TaxTMI 
TaxTMI 
2022 (5) TMI 366
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.... time to time. 2.1. During the course of assessment proceedings the A.O. noted that the assessee company during the impugned assessment year has allotted 57500 equity shares of Rs.10/- per share at a premium of Rs.70/- per share to four entities, the details of which are as under : Name of Person No. of Shares Nominal value per share (Rs.) Premium per share (Rs.) Share Capital Amount of Premium (Rs.) Total amt. paid including premium (Rs.) M/s Pearl Multicon Pvt. Ltd. 9,375 10 70 93,750/- 6,56,250/- 7,50,000 M/s Pearl Nestbuild Pvt. Ltd. 16,875 10 70 1,68,750/- 11,81,250/- 13,50,000/- M/s Rishi Credit and Industries Pvt. Ltd. 18,750 10 70 1,87,500/- 13,12,500/- 15,00,000/- M/s Zeya Developers Pvt. Ltd. 12,500 10 70 1,25,000/- 8,75,000/- 10,00,000/- Total 57,500 5,75,000/- 40,25,000/- 46,00,000/- 2.2. On being asked by the A.O. to justify the issue of such shares at a premium of Rs.70/-, the assessee company filed various details such as Income Tax Return, Computation of Income, Audit Report, Balance Sheet, Bank statement, Return of Allotment of Shares, Confirmation of account from investor c....
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..../- 4. Zeya Developers Pvt. Ltd. 10,00,000/- Total 46,00,000/- 10.1 . The appellant has relied upon confirmed ledger account, copy of ITR, audit report, balance sheet and bank account in respect of share capital/ share premium received during the year. In order to examine their genuineness and creditworthiness, the documents submitted by the appellants/ furnished by the by the appellant have been gone through by the undersigned. A brief description regarding financial and other relevant details regarding the share applicants and the appellant as noted from the perusal of these documents is under: 1) M/s Pearl Multicon Pvt. Ltd., 341/36A, 2nd Floor, Mangal Sain Building, Bagh Kare Khan, Kishan Ganj, Delhi. This entity has made payment of Rs.7.5 Lacs in the F.Y. 2015-16 to the appellant during the previous year relevant to the assessment year under consideration. The appellant has not furnished any confirmation in respect of the said transaction. Therefore, genuineness of such transaction is not established. From its Balance sheet as on 31.03.2016, it is noted that it has shown paid up capital Rs.6.58 Lacs (Rs.5.68 Lacs as on 31.03.2015) with share premium of R....
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....business worth or creditworthiness. 3) M/s Rishi Credit & Industries Ltd., 13, 6th Floor, Bonfield Lane, Kolkata This entity has made payment of Rs.15 Lacs in the F.Y. 2015-16 to the appellant during the previous year relevant to the assessment year under consideration. The appellant has not furnished any confirmation in respect of the said transaction. Therefore, genuineness of such transaction is not established. From its Balance sheet as on 31.03.2016, it is noted that it has shown paid up capital Rs.l Crore (Rs.l Crore as on 31.03.2015) with share premium of Rs.4.61 Crore (Rs.4.61 Crore as on 31.03.2015). It has shown accumulated loss for Rs. (-)814483/- as on 31.03.2016 (Rs.(-)894829/- as on 31.03.2015) in the reserve and surplus account. It has made investment of its fund mainly in shares of private limited companies and loans and advances to others. It has NIL fixed assets in its balance sheet. It has shown profit of Rs.116274/- as on 31.03.2016 (Rs.186574/- as on 31.03.2015). The only source of income is from interest and has not carried out any tangible business activities. Copy of bank statement has not been made available. Therefore, source of investment made could....
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....the Ld. AR that the appellant was negotiating with other companies to start business activities has remained unsubstantiated as no corroborating details have been furnished. During the appellate proceedings it has been gathered that till date no business activities have been commenced. From the above facts it can be safely concluded that though these are companies registered with ROC, having PAN, having bank accounts, filing their Income Tax Returns etc. but in fact these are just existing of papers. All the share applicants have been found audited by the common auditors, common directors and even common addresses. In fact transactions have been routed through banking channels to hide the real transactions. Therefore, the claim of the appellant GBPhat it has proved the identity, creditworthiness and genuineness of transaction in respect of credits by furnishing copy of ITR, bank account, balance sheet, confirmations is not proved. Mere filing of ITR, PAN and transaction through banking channel is not enough to prove identity, genuineness and creditworthiness of the cash credits, It is also important to note that these alleged share applicants are corporate entities set up for ear....
