TaxTMI 
TaxTMI 
2021 (9) TMI 525
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..... 23 crore made u/s. 68 on account of unexplained share capital and premium. 2. The brief facts and background of the case are that the assessee is engaged in the business of share trading, future option, commodities, consultancy services, and hotel industry. The assessee-company is under construction of hotels at Mumbai at Senapati Bapat Marg, Mahalaxmi Mumbai. For the Assessment Year 2011-12, the assessee had filed its return of income u/s. 139(1) on 26.09.2011 declaring income of Rs. 53,21,14,645/- which were duly assessed u/s. 143(1) vide order dated 27.1.2012. On 22.11.2011, the Investigation Wing of the Income Tax Department Conducted Search & Seizure operations u/s 132 of the Income Tax Act, 1961 on different concerns and persons of Gurinder Jit Singh Group. In the said search operations, the case of the appellant company was also covered under search u/s. 132 of the Act. The jurisdiction over the case before the search action was with assessing officer in the charge of CIT, Delhi-II, New Delhi. Consequent upon search operations, the case of the appellant was transferred and centralized with the Dy. CIT, Central Circle-23, New Delhi on 03.12.2012 by the CIT, Delhi-II, New....
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....es from whom the receipt of share premium was shown. However, as per him no reply was received on the date specified by him. The assessee-company was also required to submit all the requisite details like copies of their audited reports, audited financial accounts, i.e., balance sheet, profit and loss account and source of investment made in the assessee-company, details of business activities and reason for investing in assessee's company with huge premium along with copy of bank account. In response, the assessee had submitted all the requisite details as asked by him along with return of income of the parties. The Assessing Officer noticed following details of investments shown by these companies as on 31.3.2010 and 31.3.2011. Name of Company Investment shown 31/03/2010 Investment shown 31/03/2011 Difference M/s. TVH Trading Company (P) Ltd. 48,52,00,000 48,52,02,000 2000 M/s. Topgrain Mercantile P. Ltd. 47,04,00,000 47,04,09,000 900 M/s. Godsend Biotech Limited 41,88,50,000 46,15,22,000 4,26,72,000 5. Thus, Assessing Officer deduced that these companies did not have substantial increase in the investment as compared to the prec....
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....essing Officer held that the amount of Rs. 103,80,00,000/- appearing in the books of the assessee in the form of share capital and premium against M/s. Topgrain Mercantile Pvt. Ltd., M/s. Godsend Bio Tech and M/s. TVH Trading Pvt. Ltd. is an unexplained credit. Accordingly, he made the addition u/s.68 of the Income Tax Act. 7. Before the CIT(A), the assessee has filed detailed submission and submitted that all the requisite details and information along with supporting documents were filed before the Assessing Officer. In sums and substance, the assessee's arguments have been incorporated by the CIT (A) in the following manner:- i) During the assessment proceedings, the appellant has filed following documents to Assessing Officer establish the genuineness of share transactions and identity & creditworthiness of these impugned share holders: a) Photocopy of share application forms, duly filled in, as submitted by the investing companies to the assessee company, while applying for shares. b) Certified true copy of Board resolutions passed by Board of Directors of the respective companies in respect of investment to be made in the shares of the assessee c....
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....irectors of these share holder companies. The directors and these companies are stationed at Kolkata & Mumbai. Therefore, the directors of these share holder companies could not be produced. The appellant has tried its best to produce the authorized representative of few companies as accepted by the Ld. assessing officer also. The Ld. assessing officer has not issued any summons / commissions to these directors, though specifically requested by the appellant. Further, the assessing officer has requested to produce the directors with adequate evidences. The assessing officer while giving the opportunity to produce the directors has not mentioned what documents are required by him to establish the transactions in addition to what was already submitted. iii) On the enquiry made by Kolkata investigation directorate about none existence of M/s BBCCPL Ld. AR has made written submission as under:- a) In para 5.1 at page 7 of the order, the Assessing Officer has referred to his efforts through Investigation Wing, Kolkata to get the business activities of M/s BBCCPL, Kolkata verified. He has also referred to the Wing's report to the effect the said concern does no....
