TaxTMI 
TaxTMI 
2021 (7) TMI 361
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....stances of the case and in Law, the Ld. CIT(A) has not erred in not appreciating the fact that the share application money found credited in the books of account of the assessee received from three (3) companies were lacking genuineness of transaction. The Ld CIT(A) has not appreciated the fact that the assessee company could not establish the creditworthiness of these 3 companies and AO after conducting inquiries was not satisfied with the explanation offered by the assessee company, hence the additions made should have been sustained. 3. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has not erred in not appreciating the fact that genuineness and creditworthiness of share applicants were not proved as credits in their bank accounts were from non-existent entities and thus the subsequent transfer of funds to assessee company towards share capital/premium was non genuine. 4. Whether on the facts and in the circumstances of the case and in Law, the Ld. CIT(A) has not erred in accepting fresh evidence regarding identity of investors, their creditworthiness and genuineness of transactions, in contravention of set principles, with....
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....p; Total Share Capital and Share Premium in A.Y.2012-13 20000000 3. The above chart shows that there are four share applicant companies. The share applicant, Rama Trade Link Pvt. Ltd, shown at serial No.4 in the above table, is an associate concern of the assessee group. The assessing officer accepted, Rama Trade Link Pvt. Ltd, (share applicant) as a genuine share applicant company and observed that in case of said company, the assessee has proved three ingredients of section 68 of the Act, that is, identity, creditworthiness and genuineness, therefore, assessing officer did not make addition of Rs. 20,00,000/-. 4. During the course of the assessment proceedings, the AO found that the assessee company has received amount of Rs. 2,00,00,000/- for share capital/share premium from four concerns, mentioned in the above chart. The amount of share premium was of Rs. 1,60,00,000/- and share capital of Rs. 40,00,000/- received during the year. The AO accepted the share capital of Rs. 4,00,000/- and Rs. 16,00,000/- of share premium received from Rama Trade link Pvt. Ltd. during the year as genuine being a sister concern of the assessee company. The AO made in....
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....al before the ld.CIT(A) who has deleted the addition made by the ld.Assessing Officer. Aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 8. The Learned Departmental representative, strongly relied upon the orders passed by the Assessing Officer. He states before the Bench that decision of the Ld. CIT(A) is not acceptable. The Ld. CIT(A) has deleted the addition of Rs. 1,80,00,000/- without looking the substance of the transactions. During the year under consideration, the assessee company received from M/s Yash Buildhome Developers Ltd.-Rs. 80,00,000/-, Yash Tradex Overseas Pvt. Ltd.- Rs. 50,00,000/- and Yash IT Solutions Pvt. Ltd. - Rs. 50,00,000/-. As per the detailed discussion in the assessment order, the assessee company failed to establish the genuineness and creditworthiness of the funds introduced by the above companies in the assessee company.The source of the funds arranged by the investor companies remained unexplained. The reply of the assessee, during the assessment stage, regarding the funds arranged does not commensurate with the business affairs of the Investor companies. The Ld. DR further submitted that the assessee had miserably failed t....
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....n order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the assessing officer, the same shall be deemed to be the income of the company under section 68 of the Act. We note that the amended provisions of section 68, is not applicable to the assessee company under consideration, as the assessee`s, assessment year is 2012-13. The Hon`ble Bombay High Court, in the case of Gagandeep Infrastructure 80 Taxmann.Com 272 (Bom), held that amendment to section 68 is prospective and appli....
