TaxTMI 
TaxTMI 
2021 (9) TMI 854
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....irectors & their concerns. 2. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of the assessing officer in making addition of Rs. 74,25,000/- on account of cash credit u/s. 68 of the I.T. Act, 1961 for share application and premium from other than directors & their concerns. 3. The learned CIT(A) has also erred in not confirming the stand of the assessee by taking the view that the premium amount of Rs. 1,08,60,000/- is even otherwise taxable for alleged violation of sec. 78(2) of the Companies Act. 4. It is therefore prayed that the above addition made by assessing Officer and confirmed by learned Commissioner of Income-tax (Appeals) may please be deleted. 5. Assessee craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal. 3. Brief facts qua the issue are that assessee company filed its return of income showing total income at Rs. 52,350/- on 23.11.2012 which was processed under section 143(1) of the Income Tax Act, 1961. Later, the assessee's return of income for the A.Y. 2012-13 was selected for scrutiny and....
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....for the year under consideration. d. Copy of Trading. Profit and Loss account and Balance Sheet for the asst. year 2012-2013. e. Copy of the capital account for the asst. year 2012-2013. f. Copy of the Self Asst. Tax Paid for the year g. Copy of the Bank account for the period from 01.04.2011 to 14.03.2012 and 01.01.2012 to 31.03.2012. h. Copy of the account confirmation for the year. 5. Smt. Suman Virendra Kumar Agarwal. a. Copy of the voter Card as Proof of identity and address Proof. b. Copy of the account confirmation for the year under consideration. c. Copy of the acknowledge of Income Tax return filed for the asst. year 2012-2013 d. Computation of Total Income for the year under consideration. e. Copy of Trading, Profit and Loss account and Balance. Sheet for the asst. year 2012-2013 f. Copy of the Bank account for the period from 01.04.20II to 14.03.2012 and 01.01.20/2 to 31.03.2012. 6. Shri Ashok Kumar Jain a. Copy of the voter card b. Copy of the acknowledge of Income Tax return filed for the asst. year 2012-2013 c. Copy of comput....
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....rved that assessee had received a sum of Rs. 28,65,000/- towards share capital and Rs. 1,08,60,000/- towards share premium totalling Rs. 1,37,25,000/- towards share capital from 29 persons(individuals) during the year under consideration. In order to verify the identity of the investor, creditworthiness and the genuineness of the transactions, the AO issued notices to the assessee to furnish the details regarding the investors but only partial compliance was made. The assessee did not file confirmation of the investments in all the 29 cases. Even when the assessee filed the copy of return of income or bank statement, he did not file other details like confirmation, proof of identity, copy of capital account and balance sheet. The AO issued notices u/s. 133(6) of the Act to the investors at the addresses given by the assessee and the notices were received back unserved with the remark of the postal department not known/left in 17 cases. In 12 cases the notices were served but no reply was received. The assessee company's authorized representative was asked to produce the investor's alongwith the books of accounts as they were not traceable at the given addresses. The AO had ....
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....tial creditworthiness which is represented by the free reserves and capital. Therefore, ld. Counsel stated that by submitting these plethora documents, the assessee company has proved three ingredients of section 68, namely, identity, creditworthiness and genuineness, hence addition made by the assessing officer may be deleted. 9. The ld. DR for the Revenue, Ms. Anupama Singla, submitted before the Bench that assessee has failed to prove the identity, creditworthiness and genuineness of the share capital and share premium received from various entities. During the assessment proceedings, the assessee only submitted the books of accounts, documents and some details before the Assessing Officer, but did not appear in person, in response to the summons u/s. 131 of the Act. The director of the assessee company should have appeared before the Assessing Officer to explain the documents and details submitted before him. The assessee, during the assessment proceedings was just dumping papers and documents on the table of the Assessing Officer and this does not mean that the assessee is making compliance. If the books of accounts, documents and papers are not explained by the assessee, t....
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....essee further requested the assessing officer to update the address of those investors to whom notice u/s. 133(6) and summons u/s. 131 could not be served. In the meanwhile, assessing officer issued a show cause notice dated 20.03.2015 asking as to why the credit of Rs. 1,37,25,000/- should not be treated as unexplained cash credit and added to the toted income of the assessee The show cause notice is reproduced at para no. 6 [Page 4-14] of the assessment order. In response to this, assesses filed a reply vide letter 25.03.2015. However assessing officer failed to consider this reply. Assessee also filed various details relating to 6 investors vide another letter dated 25.03.2015 whose details were remaining to be submitted during the previous reply. Assessee also fled identity proofs of 11 investors to prove their genuineness. This reply is reproduced at para no. 7 [Page 14 & 15] of the of the assessment order. However, assessing officer was not satisfied with the reply of the assessee and as per his observations at para no 8 & 9 [Page 16 to 32], he made an addition on account of share capital and shore premium of Rs. 1,37,25,000/- u/s. 68 of the I.T. Act. 11. The ld. Counsel s....
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.... of some of the investors, the Investors have given the sum to assessee against loans and advances recovered from Shree Bade Baba Trading Co. Private Limited given in earlier years, therefore, the assessee has also given an explanation to prove the source of source, (d) The Honourable Supreme Court in case of Lovely Exports (P) Ltd. [216 CTR 195] has held that "If share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the assessing officer, then Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee-company". 13. In so far addition of Rs. 63,00,000/- on account of Cash Credit u/s. 68 of the I.T. Act, 1961 (for share application and premium from directors and their concerns), is concerned, the ld. Counsel submits that assessee company has taken Rs. 30,00,000/- from Shri Mangatrai Goyal, Rs. 7,50,000/- from Shri Virendra Kumar Agarwal and Rs. 50,000/- from Ashok Kumar Jain. All these persons are first directors of the company named in the Articles of Association(AOA) of the company. The assessee has already filed all the d....
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.... by Virendra Agarwal, who is the director and promoter of the assessee company for the year under consideration. In the similar way, Rs. 4,00,000/- is received from Virendra Agarwal (HUF) and Rs. 4,00,000/- from Suman Agarwal, who is wife of Virendra Agarwal. The Bank Statements and financial of all these, concerns is also filed in the paper book, which proves the source of share application money being the own funds of the director and their concerns. More so, when these above concerns do not have any connection with Shree Bade Baba Trading Company Private Limited which could be curled out from table mentioned at page no. 11 of the assessment order and hence ld. Counsel prays that no adverse view should be taken against the assessee company. 14. Learned Counsel contends that so far addition of Rs. 74,25,000/- on account of Cash Credit u/s. 68 of the I.T. Act, 1961 (for share application and premium from other than directors and their concerns), is concerned, the assessee company has received Rs. 74,25,000/- from 23 parties from persons other than directors and all the persons were having valid sources to invest in the assessee company. The assessee company had also provided lat....
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....ature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words 'shall' be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus, the un-satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as also held by the Supreme Court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570. 16. The main plank on which the AO made the addition was because the directors of the share subscribers did not turn up before him. From the notices issued u/s. 131, it is noted that each of the share subscribing company was required to furnish the following details for examination: - Correspondence made for application of shares - Copy of Balance Sheet, Profit & Loss A/c, IT Act for FY 2011-12 ....
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....editors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 17. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'ble Gauhati High Court has thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified,....
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....rom which 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 sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from e....
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....tween the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor... " ********** "In other words, though under section 68 an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee...." ********** "Keeping in view the above positi....