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....was existing well before their eyes! In view of the above facts, it is submitted that there is no substance in the assertion of the AO that M/s Bridge & Building Construction Company Pvt. Ltd. is a non-existent company. Above all, the AO is not legally correct in taking cognizance of any report of the Investigation Wing without confronting the same to the assessee, and without seeking its explanation thereon. This report was never confronted to us. Deciding any issue on the basis of an un-confronted report/evidence would be against all canons of natural justice. iv) Ld. AR argued that the assessing officer has wrongly relied on the bank enquiry to prove that the alleged share holder has received fund from various company which in turn received money from layers of concerns and concluded on that basis that all these layers of transfer of fund that these accommodation entries in nature & not a genuine transaction. Ld. AR argued that all the transactions were through banking channels, i.e. through cheques. Therefore, the fund flow is precisely traceable. The assessing officer nowhere has found that there is cash deposit in bank accounts in any alleged layer of transfer of fun....
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....ollowing manner: a) There is hardly any change in investment in the balance sheet of M/s TVH Trading Co. Pvt. Ltd., Topgrain Mercantile Pvt. Ltd. & Godsend Bio Tech Ltd. as on 31.03.2010 & 31.03.2011, Whereas, during the financial year 2010-11, there companies have made major investment in appellant company. b) The assessing officer has relied on the enquiry conducted by the investigation wing of Kolkata that M/s BBCCPL is not any existing company, which has paid the share capital & share premium on behalf of M/s. Topgarain Mercantile Pvt. Ltd. c) Therefore, concluded that these share capital introduced are nothing but. In support of this contention Ld. assessing officer has further tabulated the income as per profit & loss accounts of these share holders which are very meager compared to the share investment made. d) The appellant has failed to produce the directors of these share holders company and applied judicial pronouncements of various courts including the case of N.R. Portfolio Pvt. Ltd. cited supra & other decision where it has been held that the assessee being a Pvt. Ltd. company & share are issued to known person & not though public o....
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....R argued that the appellant has discharged its onus by submitting all documentary any evidences in support of genuineness of transaction & identity of shareholders & their capacity to invest. The appellant has provided current address of the investing companies and all these investing companies have submitted all the evidences required by the assessing officer in dependently in response to notice u/s 133(6) in the office of the assessing officer. The Ld. assessing officer has made no enquiry to disprove the evidence filed independently by these companies at the new addresses. Therefore, the assessing officer has not found any error in the submission made by the appellant. In that case, the onus to disprove the details filed by the appellant lied with the assessing officer. In that circumstance, onus was not on the assessee to produce the director of these share applicant companies. The directors & the investing companies are stationed outside Delhi namely in Kolkata & Mumbai. The assessing officer has not issued such commission to enforce attendance. Under these circumstances reliance of the assessing officer to discharge onus to produce directors u/s 68 as per various judgment suc....
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....nt in M/s Topgrain Mercantile Pvt. Ltd. The appellant has given all documentary evidences in support of genuineness of M/s. Topgrain Mercantile Pvt. Ltd. Reliance on the bank enquiry & cash trail by the assessing officer that these share capital introduced is an accommodation entry is also not convincing as in the said enquiry, no where cash deposit in any bank account has been found apparently in any layer of the fund circulation. All the transfer of fund is through bank transfer from separate entities i.e. identifiable entities & no person has been examined to get any adverse inference. In that case transfer of fund at various layers does not prove that these transfer of fund amounts to accommodation entries. Similarly, declaration of small profit by the share holding companies relied by the Assessing Officer to prove non genuineness of the transaction is also not convincing as these share investments are reflected in the balance sheet which explains the source, & these balance sheet have been filed with the Income Tax Department. The appellant has filed all relevant documentary evidence in support genuineness of share capital and creditworthiness of share holde....
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.... a) Photocopy of share application forms, duly filled in, as submitted by the investing companies to the assessee company, while applying for shares. b) Certified true copy of Board resolutions passed by Board of Directors of the respective companies in respect of investment to be made in the shares of the assessee company. c) Photocopies of PAN Cards of all the investing companies as issued by the Income Tax Department, Govt. of India. d) Audit reports alongwith photocopies of final accounts i.e. Balance sheets, Profit & Loss accounts, complete with the schedules of the investing companies. e) Photocopies of Memorandum and Articles of Association of the said companies, with certificates of incorporation. f) Bank account statements of the investing companies for the relevant period. g) Allotment Advice issued by the assessee company, giving details of the allotment of shares against the share application money received, indicating Folio No. Certificate Number, number of shares allotted, complete with distinctive numbers and amount received against such share allocation. h) Photocopy of acknowledgment portion of....