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....share subscribers companies. 13. We note that ld CIT(A) in his appellate order has discussed each share applicant company. The various inquiries conducted by the AO in regard to these three investor companies and the assessee's submission, are reproduced below: "(a)(i) Yash Build Home Developers Pvt. Ltd. - Share Capital of Rs. 16,00,000/- and share premium of Rs. 64,00,000/-. The AO held that the authorized capital of the investor company was Rs. 5,00,000/- which had already been subscribed and there was no scope for further share allocation and found that the share application money pending allotment was of Rs. 1,22,50,000/- as on 31.03.2011 and Rs. 2,15,10,000/- as on 31.03.2012 which is against the Company Law and reflected the dubious affairs of the company. The AO observed that the share application money had been received by the Investor Company from 13 persons despite having No. share to issue which shows the audit carried out by the investor company as unreliable. The AO held that the amount of Rs. 80,00,000/- shows by the assessee as share application money has been shown in the accounts of the investor company as short term loans and advances. The Investor co....
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....ntities of Rs. 1,50,000/and Rs. 3,40,000/- got cleared on 2.04.2011 and the bank balance comes to Rs. 4,92,950/- which reconciles with the bank balance shown in the books of accounts. This indicates that cheques received and entered in books as on 31st March got cleared after 2nd days on 2nd April. The AO in the assessment order held that summons were issued to the companies who have made investment in the investor company is again an incorrect findings as the assessee has no transactions with these companies. The assessee submitted that he had sought adjournment on earlier occasion but the AO did not specify any date on which the attendance was required. (a)(iii) On the perusal of the details, it is observed that the investor company is not a private limited company but is a Public Company and is not closely held company wherein the level of compliances before the ROC is higher. The investor company had raised its authorised share capital from Rs. 5,00,000/- to Rs. 2,00,00,000/- in the subsequent years as per the details filed by the assessee which shows that the AO has wrongly observed that the assessee authorised capital was only Rs. 5 lacs. The summons was issued u/s 1....
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....aj showed that she had filed the return of income showing income of Rs. 29,70,791/- from share trading and rental income and in her bank statement there was no cash deposits. The bank statement showed regular transactions pertaining to her source of income and no unusual transactions in the bank account were found. The report of the Investigation Wing is silent on this aspect though the annexures of the details filed have been sent as annexure to the report. The AO has not taken these facts into consideration and has erroneously held that no compliance was made by Ms. Vandana Bajaj. (a)(v) The observations made by the AO regarding the alleged discrepancies in the books of accounts of the investor company could be only explaining by individual investors in their own cases by producing relevant ledger accounts and records. The AO has not made any such efforts to confront these details to the investor company. The AO has failed to seek any Clarifications from the investor company & unless & until the same are verified, it is not possible to arrive at any conclusion as to whether the amount received from various parties should find a mention in the balance sheet or not. Querie....
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.... based on the real activity of the investor company. The AO treated this amount of Rs. 50,00,000/- received from the investor company as share application money as undisclosed u/s 68 of the Act and made the addition. (b)(ii) The assessee contended that the AO has wrongly observed that the funds have been received by the investor company in violation of Company Law because the necessary resolution for increasing the authorized share capital had already been increased from Rs. 50,00,000/- to Rs. 1.50 crores in the subsequent year. It was contended that the AO has wrongly held in the assessment order that the entries in the balance sheet do not match with the entry in the bank account because without the analysis of the ledger accounts in relation to the books of accounts the observation of the AO that the balance sheet is incorrect vis-a-vis the bank statement is fallacious. The assessee cannot explain the various entries in the bank statement in the investor companies as it has to be explained and examined by the investor company itself. (b)(iii) On the perusal of the details, it is observed that the investor company had raised its authorised share Capital from Rs.....
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....8/01/2015 when he had visited the office premises of the investor company at 3/303, Third Floor, Ashish Complex, New Rajdhani Complex,Vikas Marg, New Delhi for on spot verifications and enquiry. On the perusal of this written statement/ report, it is observed that the 2 directors of the company namely Sanjay Kohli and Rajeev Ranjan Singh had furnished the details before the Investigation Wing, Delhi to prove the identity of the company and his director's alongwith the copy of the bank account, tax return, ledger account, rental agreement etc. (b)(v) The observations made by the AO regarding the alleged discrepancies in the books of accounts of the investor company could be only explained by individual investors in their own cases by producing relevant ledger accounts and records. The AO has not made any such efforts to confront these details to the investor company. The AO has failed to seek any clarifications from the investor company & unless & until the same are verified, it is not possible to arrive at any conclusion as to whether the amount received from various parties should find a mention in the balance sheet or not. Queries relating to accounting entries in the books of in....
