TaxTMI 
TaxTMI 
2021 (9) TMI 854
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....cumstances 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 accordingly notice under section 143(2) of the Income Tax Act was issued on 29.09....
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....r 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 computation of Total Income for the year under consideration. d. Copy of Profit and Loss account and Balance Sheet for the asst. year 2012-2013 e. Copy of the Bank account for the period from 01.04.2011 to 14.03.2012. Here we would like to state that Shri Sriniwas Moda has already filed the following details at your office on dated 15.12.2014 and the same is received by person at Ro....
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....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 provided opportunity vide show cause notice dated 20/03/2015 to the assessee company for producing the investors but no compliance was made. The AO on the analysis of the bank account found that these investors were not carrying out any actual business activity. Further, on verification of bank statement of all above shareholders, it was noticed that the above Shareholders have no Balance or have meagre balance at any point of time. It was noticed that the Cheque/RTGS/NEFT were deposited from various Banks in the name of the assessee company. Further, ....
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....ing 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, then Assessing Officer would not able to do complete examination of the three ingredients of the section 68 namely: identity, creditworthiness and genuineness. Therefore, Assessing Officer was right in making the disallowance u/s. 68 of the Act. Apart from this, the assessee has introduced his unaccounted money by way of issuing shares at a higher premium. The assessee company does not have much track record and goodwill therefore it is not able to fetch so much premium, therefore, it is nothing but to introduce into the system, the unaccounted money of the ass....
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....s 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 submits before us that even as per the assessing officer, the source of investment in the assessee company is money received through cheques deposited on account of repayment of loan from bank account of M/s. Bade Baba Trading Company. In case of M/s. Bade Baba Trading Company Pvt. Ltd., no cash has been deposited and they have repaid the loan through banking channels out of their genuine source. The fact that in some instances, the cash was deposited in the saving bank account of parties prior to advance of loan to M/s. Bade Baba Trading Company Pvt. Ltd. and thereafter the loan was repaid by M/s. Bade Baba Trading Compa....
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....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 details to prove the identity, genuineness of the transactions and creditworthiness of these directors and promoters vide letter dated 25/03/2015 which is filed in the paper book and also reproduced in para no. 7 of the assessment order, but no cognizance of the said, submission was given in the assessment order. The assessee filed the Acknowledgement of Return of Income, Computation of Income, Balance Sheet, Bank Statement etc. of all the directors and promoters of the company and on perusal of the same, it can be seen that these promoters and first directors are assessed to tax and the investment is appearing in the asset sid....
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....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 latest address of all the investors at the time of assessment proceedings. The Assessing Officer has himself traced the sources of investment in the assessee company and stated, that in case of some of the investors, they have invested in assessee company out of the repayment received of loan earlier advanced to Shree Bade Baba Trading Co. Private Limited. Even if it is to be believed that the investors while giving loan to Shree Bade Baba Trading Co. Private Limited would have deposited cash and given then loan to Shree Bade Baba Trading Co. Private Limited, no adverse view is called for in case of assessee Company as it nowhere p....
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....ooks 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 - Copy of Bank Statements evidencing transaction with assessee - Source of Funds for making investments in the assessee company - ROC details and relevant statement. - Copy of Resolution passed by the Board authorizing investment in shares of assessee - Reasons for making payment of premium. It is noted that all the above requisitioned documents were furnished before the AO which substantiated the transaction between the assessee company and the share applicants. It is therefore not a case where the documents sought from the applicants to examine the transaction were not available before the AO. As regards the issue of non-appearance of the share ....
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....e 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, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- "While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other....
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....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 establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the as....
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....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 position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance th....