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....opgrain Mercantile Private Ltd. and that of M/s TVH Trading Company Pvt. Ltd is PD-107, Aparna Apartment, Krishna Pur, Samar Pally, Near Milan Bazaar, Kolkata-700 102. Address of M/s Godsend Biotech Private Ltd. is Ambika Silk Mills Compound Plot No. 11-12, Senapati Bapat Marg, Mahalaxmi, Mumbai-400013 (v) Certified copy of ledger account of the assessee company for the F.Y. 2010-11 as it existed in the books of accounts of each of the investing company. (vi) Copy of Covering letter, that of Resolution of Board of directors and that of Share application form, duly filled in and signed by the investing companies. (vii) Copy of audit report as signed by the qualified Auditors in respect of all the investing companies. (viii) Copies of duly audited final accounts viz. Balance Sheets as on 31.03.2011 and P & L accounts for the period 2010-11 (relevant to A.Y. 2011-12) (ix) Copies of their respective Income tax returns for the A.Y. 2011 -12 (x) Copy of respective Memorandum and Article of Association of the respective investing company. (xi) Share application money in respect of M/s Topgrain Mercantile Private Ltd. had been ....
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....ssessing Officer directly asked the assessee to produce the directors of the investing companies before him for personal examination. All the directors are based in West Bengal and Mumbai. These directions to physically make them present at Delhi were totally unjustified and high-handed since it was next to impossible to make the directors agreeable to come all the way to Delhi from Kolkata/Mumbai to present themselves before the Assessing Officer. The AO made virtually no effort on his level to ensure presence of the directors of investing companies before him. He issued no summons despite the fact that the appellant had given his in writing that he should directly issue summons to the directors but he remained unmoved. The more practical and better course, however, available with Ld. Assessing Officer was to issue commission u/s 131 (1)(d) of the Act in favour of some local Income Tax authority to conduct enquiries as none of them was a local resident. No persons residing at a distance of more than 1500 kms. can legally be pressurized to make personal attendance at Delhi. However, the assessee made sincere efforts to make them agree to the said exercise but did ....
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.... 026. The investing company M/s Topgrain Mercantile Private Ltd. has furnished to the AO, a certified copy of ledger account of the said party. Perusal of the said ledger account shows that the investing company had sold to it shares, against which M/s Bridge & Building Construction Company Pvt. Ltd. transferred the sale consideration thereof amounting to Rs. 57.30 crores to the appellant company through RTGS at the direction of M/s Topgrain Mercantile Private Ltd. As an evidence of the said RTGS transfer, the investing company has also sent to the AO a copy of bank account statement of A/c No. 253010200002103 of M/s BBCCPL, Kolkata in Axis Bank. The said bank account statement shows that Customer No. of M/s BBCCPL, Kolkata is 253002673 and its address is 90-B, Shyama Prasad Mukherjee Road, Kolkata, West Bengal- 700026. The investing company has also filed with the AO, a copy of OD limit account No. 01052320005783 of M/s BBCCPL, Kolkata in some other bank (name is not legible in the photocopy), its branch being at U.N. Brahamchari Street, Constantta Building II, Dr. U.N. Brahamchari Street, Kolkata-700017 (Phone No. 2210 3838). This OD limit account statement shows that Customer ID....