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....icants. From the above analysis in respect of the share applicants and the appellant, it is noted that the above share applicants' entities are not doing any tangible business activities to support the availability such large funds at their disposal to make such investment with the appellant. In the view of the above facts, it is noted that real identity, creditworthiness of the share applicants and genuineness of the above transactions has not been established from the above documents. The above entities have been found to have been existing only on papers without having any real or physical worth to support the alleged investments made with the appellant and are in the nature of shell companies. 10.4. In view of the above detailed facts, the reliance of the Ld. AR on the case laws referred above does not help its case as facts of this case are entirely different from the referred cases. It is relevant to mention here that many of the decisions as relied by the appellant relate to the period prior to insertion of proviso to section 68 of the Act i.e. prior to 01.04.2013 and therefore, are not applicable to the facts of the present case. 10.5 It has been held by Hon'ble....
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....se of A. Govindarajulju Mudaliaar v. CIT (1958) 34 ITR 807, Commissioner of Income-tax vs Independent Media (P.) Ltd. 210 TAXMANN 14 (Delhi) (2012). 10.7. The AO has confronted the appellant through a detailed show cause on 07.12.2018 before making the addition. Various adverse findings have been confronted to the appellant during the assessment proceedings. Adequate opportunities of being heard have been provided during in the appellate proceedings. Therefore, there is no merit in such ground of appeal taken by the appellant. Further reliance is placed upon the decision of Hon'ble Supreme Court in the case of CIT vs Durga Parsad More 82 ITR 540 where it has been held that the apparent must be considered as real until it is shown that there are reasons to believe that apparent is not real. In this case enough material has been brought on record to show that the apparent is not real. Further reliance is placed upon the decision Hon'ble Supreme Court in the-case of Sumati Dayal vs. CIT (1995) 214 ITR 802 (SC). After going through the ratio of decisions as referred above, facts of the case, element of human probability and surrounding circumstances, it is noted that the appe....
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....nd securities premium thereon, made by Ld Assessing officer under section 68 of the act which is bad in law and liable to be set aside. 2. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in upholding the action of learned Assessing Officer of treating Rs.46,00,000/- as unexplained cash credit under section 68 of the Act without appreciating the fact that appellant had furnished the enough material to prove the identity, veracity and genuineness of the transaction at the Assessment proceedings or Learned Commissioner of Income Tax (Appeal). 3. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in upholding the exteriors consideration of the LD AO and not considered the evidences which was filed before the assessing authorities. 4. Without prejudice to the above grounds, on the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in confirming the addition under section 68 of the act in respect of share capital without appreciating the fact that th....
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....mption is wrong and bad in law. 8. Without prejudice to the Ground no 6 and 7, on the fact and circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in enhancing the assessment without appreciating the fact that there is enough material placed on record which is not only accepted by the LD AO but also not required by him to make the addition under section 56(2)(viib) of the act. Hence, enhancing the assessment order on protective basis is based on surmises, whims and conjectures." 4. Learned Counsel for the Assessee strongly challenged the order of the Ld. CIT(A) in upholding the addition made by the A.O. under section 68 of the I.T. Act, 1961. He submitted that assessee during the course of assessment proceedings have filed voluminous details to prove, identity, creditworthiness and genuineness of the share applicants and genuineness of the transaction. Relying on various decisions filed in the paper book and case law compilation, he submitted that since the assessee has discharged the onus cast on it by providing the identity, creditworthiness and genuineness of the share applicants and genuineness of the transaction, the ad....
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.... 2,33,83,034.23(-) 38,22,653)/23,81,250 x 10 =82.028 Book Value of Assets as on 31.03.2015 (Amount in Rs.) Cash and cash equivalent- 32,312.23 Short term loans and advances- 2,29,93,818.00 Other current assets- 3,56,904.00 Total 2,33,83,034.23 Book Value of Liability as on 31.03.2015 (Amount in Rs.) Trade Payables 37,37,500.00 Other Current Liabilities 1,655.00 Short term Provisions. 83,498.00 Total 38,22,653.00 Paid-up Value of Shares 23,81,250,00/- Face Value of Shares 10.00 4.2. Referring to the above, he submitted that the aforesaid valuation was furnished before the AO to justify that the shares issued by the assessee was at fair market value which was computed in accordance with the Rule 11UA(2)(a) of the IT Rules, 1962. However, the AO arbitrarily rejected the valuation furnished by the assessee by holding that the assessee is not having any worth of receiving any share premium. He submitted that the AO has adopted the FMV of shares at Rs.10/- (at the face value) without appreciating the formula provided in Rule 11UA and has completely given a go by to the value of assets and liabi....
