TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 1923
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....Rs. 75,00,000/- received as share application/ share premium money. 3. The brief facts relating to the issue are that the assessee company which is engaged in the business of trading of steel and steel service centre filed its return of income for the year under consideration on 25.09.2012 declaring therein Nil income which was stated to be processed under section 143(1) of the Act at the returned income. Subsequently, the case of the assessee company was selected for scrutiny by issue of notice under section 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer had noticed that the assessee company has shown in the balance sheet for the period ending 31.03.2012, the increase in securities premium reserve from Rs. 1,51,12,500/- to Rs. 2,24,25,000/- as compared to last year . It was noticed by the Assessing Officer that the assessee company During the year under consideration had issued 18750 shares to two companies at a premium of Rs. 390/- having face value of Rs. 10/- and received an amount of Rs. 75,00,000/- by way of share capital and share premium. During the course of assessment proceedings, the Assessing Officer asked the assessee company to ....
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....erefore, made an addition of Rs. 75,00,000/- to the returned income of the assessee company by invoking provisions of section 68 of the Act by treating share capital /share premium received by the assessee company as its own income from undisclosed sources on the ground that the assessee company could not establish the identity, creditworthiness and genuineness of transact ion in the case of share holder companies namely M/s Lawa Marketing Pvt. Limited and M/s Pansy Dealer Pvt. Limited. The assessment in this case was ultimately completed by the Assessing Officer vide order under section 143(3) of the Act dated 27.03.2015 at an assessed income of Rs. Nil being a loss case. 4. In appeal before the Ld. CIT(A), the assessee has made the following submissions:- "This is with reference to an appeal filed by M/s Technico Metals Pvt. Ltd. (herein after referred to as "the appellant") against the order U/s 143(3) of the Income-Tax Act, 1961 for the above captioned assessment year. Brief Facts The appellant, a private limited company, is engaged in the business of trading of steel, and, also runs a service steel centre. For the previous year, relevant to assessment year 2012-13, the ....
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....firmations from the companies, elucidating, the investment in the equity shares of the appellant were also filed. The Ld. Assessing officer, abruptly, brushed aside the material and necessary evidence on record, which, plainly and self-evidently culled out the fact that, the transactions between the investor companies and the appellant are normal and genuine business transactions. No material has been placed on record by the Ld. Assessing Officer to contradict the veracity of the documents furnished by the appellant. The Ld. Assessing Officer, further, contented that the submissions of confirmations did not prove genuineness of the transactions. The Ld. Assessing Officer did not carry out any enquiry into the income tax records of the investor companies, in order to ascertain, whether, they were in existence or not. Even, the commission U/s 131(1)(d) was issued by the Ld. Assessing Officer to the Deputy Director of Income Tax(Investigation), Unit I(I), Kolkata, and, in turn, the Ld. Deputy Director of Income Tax (Investigation) issued summons to the investor companies. In response to those summons, the investor companies submitted information with respect to details of investme....
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....prudently in terms of risks and rewards, before making an investment in the appellant at a premium of Rs. 390/- per share. Moreover, the Ld. Assessing Officer, also, alleged that, if the directors of investors companies are not produced before him, the natural corollary would be that, the real position is not the same as emerges from papers and documents furnished by the appellant. However, the appellant submitted its reply vide a letter, the relevant extract of which, is, also reproduced in the body of the assessment order dated 27.03.2015 at Page 14 Para 4.4.1, as under: "Inspite of the best efforts made by the assessee company, none of the subscriber is agreed to be personally present before Your Honor, since, all these are staying in Kolkata or other places which are far from Ludhiana. The assessee company has already submitted confirmations giving their full addresses. Your Honor is requested to kindly summon these parties by using Your good office. The assessee company is ready to make payment of diet money for the same". However, the Ld. Assessing Officer did not consider the aforesaid reply filed by the appellant. Even, the appellant, further, said that the diet mone....
