TaxTMI 
TaxTMI 
2022 (11) TMI 519
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....pany. The respondent has filed its return of Income on 1st October 2008 declaring a total income of Rs. 43,55,762/-. The case of respondent was selected for scrutiny and the assessment was completed under section 143(3) vide an order dated 28 March 2016. During the year under consideration the respondent received share capital plus premium of Rs 2,37,00,000/- from two Kolkata Based Investor Companies. The case was re-opened under section 147 on the basis of information received from the ITO (Inv.), Unit-2 Kolkata. The respondent has received share capital and premium from two Investors during the year under consideration, namely, M/s Sri Gurudham Sales Pvt. Ltd. ('SGSPL') and M/s Suvidha Suppliers Pvt. Ltd. ('SSPL'). The Assessee received a total of Rs. 2,37,00,000/- from the above mentioned 2 companies for issuance of 2,62,500 share of Rs. 10 each (face value) and Rs. 90 each premium. During the assessment proceedings the respondent was directed to submit the requisite details to substantiate identity, genuineness and creditworthiness of the investors. The respondent company during the assessment proceedings have submitted return of income, computation of income, audit report, ban....
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....ed for from the companies M/s Shri Gurudham Sales Pvt Ltd and M/s Suvidha Suppliers Pvt Ltd, Kolkata, u/s 133(6) of the Act. They confirmed the transactions of purchasing shares of M/s Saral Metallergicals Pvt Ltd" The said paragraph was also reproduced by the ld CIT(A) in para 5.1, page 24 of the order. Therefore, the fact that both the investor companies responded to 133(6) notice is undisputed. The relevant extract of the appellate order is reproduced below. "Pursuant to the information received from the ITO (Inv.), Unit-2, Kolkata, the AO has issued notices u/s 133(6)to the both investor companies namely; M/s Sri Gurudham Sales Pvt. Ltd. and M/s Suvidha Suppliers Pvt. Ltd. Who have complied with the notices by confirming the transactions and a finding to this effect has been recorded by the ld. AO in para-5 of the assessment order wherein the ld. AO has categorically mentioned that "confirmation of transactions were called for from the companies M/s Sri Gurudham Sales Pvt. Ltd. and M/s Suvidha Suppliers Pvt. Ltd. u/s 133(6) of the Act. They confirmed the transactions of purchasing shares of M/s Saral Metallurgical Pvt. Ltd., Nagpur." The ld. AR submitted that Vid....
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....k statements, confirmations of the investor companies were forming part of the assessment records and were duly examined by the AO. The relevant portion of ld. CIT(A)'s observations are as under:- "The AO vide letter dated 19.02.2016 written to these investor companies namely: M/s Sri Gurudham Sales Pvt. Ltd. and M/s Suvidha Suppliers Pvt. Ltd., Kolkata has called for the details of share application money and confirmation of transactions which were supplied to the AO directly by these concerns vide their letter dated 27.02.2016 which are annexed at page No. 201 and 254 of the assessment file respectively. The bank statements of both these investor companies were also requisitioned by the AO directly from the bank branch which are enclosed with the letter dated 27.02.2016 assessment records. Thus all the relevant details pertaining to the investment in share capital of the appellant company by these two investor companies were examined by the AO without finding any infirmity with the same." (Page 28-29 of the CIT(A) order) "Both these confirmations were filed by the AR as well as the investor companies before the AO. Thus both these investor companies hav....
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....t any sort of the infirmity with the books of account of both these investor companies. The ITO (Inv.), Kolkata has also examined Shri Anil Kumar Choudhary on oath. Thus, the ITO (Inv.), Kolkata has drawn the inference of non-existence of these two investor companies, merely on the basis of report of Inspector, discarding the material evidences in the for of books of account and Income-tax records of these two concerns." (Page 31 of the CIT(A) order) The ld. AR also highlighted the fact that the transactions were carried out through proper banking channels. The respondent has submitted bank statements of the investors companies and self to substantiate the same. The fact finding is again culled out by the ld CIT(A) in the appellate order. The relevant extract of the order is reproduced below. "On perusal of the bank statements, it is seen that all the payments for purchase of shares by the two investor companies have been made by account payee cheques. The amounts are duly found reflected in the bank statements of investor companies as well as in the bank account of the appellant company. All these details are again filled by the appellant during the appellate ....
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....e offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.] The First prov....
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....l (P.) Ltd. (supra). In both the above cases the court has held that the amount received on issue of share capital including premium are on capital account and cannot be considered to be income. (b) It is further pertinent to note that the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the respondent assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 (Bom.) has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and woul....
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.... the proposed question of law does not give rise to any substantial question of law. Thus not entertained." With regard to the explanation of source of source the Jurisdictional Bombay High court in the case of Gaurav Triyugi Singh vs ITO-24(3)(1) Appeal no. 1750 of 2017 has decided in favor of the tax payer by stating that the tax payer is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. The relevant extract of the order is reproduced as under:- "14........In Principal Commissioner of Income Tax vs. Veedhata Tower Pvt. Ltd., (2018) 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the....
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....ot negate case of assessee so as to invoke section 68. The relevant para of the order is reproduced under;. "6. The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case. 7. Considering the above, no substantial question of law arises. The a....
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....mpany to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium. 12. We found that the Commissioner (Appeals) has dealt with the issue threadbare in respect of each share applicant and after applying various judicial pronouncements to the facts of the case and the documents placed on record reached to the conclusion that all the three ingredients of section 68 i.e., identity, genuineness and creditworthiness of share applicants are duly complied with, accordingly, no addition is warranted. The findings so recorded by the Commissioner (Appeals) are as per material on record which do not require any interference on our part. During the appeal hearing the ld DR submitted a written submission and also submitted few judgments. In the written submission the ld. DR reiterated the observations of the Assessing Officer and relied on the below mentioned case laws. • Navodaya Castle Pvt Ltd Vs CIT (2015) 56 taxmann.com 18 (SC) • Royal Rich Developers Pvt Ltd Vs PCIT (2018) 108 taxmann.com 382 (Bom)(HC) • CIT Vs Midas Golden Distilleries Pvt Ltd (2021) 130 taxmann.com (206)(....
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....rsons were recorded and they also confirmed the transaction. The source of the investment is not doubted by the AO, but the source of source of investment was doubted.The respondent has submitted plethora of judgments of Jurisdictional Bombay High Court, where in it is held that prior to the insertion of Explanation to section 68 (i.e.) for period prior to A.Y. 2013-14, their was no requirement of explanaing source of source of investment. Accordingly, the case of the assessee as rightly pleaded by the AR is squarely covered by the judgment of Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 (Bom). The another judgment relied by the ld DR is that of Royal Rich Developers Vs PCIT (2019) 108 taxmann.com 382 (Bom). The peculiar facts of this case was that a search was conducted in the residential premises of one of the directors of the assessee company.During the search action against the Directors of the Company, the statement of Mr. Faria was recorded which showed that he was the main person actively involved in the Company. He admitted that the entire investment was bogus. Blank receipts were obtained from the share holders. Their signatures w....