TaxTMI 
TaxTMI 
2019 (2) TMI 1923
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....s with respect to justification of credit amounting to 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 proceedi....
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....o ascertain the correct facts. The Assessing Officer , therefore, 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 servic....
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.... fact that, the share application money and share premium have been credited to the bank account of the appellant through proper banking channels. Even the letters of confirmations 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 Directo....
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..../s Lawa Marketing (P.) Ltd. and M/s Pansy Dealer (P.) Ltd. have got no income out of an investment in shares, because, M/s Lawa Marketing (P.) Ltd. and M/s Pansy Dealer (P.) Ltd., would, have acted 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 co....
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....hat the onus on the appellant with regard to the duties enjoined upon it regarding receipt of the amount of Rs. 75,00,000/- have been fulfilled and discharged and, therefore, it could not be said that, there was a failure to establish the identity, creditworthiness and genuineness of a transaction regarding 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 ther....
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....r genuineness of transactions, which took place between creditor and sub-creditor and/or creditworthiness of sub-creditors for these aspects may not be within special knowledge of assessee. On a careful reading of section 106 of the Indian Evidence Act, it is noticed that what is the source from where an assessee has obtained the loan 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 ....
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....special knowledge of the assessee. Since, it is not the business of the assessee to find out the source(s) from where the creditor has accumulated the amount, which he has advanced in the form of loan to the assessee, section 68 cannot be read to show that in the case of failure of the sub-creditors to prove their creditworthiness, the amount advanced 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) ha....
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....to be considered: - * that there is no distinction between the cash credit entry existing in the books of the firm whether it is of a partner or of a third party; * that the burden to prove the identity, capacity and genuineness have to be on the assessee; * if the cash credit is not satisfactorily explained, the ITO would be justified to treat it as income from 'undisclosed sources'; * the firm has to 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 l....
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....ions (P.) Ltd. [2013] 354 ITR 282 (Delhi) has upheld that: "The Tribunal has adopted an erroneous approach on the aspects of genuineness of the transactions in issue and the creditworthiness of the persons/creditors who lent money to the assessee. The first aspect, i.e., identity of the creditors was established before any of the authorities below. It will have to be kept in mind that section 68 only sets up a presumption against the assessee whenever unexplained credits are found in 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 ge....
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....f the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their Income-tax returns, it could gather the necessary information from the sources to which the said information was attributable to. No such exercise had been conducted by the Assessing Officer. In any event what both the Assessing Officer and the Tribunal lost track of was that they were dealing with the assessment of the company, i.e., the recipient of the loan and not that of its directors and shareholders or that 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 assessme....
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....r asked assessee to file a copy of incometax return of ACL along with its audited profit and loss account, balance sheet and copy of bank statement for relevant period. Assessee furnished all documents asked for. However, the Assessing Officer, treated the same as unexplained cash credits under section 68. On appeal, Commissioner (Appeals) held that assessee had discharged its burden of proving identity, capacity and genuineness of transaction and in those circumstances, addition made by Assessing Officer was not justified. An appeal preferred there against by revenue was dismissed by Tribunal. 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." ....
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....tor companies and the appellant was routed through banking channels, and, the appellant had duly explained source of income. Even, the judgement of the Hon'ble Supreme Court of India in the case of Commissioner of Income-Tax Vs. Sumati Dayal 214 ITR 801 relied upon by the Ld. Assessing Officer are clearly distinguishable in the facts of the case of the appellant. The main distinguishing point was that, in the case of Sumati Dayal, the assessee, herself, filed a sworn statement to effect that, she started going for races only towards end of year 1969 and had no experience in races, but, she purchased jackpot tickets on combination 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 t....