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....egarding the share capital and share premium. The action of the Ld. Assessing Officer and the arguments advanced by the Ld. Assessing Officer asking the appellant to prove source of source of deposit of the amount of Rs. 75,00,000/-, which, was not only against the spirit, but, also letter of the provisions relating to establishment of the identity of cash creditors embodied in the Income-tax Act, 1961. The copious, exhaustive but, at the same time, aimless exercise had been carried out by the Ld. Assessing Officer asking the appellant to furnish documents and offer explanations in respect of the investor companies, over, whom the appellant neither had, nor, is expected to have any control, physical or moral or even notional. The appellant could not be asked to prove the source of money of the investor companies, and, could not be held liable or penalized for any alleged shortcoming therein. Moreover, independent investigations, over, which the appellant did not have any control, could not, be used to form any conclusion, adverse or otherwise, in respect of the appellant. As such, the said addition was, neither, warranted, nor, justified and sustainable on the facts of the case. ....
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....an can be safely held to be a fact-situation, which is actually within the special knowledge of the assessee, hence, it is the burden of the assessee to show the source(s) from where he has received the loans. Once the assessee discloses the source(s) from where he has received the loans, his burden under section 106 stands discharged and the onus then shifts to the Assessing Officer to show, if he wants to treat the loans as an income of the assessee from undisclosed sources, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which has been received by the assessee in the form of loans, actually belongs to the assessee himself. While section 106 of the Indian Evidence Act limits the onus of the assessee to extent to his proving the source from where he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor's) sub-creditors and prove, as a result of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the ....
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....anced as loan to the assessee by the creditor shall have to be treated, as a corollary, as the income from undisclosed source of the assessee himself." II. The Hon'ble High Court of Gujarat in the case of DCIT V. Rohini Builders [2002] 256 ITR 360 (Gujarat) has laid down as under: "The assessee was not expected to prove genuineness of cash deposited in bank accounts of creditors, because under law, assessee can be asked to prove source of credits in its books of account but not source of source. Merely because summons issued to some of creditors could not be served or they failed to appear before Assessing Officer, could not be ground to treat those credits as nongenuine." Also, The Hon'ble Supreme Court in the case of M/s Lovely Exports (P.) Limited V. Commissioner of Income-Tax (2008) 216 CTR 195(SC) has also laid down as under: "If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company." &n....
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.... establish that the amount was actually given by the lender; * the genuineness and regularity in the maintenance of the account have to be taken into consideration by the taxing authorities; and * if the explanation is not supported by any documentary or other evidences, then the deeming fiction created by section 68 can be invoked. [Para 7] In the instant case, the first requirement was not relevant. So far as the second requirement was concerned, there was no doubt about initial burden being on the assessee. So far as the third requirement was concerned, obviously if the explanation was not satisfactory, then it was to be added. Then fourth requirement was that the firm had to establish that the amount was actually given by the lender. Fifth requirement was about genuineness and regularity in maintenance of the accounts obviously of the assessee, and it was not the finding that the accounts were not regularly maintained. Then sixth requirement was that if the explanation was not supported by any documentary or other evidences, then the deeming fiction created by section 68 could be invoked. In the instant case, that requirement was very much there in existence in asmuch as th....
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....n the books of account of the assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is placed on the assessee, shifts as soon as the assessee establishes the authenticity of transactions as executed between the assessee and its creditors. It is no part of the assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the assessee to prove the creditworthiness of the sub-creditors. In the light of the above principle, one should examine as to what the authorities below found vis-a-vis the genuineness of the transactions and the creditworthiness of their creditors. * The fact that there was sufficient balance available with the creditors when cheques have been issued to the assessee-company was established. * It was also established that the funds available at the relevant point in time were not infused into the bank accounts of the creditors by way of cash but were, in fact, credited to their account again by way of cheques largely on account of commissions received by them save ....