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....0,000 14.06.10 - 50,00,000 14.06.10 - 50,00,000 14.06.10 - 55,00,000 14.06.10 - 45,00,000 14.06.10 - 50,00,000 15.06.10 Oshin Invest 50,00,000 15.06.10 Ishpat Sheets 50,00,000 15.06.10 Novelty Traders 50,00,000 15.06.10 Albatross Share 50,00,000 16.06.10 Ishpat Sheets 50,00,000 16.06.10 Artillegence Bio 50,00,000 17.06.10 50,00,000 17.06.10 Novelty Traders 50,00,000 17.06.10 One2 E Solution 50,00,000 17.06.10 stocknet Int 50,00,000 17.06.10 Ishpat Sheets 50,00,000 18.06.10 Albatross Share 50,00,000_j 18.06.10 Ishpat Sheets 50,00,000 18.06.10 Novelty Traders 50,00,000 18.06.10 One2 E Solution 50,00,000 21.06.10 Oshin Invest 50,00,000 22.06.10 One2 E Solution 55,00,000 22.06.10 Gromore Fund 45,00,000 22.06.10 Gromore Fund 50,00,000 25.06.10 Novelty Traders 50,00,000 25.06.10 Oshin Invest 50,00,000 25.06.10 One2 E Solution 50,00,000 25.06.10 stocknet Int 1,00,00,000 28.06.10 Oshin Invest 50,00,000 28.06.10 Novelty T....
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.... paper book) also shows that as on 01 /07/2010 there is bank balance of Rs. 23.01 crore in the bank account of M/s Godsend Bio-tech Ltd. against which the funds were transferred to the assessee company on 14/07/2010. Therefore, the allegation of AO that the funds were immediately transferred to assessee company is not correct. It was further noted from the said money trail chart that on page 27 of the order, the AO contended that assessee company received funds from Topgrain Mercantile P Ltd. on 10/05/2010, which were received by this company from other parties on 01/10/2010. Now how it is possible to release funds on 10/05/2010 against the funds received on 01/10/2010. Same situation is appearing on page 28 as well. It appears that the so called trail chart prepared by AO has no legs and contention of AO is far from truth and it proves nothing. The Assessing officer has failed to bring out any material to show that the said funds originated from the appellant company and ultimately came back to it under the garb of share application money. Above all, this so-called "cash trail" has no cash at all. It may kindly be verified from record that all the transactions are through....
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....otal Own Funds 48,54,00,000 47,06,00,000 46,17,00,000 Investment in share of assessee Company 26,40,00,000 35,50,00,000 41,90,00,000 14. Further, Assessing Officer's remark that Kolkata is a breeding place of paper companies and that all the investing companies, based are at Kolkata, are therefore non- genuine companies, shows his prejudiced mind. He seems to have forgotten the fact that Kolkata is a big centre of business and commerce of India. He further seems to have conveniently ignored the fact that even the appellant company is a Kolkata based company. As per his way of thinking, the appellant company too should be a fictitious company. There is no legal or factual basis of such finding of the Assessing Officer regarding the Kolkata based companies. This finding of his is entirely based on conjectures, surmises, doubts and mere heresy. Moreover, he has not made any such adverse remarks against the Mumbai and Guwahati based share applicants. 15. Ld. Counsel has also tried to distinguish the case laws cited by the Assessing Officer, in the following manner:- (i) Commissioner of Income tax v. M/s N.R. Portfolio Pvt. Ltd.(Delhi High Court) ....
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.... which bank the pay orders towards share application money had been got issued and in which bank all the three shareholding companies had shown their accounts and the assessee had claimed that the pay orders had been made out of funds lying in the said bank accounts of the investing companies. From the information provided by the bank, it was found that two of the investing companies had opened bank accounts on 31.03.2007 whereas pay orders towards share application money were dated 29.06.2006(i.e. before opening of account). It meant that the claim of the assessee that the pay orders were made out of regular bank accounts of the investing companies was patently wrong. Moreover, in the bank of the third investing company, cash of ' 25.04 lakhs had been deposited before issuing pay order for ' 25,03,125/-. These facts led to believe that transactions of share application money were sham. There are no such adverse facts in the appellant's case. So, the cited case law is distinguishable on the basis of huge variation in the facts of the two cases. Therefore, ratio of the cited case is not applicable to our case. (iii) CIT v. Odeon Builders Pvt. Ltd.(Delhi) ....
