TaxTMI 
TaxTMI 
2023 (1) TMI 895
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....al cash or the cheques were not credited in the bank accounts of the assessee." 3. Briefly stated, the assessee company e-filed its return for AY 2010-11 on 11.09.2010 declaring a loss of Rs. 2,214/- which was processed under section 143(1) of the Income Tax Act, 1961 (the "Act"). Thereafter the case was selected for scrutiny under CASS. During assessment proceedings, the Ld. Assessing Officer ("AO") noticed an increase of Rs. 1,90,00,000/- towards authorised share capital/issued, subscribed and paid-up capital and Rs. 188,10,00,000/- towards share premium account. Questionnaire dated 5.07.2012 was issued asking for details of increase in share capital to which the assessee responded by submitting the name, addresses, PAN of the three concerns, namely, Sayaji Marketing Pvt. Ltd., Blessings Commercial Pvt. Ltd. and Stephens Financials Services Pvt. Ltd., who subscribed in the share capital but without any confirmation and bank extracts . The Ld. AO called for information from the subscribers and their banks under section 133(6) of the Act. Simultaneously, the Ld. AO passed on the information to the AO's of Kolkata of the above last two subscribers. From the details/information co....
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....ue issued by one company after a series of endorsements to other companies was finally endorsed to the issuer company whereby the issuer company while making a payment to the endorsee company treated the money as share application paid and when finally the cheque was received, it was treated as share application money received. In view of the endorsement by different companies the entries do not appear in the bank statement. The transactions were carried out in a manner that "& Co." crossed cheques were endorsed from one party to another resulting in share capital as well as investments based on such endorsement of the cheques. Such transactions are legally valid and acceptable as per the Negotiable Instruments Act, 1881 which gives them the necessary legal sanction. Accordingly, the observations, remarks and conclusions arrived at by the Ld Assessing Officer were countered with reference to the provisions of the Income-tax Act, 1961 and sections 15,50,51 and 123 of the Negotiable Instrument Act, 1881 and the Companies Act, 1956. Endorsement of Negotiable Instruments (which includes cheques) is a method by which the claims of parties are settled inter-se without a....
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....facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 3.5 Section 68 of the Income Tax Act, 1961 is reproduced herein below for your ready reference:- 68. Where any sum is found credited in the books of an assessee maintained For any previous year, and the assessee 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....
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....The learned assessing officer has, in his zeal to make the maximum addition has been driven by only one aspect of the transaction. The AO has himself noted repeatedly in the assessment order that the premium at which shares have been allotted by the appellant is not justifiable on account of it not having any asset or business or even a bank account. The AO has also noted again repeatedly that the shares which have been purchased by the appellant from the investing companies, which was the consideration for allotment of shares was also very high priced and disproportionate to the intrinsic value of the shares. In the simpler words, the AO noted/ alleged that the transaction of purchase of share by the appellant was not at the Fair Market Value. To simplify it further, the allegation made by the AO is that the appellant has allotted share at a value hugely disproportionate to the real value and at the same time purchased shares at a value much higher than the real value. As the allotment has been made to the same party from whom shares have been purchased, there is no inflow or outflow of money even though the stated consideration is inflated. The AO, however, while taking ....
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....cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,00,00,000 made u/s. 68 of the IT Act, the amount of Rs.25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15.00.00,000 were issued against the outstanding liabilities i.e. there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth RS.10,00,00,000 were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash! cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. " After hearing b....
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....ever, the assessing officer himself has observed that no money as such has been received by the appellant. Rather the increase in capital is by way of book entries. The amount of capital has been counter-balanced by simultaneous investment in share capital of other companies, again without any actual movement of funds. On face of it, all the parties involved in subscription of capital, as well as investment have confirmed the transactions. All of them are assessed to income tax and have also informed their source of (on paper) funds. Thus, on face of it, all the requirements of discharging onus regarding source of credit have been fulfilled by the appellant. Alternately, if the view taken by the assessing officer, that all these transactions are sham, is accepted, even then it cannot be called to be a case of unexplained cash credit. Firstly, if all the transactions are treated as sham, then the entries regarding receipt of capital as well as investments made by the appellant would have to be ignored. Obviously in such a case there would be no credit entry for which explanation would be called for. Secondly, as stated earlier there is no actual movement of funds involved in any for....