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....at of the sub-creditors. If had any doubts with regard to their creditworthiness, the revenue could always bring it to tax in the hands of the creditors and/or sub creditors. So far as non-appearance of the sub-creditors to whom the notices have been issued under section 131 by the Assessing Officer is concerned, notices had been issued to the sub-creditors on 24-2-2005. The Assessing Officer, without giving sufficient time for the services to be effected on the said notices, within a period of four days proceeded to frame the assessment order. As a matter of fact, the Assessing Officer, quite curiously, has observed in the assessment order that the said noticees have preferred not to reply to the summons issued to them. There is no observation whatsoever as to the date on which the said notices were dispatched and thereafter served on the said noticees. It is not uncommon that notice issued by the revenue gets dispatched much later than the date mentioned on the notice and as a matter of fact get served on the noticee either on the date of appearance or thereafter. The aforesaid circumstances show that the Assessing Officer framed the assessment in haste. If the Assessing Office....
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....l. Since there was no material with Assessing Officer to come to conclusion regarding any ingenuineness or fictitious identity of entries or noncapacity of lender, addition was rightly deleted". Even, The Hon'ble High Court of Punjab and Haryana in the case of CIT v. Ramneet Singh [(2008)] 306 ITR 267 (P & H)] has laid down as under: "Where assessee had produced sufficient documents to show that loan shown in name of two companies had been received from those parties, addition made by Assessing Officer on account of unexplained loans was rightly deleted by Tribunal." To conclude, it may be said, that, on the basis of the facts discussed and the ratio of the judgements made it clear that, if the cash creditors were identified, and, it was established that they had lent money to the appellant, no recourse could be made to the provisions of Section 68. All the requisite particulars were provided to establish the identity of the cash creditors in the shape of confirmations, ITRs and bank statements to the Ld. Assessing Officer. The various arguments advanced by the Ld. Assessing Officer did not find any merit, in, as much as, the same amounted to asking the appellant to furnish....
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.... worked out by her on basis of advice given by her husband, whereas, in the instant case, the appellant did not file any such statement, on the basis of which, the matter in question had to be considered in light of human probabilities. From the above, it could be undoubtedly, and, unquestionably established that the facts in the case of the appellant were very much different from the facts of the case of Sumati Dayal. Therefore, the judgement in the case of Sumati Dayal relied placed upon by the Ld. Assessing Officer, would, not be applicable in the case of the appellant. As such, the addition of Rs. 75,00,000/- made by the Ld. Assessing Officer by invoking the provisions of Section 68 of the Income-Tax Act, 1961, are, neither warranted nor sustainable, keeping in view, both the factual as well as the legal position outlined above. Thus, the assessment order dated 27.03.2015 is contrary to law and facts. Furthermore, there are also other legal pronouncements by the Hon'ble Income Tax Appellate Tribunal, Chandigarh, on the very much similar issue raised in the case of M/s A.P. Refinery Pvt. Ltd., M/s Kisco Castings (P.) Ltd. and M/s Mandi Alloys (P.) Ltd. To conclude, it may be....
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....the DDIT(Inv.), Unit -1(1), Kolkata by way of a letter and they have also explained the source of investments. The learned AR of the assessee company has also enclosed copies of letters addressed by these share holder companies to DDIT (lnv.), Unit-l (1),Kolkata. On careful consideration of the rival contentions, I am also of the opinion that the identity, creditworthiness and genuineness of transaction in the case of the shareholder companies namely M/s Lawa Marketing Pvt. Limited and M/s Pansy Dealer Pvt. Limited has not been established by the assessee company by producing the directors of these companies. The inquiries conducted by the Department clearly establish that the shareholder companies do not exist at their respective addresses and are believed to be paper companies and are in fact created just to provide accommodation entries to the needy persons. During the course of assessment proceedings, the learned AR of the assessee was specifically asked to produce the Directors of above mentioned investor companies but he failed to produce them inspite of repeated opportunities. It has been noticed the Assessing Officer from the details filed by the learned AR of the assessee ....