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....lso discussed in the Ld. CIT (A) order. Thus, all the parties have directly confirmed before the Assessing Officer during the course of assessment proceedings itself. Apart from that, legal representatives of the main investing companies too were produced before the Assessing Officer, who confirmed the transaction, in question and the details as required were also filed subsequently. The allegation and observation of the Assessing Officer that no reply was filed which was asked by the representatives of the companies is totally erroneous. 17. Finally, he submitted that the appellant had fully discharged its onus by filing plethora of documents to establish the identity, creditworthiness of the creditors and genuineness of the transactions. The investing parties are available at the given addresses; are regular Income-tax assessees, duly registered corporate entities, regularly filing statutory returns with the ROC, and are maintaining regular books of accounts and they make all the business dealings through regularly maintained bank accounts. Their accounts are statutorily audited by a qualified auditor. The documents filed by us before the Assessing Officer fully establish thei....
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....formation provided by the assessee as well as by the investor companies. There is no further investigation by the AO. Therefore, the reliance of Apex Court decision is not correct. On the contrary, we submit that after NRA Steel there are number of decision in favour of assessee wherein it was held that once details provided to the AO onus is on the AO to further investigate and bring material to prove the transaction non-genuine. We rely on the following decisions in this regard: -(2018) 257 Taxman 390 (Delhi) PCIT vs. Hi-tech Residency Pvt. Ltd. (2018) 257 Taxman 335 (SC) PCIT vs. Hi-tech Residency Pvt. Ltd. - SLP Dismissed. Section 68 addition was made in hands of assessee company since assessee was not able to produce any of director, shareholders or principal officer of companies to whom shares were allotted lenders from whom unsecured loans was taken - Tribunal considered said issued in detailed manner and deleted said addition holding that assessee had discharged its onus of establishing identity, genuineness and creditworthiness of both investors as well as lenders - Whether, on facts, there was no infirmity in said order - Held, yes -(20....
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....umstances of case - Held, yes - Whether, thus, once genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on ground that shares were issued at excess premium - Held, yes (2019) S/tree Laxmi Estate (P.) Ltd. in ITA No. 6557/Mum 2017 (Mumbai) In the above case The Bench had considered the decision of Hon'ble Supreme Court in the case of NRA Iron & Steel (P.) Ltd. (supra) and held that the facts of the case before the Hon'ble Supreme Court are entirely different, where on the basis of facts of that case Hon'ble Supreme Court came to the conclusion that mere furnishing of certain documents is not sufficient enough and what is relevant is all three ingredients, i.e. identity, genuineness of transactions and creditworthiness of the parties should be proved beyond doubt. We find that in the case before the Hon'ble Supreme Court the parties never responded to 133(6) notices. The AO has carried out inquiries by issuing notices u/s. 133(6), for which none of the companies have replied. None of the companies produced bank statements to establish source of funds for making such huge investments in sha....
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....e was no reason to interfere with the said finding- Held, yes [Para 23] [2014] 49 taxmann.com 13 (Delhi) CIT v. Nipun Auto (P) Ltd. Hon'ble Delhi High Court averred in this case that "Where identity of share applicants had been established and their bank accounts, IT returns and balance sheet in addition to confirmation letters were produced, addition under section 68 was to be deleted. " CIT Vs. Divine Leasing and Finance Ltd. [2008] 299 ITR 0268(Delhi) It was held by Hon'ble Delhi High Court that "If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with the copy of the share holders' register, share application forms, share transfer register etc., it would constitute acceptable proof or acceptable explanation by the assessee" In the case of the appellant, a number of documents, as enumerated in the earlier paragraphs were furnished to AO, which constitute acceptable proof. [2008] 307 ITR 0334( Delhi) CIT v. Value Capital Services P. Ltd. In this case, Hon'ble Delhi High Court, relying on the decisions in the case of CIT v. Stellar Investment Ltd. (1991) 192 ITR 02....
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....ial to support such a move. " CIT v. M/s Vishal Holding & Capital (P) Ltd. ITA 1031/2010 (Delhi) In this case, it was held by Hon'ble Delhi High Court that "In our opinion, the AO has simply acted on the information received from the Investigation Wing without verifying the details furnished by the assessee. The assessee has also produced best possible evidence to support its claim. Consequently, the addition made by the AO cannot be sustained. " In the case of the appellant as well, Ld. AO has simply acted on the report of the Investigation Wing and conducted no meaningful enquiry at his level. So, there was no case for making the addition. CIT v. Steller Investment Ltd. [2001] 251 ITR 263/1 1 5 Taxman 99(SC) In this case, Hon'ble Supreme Court affirmed the view of Delhi High Court in the case of CIT v. Steller Investment Ltd. [1991] 192 ITR 287/59 Taxman 568, that reads as under: "It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that the....