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....nsel submitted that since the assessee had issued shares at fair market value computed in accordance with Rule 11UA of the Rules, no fault has been found in the method applied by the assessee and the addition u/s 56(2)(viib) was made merely on assumptions and presumptions, therefore, the addition made by the AO and sustained by the CIT(A) being not in accordance with the law should be deleted. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Mantram Commodities (P). Ltd. vs ITO vide ITA No.6170/Del/2019, order dated 12.02.2021 for A.Y. 2015-16, he submitted that identical issue has been decided by the Tribunal and appeal filed by the assessee has been allowed. 5. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). Referring to para 12.2 of the order of the CIT(A), the ld. DR drew the attention to the same which reads as under:- "12.2. The valuation report for the shares as furnished by the appellant under Rule 11UA(2) has been perused. It is noted that the appellant in the said report has considered share premium of Rs.1,28,28,924/- as on 31.03.2014. From the above facts it has been noted that the appellant has no business w....
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..... It is his submission that the assessee in the instant case has issued the share capital @ Rs.80 per share (face value of Rs.10 per share + premium at Rs.70 per share) as on 31.03.2015 and the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 6.1. I find an identical issue had come-up before the Tribunal in the case of Mantram Commodities (P.) Ltd. (supra), wherein, the Tribunal has allowed the appeal filed by the assessee and set aside the order of the Ld. CIT(A) by observing as under : "13. I have considered the rival arguments made by both the sides and perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the instant case, made addition of Rs.48 lakhs u/s 68 of the IT Act on the ground that the assessee could not substantiate with evidence to his satisfaction regarding the credit worthiness of the share applicants and the genuineness of the tra....
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....ntravention of the same. 15. I find merit in the above argument of the ld. Counsel. The provisions of section 56(2)(viib) of the Act reads as under:- "(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed9; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets bei....
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....ent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method." 16. A combined reading of section 56(2)(viib) read with Rule 11UA states that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with Rule 11UA and the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. We find, in the instant case the assessee has valued its shares at Rs.82.07 as per the valuation certificate issued by the chartered accountant. Although the said valuation report was submitted before the AO to justify that the shares issued by the assessee was at fair market value, it was computed in accordance with Rule 11UA(a) of IT Rules, 1962, however, I find, the AO rej....
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....s of the case decided by the Tribunal, therefore, respectfully following the order of the Tribunal in the case, cited (supra) I hold that the Ld. CIT(A) was not justified in making the addition of Rs.40,25,000/- lakhs on protective basis by invoking the provisions of Section 56(2)(vii)(b) of the I.T. Act, 1961. 6.3. So far as the addition under section 68 of the I.T. Act, 1961 is concerned, I find the assessee has filed the details such as P & L A/c, balance-sheet, bank statements, confirmation letters, PAN, copy of acknowledgment of return, Memorandum and Articles of Association of Companies etc.to substantiate the identity and creditworthiness of the share applicants and genuineness of the transaction. Nothing has been brought on record to negate the various evidences filed by the assessee. A perusal of the audited balance-sheet of these Investor Companies shows that these companies are having sufficient capital and reserves to make the investment in the assessee company and the entire transactions have been made through banking channel. Merely because the Investor Companies have shown meager income during the impugned assessment year, the same in my opinion, cannot be a ground ....
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.... Act, since there was no material with the Assessing Officer to come to the conclusion regarding any genuineness or fictitious identity of the entries or non-capacity of the lender. 10. Under these circumstances, we do not find any infirmity or perversity in the order passed by the Tribunal and in our opinion no substantial question of law arises in this case. With the result, the present appeal is not maintainable and the same is hereby dismissed." [Emphasis Supplied] 6.7. I find the Coordinate Bench of the Tribunal in the case of M/s. Priyatam Plaschem Pvt. Ltd., vs., ITO vide ITA.No.2534/Del./2018 order dated 10.08.2018 has observed as under : "10. Considering the facts of the case, in the light of material on record and the above decisions, it is clear that assessee produced sufficient documentary evidence before A.O. at the assessment as well as appellate stage to prove ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee. Thus, the A.O. failed to conduct scrutiny of the documents at assessment stage and merely suspected the transactions in question on the irrelevant reasons. The A.O. did not ....