.] as per the agreement 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....
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....rthy of credence. The Ld. CIT(A) found that AO during the original assessment and during the remand proceedings could not find any fault in the documents submitted by the assessee to substantiate identity, creditworthiness and genuineness of the share subscribers including (i) M/s SKJ Coke Industries (50 crores) (ii) The directors of the assessee company (30 Lakhs). In 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 rec....
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....e identity of the share applicant have been proved and therefore, the addition should not have been made by the AO. During the course of appellate proceedings, the assessment records were also obtained from AO and the same have also been examined by me to ascertain the facts correctly. The share applicant company M/s. General Capital has been duly confirmed the fact of making investment in 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 assess....
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....e entire share premium and the paid up value was apparently by book adjustment. According to the assessee, one Smt. Vathasala Ranganathan was a partner holding 50% share in the firm M/s.Shriram Auto Finance, who had paid various advance amounts to banks and other institutions on behalf of the companies as per the particulars given below: Name of the Company Amount Century Wood Limited 8.52 TTG Industries Limited 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 paya....
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....t the method of valuation was not acceptable and that the share premium of Rs. 5400/- was unreasonable. The Assessing officer held that the assignment agreement furnished by the appellant assessee was only a purported agreement without any substance and the transaction was a mere book adjustment. 16. Aggrieved by the order of assessment, the assessee appealed to the Commissioner of Income Tax (Appeals), who held that the assessee 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 attemp....
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....ncome of the company. 23. In Commissioner of Income Tax v. Steller Investment Ltd., reported in (2001) 251 ITR 263, also cited on behalf of the appellant, the Supreme Court held that even if the subscribers to the increased share capital of assessee-company were not genuine, the amount could not be regarded as undisclosed income of the company. 24. The question of whether the learned Tribunal erred in confirming the valuation of shares allotted in settlement of the preexisting 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 i....
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....l entries were not passed making havalas which should have brought the same result. The very fact that cash entries are made for the purchase of shares by the assessee would show that the assessee had paid cash for the purchase of shares. Obviously, the assessee is not able to show how the cash was provided. The concerns from whom cash allegedly passed did not have enough cash balance to lend money to the assessee. In these circumstances, the Income-tax Officer was fully justified in drawing the conclusion that the assessee 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 o....
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.... prescribed ceiling limit of the volume of loans, the said three companies were to liquidate the loans borrowed from the said proprietary concern of Shri J. M. Jatia. But the said companies had not the requisite liquidity to discharge the loans. Since the lending proprietary concern of Shri J. M. Jatia belonged to the same group, an arrangement was made for reduction of the volume of borrowing of the companies to the requisite limit. Therefore, a partnership firm, i.e., the assessee, was constituted on April 20, 1975, with the members of the Jatia 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 Shr....
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....to GB and Co. 14. Shri Bajoria emphasised that, in the course of assessment proceedings, the Income-tax Officer examined the transactions and found that these are only entries not involving at any stage any cash. He pointed out that the entire transactions were effected between the assessee-firm and the concerns belonging to the Jatia group only for the requirement of complying with the directions of the Reserve Bank of India that cast on the companies a statutory obligation to reduce their borrowing to maintain parity with the loan and capital ratio as prescribed. The 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 arrange....
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....nts of the said loans and the share transfers. 18. Shri A.C. Moitra, the learned advocate for the Revenue, reiterated the grounds on which the Tribunal has affirmed the addition of the amount of Rs. 11.20 lakhs as unexplained cash credit. He particularly emphasised that the assessee's contention that the entries are only adjustment entries is not acceptable, because the adjustment entries are not made through the cash book. It is an accepted principle of accounting that book adjustments and the entries in effecting them are made by journal entries and not cash entries. He urged that the purported 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....