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.... where assessee-developer received amounts from allottees, who were regularly assessed to tax. " (2014) 41 taxmann.com 550 (Gujarat) CIT-1 Vs. Shailesh Kumar Rasiklal Mehta Hon'ble Gujarat High Court averred that "Where transactions were routed through bank and the assessee had explained the source of income, additions u/s 68 could not be made. " In the case of CIT v. Jitendra Dolepatbhai Shah (2014) 41 taxmann.com 523 (Gujarat), Hon'ble High Court averred that "The source of credit has been explained by the assessee with documentary evidence and the documents were not found false. On perusal of the impugned order of the CIT(Appeals), we are convinced that on doubts and suspicion, the AO has treated short term capital gain as unexplained credit On the basis of doubts and suspicion, the cash credits cannot be held as unexplained. " Similarly, in the case of MOD Creations Pvt. Ltd. v. IT0( Delhi High Court), it was held that "The assessee had discharged its initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would ha....
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.... shares against the share application money received, indicating Folio No. Certificate Number, number of shares allotted, complete with distinctive numbers and amount received against such share allocation. h) Photocopy of acknowledgment portion of Income tax returns (ITRs) alongwith statement of income of the investing companies. i) Fresh addresses (wherever applicable) of the investing companies for facilitating direct correspondence with them on independent level by the Department. j) Copies of Equity Share Certificates issued to the investors. k) Copy of return of allotments (of shares) filed by the assessee company with the ROC in Form 2 (Pursuant to section 75(1) of the Companies Act, 1956). l) Copies of MCA21: Company Master Details and company/LLP Master Data of all the investing companies as obtained from the site of Ministry of Company Affairs 20. One of the main allegation of the Assessing Officer is that the notices sent u/s.133(6) were not received on the given date for which it has been clarified before us that within a short span, Assessing Officer has sought lot of information during the period of one week from the par....
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....well. 21. Thus, the reason assigned by the Assessing Officer does not have much credence to dislodge the evidences filed by these parties to corroborate the assessee's explanation and the documents submitted by the assessee to prove the nature and source of credit. Regarding various observations and allegation of the Assessing Officer, the ld. counsel has given a very detail rebuttal based on documents on record as incorporated above in the foregoing paragraphs. From bare perusal of the explanation duly supported by the documents, we find that whatever so called inquiry which was conducted by him has not lead to any iota of adverse material so as to hold that the transaction is not genuine. The Assessing Officer required the Directors/the representatives of the three companies which were produced before him, the same were duly complied with and not only they were produced but have also confirmed the transaction and given the required documents on the subsequent dates. Once these parties have directly confirmed the transaction with all the documents and the authorized representatives have duly appeared before the Assessing Officer, then without any substantial ground he has disbe....
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.....2010 to 12.07.2010. Further as per the bank statement as on 01.07.2010 there was a bank balance of Rs. 21.01 crore in the bank account of M/s. Godsons and M/s. Biotech Ltd. against which the funds were transferred to the assessee-company on 14.07.2010. Thus, this allegation of the Assessing Officer also does not have any basis. Similarly in the case of funds received from M/s. Topgrain Mercantile Company Pvt. Ltd. on 10.05.2010 also it was duly shown that this company has received funds from other parties prior to date. Nowhere in the so called alleged cash trail there is an element of cash or anything has been brought on record that any of the trails, assessee's undisclosed cash or income has been routed. In fact, none of these bank account requisitioning by the Assessing Officer u/s. 133(6), there was any cash deposits. 24. In so far as the source of the fund and the creditworthiness of the parties, it is seen from the chart reproduced hereinabove that these parties had sufficient own funds to invest and the share of assessee-company duly reflected in their balance sheet as on 31.03.2011. 25. Thus, on these facts and circumstances of the case and material on record, it can....