TaxTMI 
TaxTMI 
2021 (3) TMI 1058
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.... does not have overdraft facility and FDR during the year as on 31.03.2012. 3. The AO further noted that this is the first year of the assessee company and the assessee has shown its share capital at Rs. 4,37,500/- and share premium at Rs. 6,71,62,500/-. He, therefore, asked the assessee to explain as to how it has got share premium of Rs. 6,71,62,500/- when its authorized capital was only Rs. 5 lakh and issued, subscribed and paid-up capital is Rs. 4,37,500/- only and there is no fixed assets. He further asked the assessee to give the names and present postal addresses of the parties from whom the same have been received during the year. He asked the assessee to prove their identity, credit worthiness and genuineness of the transaction by filing their confirmations as on date and their confirmations must contain the bank account numbers and the name of bank branch from which they have given the said amount, their IT particulars/PAN and Wards/Circles where assessed to tax, copy of their audited balance sheet and P&L Account and copy of their income-tax returns and computation of income and copies of extracts of their bank statement from which the said amount has been given. 4....
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.... (means M/s Kesri Lab Electronics Pvt. Ltd) have sold them 15000 Equity shares @ 10/- each at a premium of Rs. 900/- per share of M/s Gajanan Realcon Pvt. Ltd. The Book value of one Equity share of Gajanan Realcon Pvt. Ltd. is Approx. Rs. 996.16p. 2(c) M/s Freshtex Technologies Pvt. Ltd. In its confirmation has stated that M/s Maiden Building Solutions Pvt. Ltd. has issued 6000 Equity shares of Rs. 10/- each at a premium of Rs. 1990/- to it (means M/s Freshtex Technologies Pvt. Ltd.) and they (means M/s Freshtex Technologies Pvt. Ltd) have sold them 15000 Equity shares @ 10/- each at a premium of Rs. 800/- per share of M/s Om Jai Jagdish Pvt. Ltd. The Book value of one Equity share of M/s Om Jai Jagdish Pvt. Ltd. is Approx. Rs. 962.61 p. However it is strange to see that there is no such company in the name of M/s Om Jai Jagdish Pvt. Ltd. as verified from the MCA website. The actual company name is M/s Om Jai Jagdish Infrastructure Pvt. Ltd., but assessee has never written the correct name neither intimated this fact. 2(d) M/s Delite Buildtech Pvt. Ltd. In its confirmation has stated that M/s Maiden Building Solutions Pvt. Ltd. has issued 7500 Equity shar....
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.... to be unexplained credits in the books of the assessee as the summons u/s 131 was received back unserved. He accordingly determined the total income of the assessee at Rs. 6,84,54,504/- as against the returned loss of Rs. 2,281/-. 7. Before the CIT(A), the assessee submitted that:- 1. the sum found credited in the books of accounts of the assessee is not cash or cheque, hence, section 68 doesn't get triggered. 2. The credit in the books of the assessee arose on account of purchase of shares and not on account of receipt of any money from the investing companies. 3. The investing companies furnished all the documents confirming the transactions. 4. There was no allegation or evidence of operation by an accommodation entry operator. 5. There is no evidence for allegation of cash deposits in either the bank accounts of the assessee or the investing companies. 6. The allegations are for purchase of share at higher than real value from the investing companies and allotting shares to the investing companies at equally high price. If the higher price is reduced to the level justified according to the assessing officer, then also th....
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....lant company has not gained anything in terms, of receipt of money. iii. Allegedly huge premiums have been charged on the allotment of capital and at the same time consideration have been received as shares of certain companies at a price allegedly much higher than the face value of the shares acquired. iv. The transactions have not resulted into any inflow or outflow to the appellant company or any of the transacting company. In that sense, the transaction is cash neutral. v. As a result of these transactions, the appellant became shareholders having investments in following companies:- (a) M/s Coronet Telecom (P) Ltd (b) M/s Gajanan Realcon (P) Ltd (c) M/s Om Jai Jagdish (P) Ltd (d) M/s Pawansut Media Services (P) Ltd (e) M/s Oxygen Projects (P) Ltd vi. Further, the following companies became shareholders of the appellant:- (a) M/s Instent Construction Pvt. Ltd (b) M/s Kesri Lab Electronics (P) Ltd (c) M/s Freshtex Technologies (P) Ltd (d) M/s Delite Buildtech (P) Ltd (e) M/s Vishwanidhi Chemicals (P) Ltd 10. So far as the allegation made by the AO that....