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....d and M/s Pansy Dealer Pvt. Limited from whom share capital/share premium has been stated to be received by the assessee company. On the other hand, the learned AR of the assessee company has submitted that the assessee company had discharged its onus to prove the identity, creditworthiness and genuineness of transaction in the case of share holder companies by producing the copy of income tax returns filed by these companies, their bank statements, share application forms, share transfer certificates, copy of articles and memorandum of association, copy of PAN card etc. It has also been submitted that the share holder companies have also replied to summons issued by 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....
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....e course of enquiries conducted by the Department. In the backdrop of this circumstance, the assessee company's ability to secure documents such as income tax returns of the investor companies as well as their bank account particulars would itself give rise to a circumstance which the Assessing Officer in this case proceeded to draw inferences from. Having regard to the totality of the facts, i.e., that the assessee company is showing losses in its returns being filed by it with the Department and still sought to infuse share capital at a huge premium of Rs. 390/- per share and was able to garner a colossal amount of Rs. 75,00,000/-, I am of the Opinion that the Assessing 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....
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..... Titan Securities Limited (2013) 357 ITR 0184 (Del.) (xv). CIT Vs. Gold Leaf Capital Corporation Limited (2013) 353 ITR 0163 (Del). I am also of the opinion that the judicial pronouncements relied upon by the learned AR of the assessee have distinguishable facts from the facts of the case of the assessee company. I am further of the opinion that merely by providing certain documents which also remained unverifiable as done by the assessee company in this case will not prove identity, creditworthiness and genuineness of transaction in the case of share holder companies as held in various court decisions as referred to above. I am again of the opinion that the decisions of the Honourable Apex Court in the case M/s Lovely Exports is also not 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. ....
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....annual accounts for f inancial years 2010-11 to 2012-13, copies of income tax returns etc. as wel l as copies of the conf irmation let ters from the investors. 7. On the other hand, Ld. DR has strongly placed rel iance on the observations made by lower authorit ies that the aforesaid investor companies were based at Kol taka and that the Dy. Directior Income Tax (Invest igation) Kolkata was requested to make invest igat ion about the aforesaid two companies who in turn reported that an Inspector was sent to the address of the companies, however, the said companies could not be located by him. The Ld. DR has, therefore, submi tted that these companies were non-existent companies and, hence, the ent ire transaction was a bogus transaction. 8. We have considered the above 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 Statem....
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....le of Details of Investments. e) Copy of Confirmation f) Copy of Extract of Minutes of Board Meeting of M/s Pansy Dealer (P.) Ltd. g) Copy of Share Certificate 9. A perusal of the above reveals that the assessee had furnished the relevant documents to prove the ident i ty, creditworthiness of the investors as well as genuineness of the transact ions. However , the Assessing Officer harped the assessee to produce the directors of the investor company before him, in reply, to which the assessee submit ted 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, al l these are staying in Kolkata or other places which are far from Ludhiana. The assessee company has already submit ted confirmat ions giving their full addresses. Your Honor is requested to kindly summon these part ies by using Your good office. The assessee company is ready 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 taxm....
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..... it is in the common knowledge that the accounts are opened in the bank through introducers who approve that the account holder is known to him / her and is genuine. Enquiries could have been made from the said introducers also. Apart from that, the companies have been duly registered at the given address and duly audited by the auditors. The assessee had also produced on the f ile the repor t of the audi tors in the case of both the investor companies who have audited the accounts of the aforesaid firms. If there was any doubt about the existence of such companies, the concerned auditors, CA of the respective companies could have been enquired / investigated. It has been explained that the M/s Lawa Marketing (P.) Ltd. had paid share applicat ion money of Rs. 25 lacs through RTGS and the same was sourced out of the sale of shares for Rs. 32 lacs to M/s Ability Dealmark (P.) Ltd.) . Similarly, the source of funds in the case of M/s Pansy Dealer (P.) Ltd. has been explained that the same were sourced by sale of shares of M/s Malcom Marketing Pvt. Ltd. There is voluminous record placed on the file such as share application forms, share cer tif icates, bank accounts statements, conf i....