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....he Act to Investigation Wing, Delhi and the summons u/s 131 was served by the Inspector of the Investigation Wing which proves the existence of the investor company. The name of the investor company earlier was M/s VS IT Solutions Pvt. Ltd, which was subsequently changed to Yash IT Solution Pvt. Ltd. and there is no discrepancy in the name of the investor as mentioned by the AO in the assessment order. The authorized share capital of the company had increased to 1.30 crores from 25,00,000/-in subsequent year and therefore the receipt of share application money without the issue of fresh shares cannot be viewed adversely, it was contended that the AO has wrongly held in the assessment order that the entries in the balance sheet do not match with the entry in the bank account because without the analysis of the ledger accounts in relation to the books of accounts the observation of the AO that the balance sheet is incorrect vis-a-vis the bank statement is fallacious. The assessee cannot explain the various entries in the bank statement in the investor companies as it has to be explained and examined by the investor company itself. (c)(iii) On the perusal of the details, it i....
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....l cases and relevant explanation can be called for from them. But no such efforts have been made by the AO. He has suo-motto picked up the few details from the financial statements and has drawn adverse comments based on his own conjectures and surmises without following the principles of natural justice. It is also not the case of AO that prior to making investment in assessees share capital, cash deposit is made in the bank account of investors. (c)(v) In view of the above facts and circumstances, the finding of the AO that the share application money received from Yash IT Solutions Pvt. Ltd. is not verifiable is erroneous finding as this investor was traceable. The AO has pointed out discrepancies regarding certain accounting entries in the books of the investor companies which have got no relation with the investment made in the share capital. The cash deposit found in the bank statement has got no relationship with the share capital as the amount was already invested in the month of May and June 2011 while the cash deposits relates to September 2011 to March 2012. Hence, the investment made by Yash IT Solutions Pvt. Ltd. of Rs. 50,00,000/- is found to be genu....
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....the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKA TA-Ill Versus DATAWARE PRIVATE LIMITED ITAT No. 263 of 2011 Date: 21st September, 2011 wherein the Court held as follows: "In our opinion, in such circumstances, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the ....
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....t nature and source of such money was questionable and evidence produced was unsatisfactory. Consequently, the Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of Rs. 24,00,000/-. On appeal the Learned CIT (A) by following the decision of the Supreme Court in the case of ClT. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008) 216 CTR 195 allowed the appeal by holding -that share capital/premium of Rs. 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company. As indicated earlier, the Tribunal below dismissed the appeal filed by the Revenue. After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the case of ClT. vs. M/s. Lovely Exports Pvt. Ltd. [supra], we are at one with the Tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 17. ....
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....nal placed reliance upon the decision of the Apex Court in the case of CIT v. Divine Leasing Finance Co. wherein it has been held that when the assessee company had given the name of the shareholders, the department was free to reopen their individual assessment in accordance with law. 5. The Tribunal further observed that in respect of Mangal Finance Limited, the said company was assessed to tax on department records; the copies of the application forms were submitted by the said company, which were at pages 3 to 14 of the paper book; all funds had been received by cheque as per bank details at page 130 of the paper book; in the audited balance-sheet Mangal Finance Limited was shown to have been allotted shares of Rs. 1.20 crores, which formed part of total paid up capital of Rs. 3.80 crores of the assessee which was duly reflected in the balance-sheet; and that the return of allotment was also filed with Registrar of Companies. In the aforesaid factual matrix, the Tribunal was of the view that the respondent had discharged the burden and accordingly reversed the findings of the Commissioner (Appeals). 6. Thus the Tribunal has after appreciation of the evidence o....