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....ssessing Officer has correct1y invoked provisions of section 68 of the Act in this case. The enquiries made by the Assessing officer reveal that the investor companies had substantial means and could not reasonably be said to possess means to make investment that they did in purchasing shares of the assessee company. The Honourable Delhi High Court in the case of CIT Vs. M/s N.R. Portfolio (P) Limited [ITA No. 1018 & 1019 of 2011] has held that when Assessee does not produce evidence or tries to avoid appearance before Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as Assessing Officer is denied advantage of contention or factual assertion. It has also been held that the Court or Tribunal should be convinced about the identity, credit worthiness and genuineness of the transactions. It has further been held that the onus to prove the three factum is on the assessee as the correct facts are within personal knowledge of the assessee. It has again been held that mere production of incorporation details, PAN Nos. or returns may not be sufficient when surrounding and attending facts predicate cover up. The assessee company also....
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....t applicable here as many of the decisions relied upon by me and the Assessing Officer have been delivered after considering the decision of the Honourable Apex Court. Under such circumstances, the action of the Assessing Officer in making an addition of Rs. 75,00,000/- in this case by invoking provisions of section 68 of the Act by treating share capital/share premium received by the assessee company from M/s Lawa Marketing Pvt. Limited and M/s Pansy Dealer Pvt. Limited as its own income from undisclosed sources on the ground that the assessee company could not prove the identity, creditworthiness and genuineness of transaction in the case of these companies from whom share capital/share premium has been stated to be received by the assessee company cannot be said to be unjustified. 5.3 In view of the above stated facts and in the circumstances of the case, I am of the opinion that the Assessing Officer is fully justified in making an addition of Rs. 75,00,000/- in this case by invoking provisions of section 68 of the Act by treating share capital/share premium received by the assessee company from M/s Lawa Marketing Pvt. Limited and M/s Pansy Dealer Pvt. Limited as its own inc....
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....ve submissions of Ld. Representat ives of the par ties. It is not iced from the record that the assessee company to prove the identity and creditworthiness of the investor companies and genuineness of the transactions has furnished the fol lowing documents in relat ion to the investor company. (A) M/s Lawa Marketing (P) Ltd. a) Copy of Application Form for Equity Shares b) Copy of Statement of Bank Account of Transactions effected on 20.03.2012 c) Copy of Permanent Accounts-lumber d) Copy of Income-Tax Return Acknowledgement of A.Y. 2011-12 e) Copy of Blank Share Transfer Form g) Copy of Certificate of Incorporation f) Copy of Memorandum and Articles of Association g) Copy of Letter (along with Enclosed copies) to the Deputy Director of Income-Tax, DDIT(lnv.), Unit-(I)l, Kolkata; wherein Information was furnished U/s 131 of the Income-Tax Act, 1961 in the case of M/s Technico Metals (P.) Ltd. for A.Y. 2012-13: (i) Copy of Form of Application for Equity Shares (ii) Copy of Bank Statement of Yes Bank from 01.03.2012 to 31.03.2012 evidencing the Fact that M/s Lawa Marketing (P.) Ltd. had paid a Share Application Money of Rs. 25,00,000/- through RTGS dated 20.03.2....
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.... to make payment of diet money for the same". 10. The Ld. counsel in this respect has also rel ied on the decision of the Hon'ble Rajasthan High Cour t in the case of 'CIT Vs. Jalan Hard Coke Ltd.,'[2018] 95 taxmann.com 330(Rajasthan), wherein, in somewhat ident ical facts, the assessee expressed i ts inabil ity to produce the share applicants, the Hon'ble High Court held that addi tions were not warranted observing that the company cannot assess for the income tax to f ind out the persons who has applied as shareholder. The said decision of the Hon'ble Rajasthan High Cour t has been af f irmed by the Hon'ble Supreme Court by way of dismissal of SLP filed against the said order reported in 'CIT Vs. Jalan Hard Coke Ltd.,' [2018] 95 taxmann.com 331 (SC) . The Ld. counsel has also brought our attent ion to para 6.1 of the decision of Hon'ble Rajasthan High Cour t in the case of "CIT Vs. Jalan Hard Coke Ltd.' wherein, the Hon'ble High Court consider ing the ent ire decision of the Hon'ble High Court in the case of ' CIT Vs. ARL Inf ratech Ltd.' , [2017] 88 taxman.com 469 has approved the observation of the Tr ibunal that the alleged report of the inspector....