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....e been received in assessee's bank account. Therefore, the decision of the Tribunal in the case of Vital Communications (supra) is squarely applicable to the facts of the present case. 13. Aggrieved with such order of the CIT(A), the Revenue is in appeal before the Tribunal. "1. Ld.CIT(A) erred in law and on facts of the case in deleting the addition of Rs. 6,76,00,000/- made by the AO under section 68 of the IT Act in respect of alleged share capital and premium. 2. Ld. CIT(A) erred in law and on facts of the case in deleting the addition of Rs. 8,50,000/- made by the AO under section 68 of the IT Act in respect of alleged creditor. 3. The appellant craves leave, modify, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 14. The ld. DR heavily relied on the order of the AO. He submitted that in the instant case, the assessee has issued shares at a high premium to the investing companies and has also purchased shares at a high premium from the investing companies. Despite being asked by the AO, the assessee company failed to produce the directors of the investing shareholder companies for their physical a....
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.... on the following decisions:- i) Jatia Investment Co. Vs. CIT 206 ITR 718(Cal); ii) ITO vs. M/s Vital Communication Ltd., ITA No.2448/Del/2007, order dated 15.06.2016; iii) V. R. Global Energy Pvt. Ltd. Vs. ITO, 407 ITR 145 (Mad); iv) H.H. Sri Rama Verma vs. CIT, reported in 57 Taxman 149 (SC). v) CIT vs. Sohan Lal Singhania, (1999) 235 ITR 616 (All); vi) Blooming Tradelink Pvt. Ltd. vs. ITO, ITA No.2691/Kol/2018, order dated 28.02.2020; vii) ITO Vs. M/s. Saffron Comtrade Pvt. Ltd., vide ITA No.2029/Kol/2016, order dated 28.08.2019; viii) ITO Vs. M/s. Pansu Commercial Pvt. Ltd., ITA No.1859/Kol/2017, Order dated 08.05.2019 and ix) ITO Vs. M/s. Sunglow Dealcom Pvt. Ltd., ITA No.2178/Kol/2016,Order dated 16.11.2018; and x) ITO vs. M/s Anand Enterprises Ltd., ITA No.1614/Kol/2016, order dated 26.09.2018. 16. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has received ....
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.... The following provisos shall be inserted in section 68 by the Finance Act, 2012, w.e.f. 1-4-2013 : Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." 18. As per the above provision where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about....
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....here shares were issued against the shares received under the swapping arrangements and no fresh amount of money was brought into the books by way of cash/cheque/draft has observed as under:- "8.3 We find force in the Ld. CIT(A)'s finding that the aforesaid addition cannot be sustained for another legal premise also. Section 68 of the I.T. Act 1961 under which these additions have been made by the Assessing Officer reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 8.3.1 It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to a....
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....pping the commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of Rs. 2,50,00,000/-. In view of the above, there is no question for making addition of this amount. Thus the Assessee has satisfactorily discharged the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the assessee is required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Assessee has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third parties in the chain were also filed by the assessee. Thus the....
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.... shares to those shareholders. Now the crucial point is whether the provisions of section 68 could be invoked in the instant case for making investment towards share capital. There was no receipt of any sum as provided u/s 68 of the Act in the instant case. It would be pertinent here to refer to the decision of Hon'ble Supreme Court in the case of Shri H.H. Rama Varma vs. CIT reported in 187 ITR 308 (SC) wherein it was held that 'any sum' means 'sum of money'. We find that ld. CIT(A) had deleted the addition by observing as under: "6. On consideration of the AR's submission, especially the portion reproduced above, it is seen that section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by the appellant when purchase and allotment are under a barter system. The AO has not refuted the appellant's claim that shares were allotted in exchange for acquisition of shares by the appellant from the companies which surrendered such shares to the appellant. Though as per the AO to apply section 68 to make the said addition in the appellant's hand. Transactions purportedly executed by entry operators invol....
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....ore the Reserve Bank of India. But, according to Shri Bajoria, that does not mean that it amounts to an artifice employed to deceive any authorities, because the transactions showing the amount as received in cash and paid away spontaneously and simultaneously were not actual but only notional. He, however, stated that, as far as the question of section 68 is concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. It was further stressed that the transactions are above board. No outsider is involved. The entries were made in the books of the concerns of the same group. The shares in question were also of the companies of the group. There was no attempt at hiding the transactions. Nor is it the case of any of the parties to the transaction that there was any passing of cash. Every party unequivocally stated that the transactions were carried into effect merely by way of adjustments of the said loans and the share transfers. 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 emp....
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....n to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital. Again, as regards the Tribunal's refusal to take notice of the directions of the Reserve Bank, it is not correct for the Tribunal to hold that the said document was a new evidence in the true sense of the term. The assessee has been consistently pleading before the lower authorities that the entries had to be made in order to bring the companies in conformity with the said direction. Moreover, the direction of the Reserve Bank is a public document within the meaning of section 74 of the Evidence Act, 1872. Documents of a public nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act. In our view, the effect and import of the transactions is that the assessee took over the liability of the aforesaid non-financial companies to GB and Co. in exchange for the shares as aforesaid. In the premises, we answer all the questions, in the affirmative and in favour of the assessee and against the Revenue." 4.2. It would be pertinent to n....
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.... Vs. ITO, 407 ITR 145 (Mad); xiii) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Saffron Comtrade Pvt. Ltd. dated 28.08.2019; xiv) ITAT, Kolkata bench in the case of ITO Vs. M/s. Pansu Commercial Pvt. Ltd. dated 08.05.2019 and xv) ITAT, Kolkata Bench in the case of ITO Vs. M/s. Sunglow Dealcom Pvt. Ltd. dated 16.11.2018. 5. We note that this issue is no longer res integra. We also find that there is no cash transferred for the shares by the assessee. We note that the assessee had swapped shares in lieu of shares. We note that this Tribunal has already held that section 68 of the Act is not attracted in such transfer and the Tribunal in the case of ITA No. 2178/Kol/2016, ITO Vs. M/s. Sunglow Dealcom private Limited for AY 2012-13 order dated 16.11.2018 has held as under: "3. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 4. The undisputed fact in this case is that the allotment of shares were for consideration other than by way of cash. The four companies which a....
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.... applicable in the instant case and accordingly the entire addition deserves to be deleted which has rightly been done by the Id. CIT(A) which does not require any interference. Accordingly, grounds raised by the revenue are dismissed." 4.2. The Hon'ble Jurisdictional High Court in the case of Jatia Investment Co .v. Commissioner of Income-tax [1994] 206 ITR 718 (CAL.) held as follows:- "Section 68 of the Income-tax Act, 1961 - Cash credits - Assessment year 1976- 77 - Partners of assessee-firm were members of one 'J' group running several businesses and industries - Accounts of assessee-firm showed that it had borrowed certain amount from GB, a proprietary concern of one of its partners JM, which was invested in purchase of shares - ITO found that GB had no cash balance to advance said amount to assessee - He, thus, concluded that source of funds for purchase of shares by assessee was not explained, and consequently, assessed that amount as income from undisclosed sources - It was contended by assessee that notional cash entries were made to reduce indebtedness of three companies of 'J' Group to GB in order to comply with certain directions of RBI - Assessee-firm....
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....nd circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. This is a simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead, the consideration was settled through issuance of shares to the respective parties. Hence we hold that provisions of section 68 of the Act are not applicable in the instant case and accordingly, the entire addition deserves to be deleted and we delete the addition as confirmed by the Ld. CIT(A) and allow the appeal of the assessee. 7. In the result, appeal of assessee is allowed." 22. The various other decisions relied on by the ld. Counsel for the assessee in the paper book also supports the case of the assessee that provisions of section 68 are not applicable in a case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and, instead, considerations were settled through issuance of sh....