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....Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record as well as of the order of the Authorities below and case laws cited, we hold as follows:- 9.1. Section 68 of the Act, reads as follows: "68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee 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 (emphasis our) 9.2. In this case admittedly, the assessee has received cheques as consideration for allotment of share capital at a premium. 9.3. The assessee credited these cheques in its books of account. The manner in which the credit has been used subsequently is not relevant for the application of Section 68 of the Act. The contention of the assessee was that "crossed & CO" cheques were received and subsequently these very cheques were endorsed to another company for allotment of Share Capital at a premium. It was ....
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.... 9.4.3. In the case of Jatia Investment Co. (supra), the facts were that entries were made in the books of account so as to comply with the directions of RBI given to NBFC‟s. These directions were in the public domain. The RBI had directed the three companies belonging to Jatia Group to maintain a particular ratio of loans to share capital and reserves. This required discharge of loans and through a transparent arrangement these three companies sold shares held by them in various other companies of Jatia Group and the consideration received through book entries were utilized for repayment of loans borrowed from a proprietary concerns of one of the partners. Under such circumstances, the Hon‟ble Jurisdictional High Court held that there is no real cash entry on the credit side of the cash book. The Hon‟ble High Court found fault with the Tribunal for refusing to take notice of the directions of the RBI. In the case on hand, the transactions undertaken by the assessee are not for complying with any of any authority, much less to comply with any law. When the assessee had received the cheque and thereafter utilized the same for allotment of share capital, it is a c....
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....e A.O. gives a categorical finding that these are fictitious book entries, then logically no additions should be made. In our view, this argument has to be dismissed for the reason that credit entry has been made in the books of account consequent to receipt of cheques against which share capital has been allotted by the assesse company which, by the admission of the assessee, are legally valid transaction. The requirements of the Negotiable Instruments Act and the Companies Act are fulfilled in this case. Shares have been legally allotted. Amounts have been validly received by cheque. There is no violation of law. Thus, it cannot be said that these are fictitious or sham entries and no cognigence should be taken of theses entries. These are not unreal transactions as held by the A.O. These transactions are valid in law. 13.1. Hence, the credit recorded in the books of accounts of the assessee is not a fictitious credit and has legal sanction. In view of the discussions these arguments of the ld. Counsel for the assessee is dismissed as devoid of merit. 14. We find that the transactions undertaken by these groups of companies are scandalous. A number of companies ....
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....f the transaction and the creditworthiness of the creditors has not been demonstrated by the assessee. The AO in his order at page 7 has clearly recorded that the assessee company has no financial base or business and the money received by it was withdrawn the very same day or the next day. More important he has recorded that the assessee has not given any, let alone satisfactory explanation for the high premium charged on the shares. When shares are allotted within a span of less than one month, the reason for charging high premium in the case of VPC Financial Services P Ltd. , Killa Financial Services Pvt. Ltd., Highyield Securities Pvt. Ltd. , Mehul Finvest Pvt. Ltd. and Synergy Finlease P. Ltd. and reason for not charging premium in the case of M/s. Timely Fincap Pvt. Ltd. and Graph Financial Services Pvt. Ltd. is not at all explained. The explanation given that the Ld. Counsel for the assessee that charging of premium is the sole discretion of the company and that price is a contract entered between two parties and cannot be questioned by the revenue is devoid of merit. The AO cannot be expected to wear blinkers and accept bald explanations of the assessee. There should be som....
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....d to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." In CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a refer....
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....bunal on account of perverse reasoning, as we shall presently see." 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is "a fortiori" as the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently....
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.... were related or known to them. In the present case substantial investment has been made in a private limited company which includes share premium @ Rs.40/- per share amounting to Rs.41 ,88,000/-. It is not a case of the respondent assessee that they had a proven good past track record justifying a hefty premium, four times the face value. What was placed on record were certain papers which showed that the respondent assessee had taken care to ensure legal compliances. The said evidence is primarily documentary evidence. But, what the tribunal has noticed but not given due credence to are the surrounding circumstances which include a huge premium i.e. four times of the face value of the shares, credit entries in the bank accounts before transfer of money to the assessee, failure of the companies to file details of the inventories and the fact that the assessee company had not charged any premium earlier. Identity, creditworthiness of the shareholders and genuineness of the transaction in all cases is not established by only showing that the transaction was through banking channels or account payee instrument. It would be incorrect to state that the onus to prove genuinenes....
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.... of history, past or present. The date of poll' passing away of a man of eminence and events that have rocked the nation need no proof and are judicially noticed. Judicial notice, in such matters, takes the place of proof and is of equal force. In fact, as a means of establishing notorious and widely known facts it is superior to formal means of proof..... " 13. It is important, to segregate cases of bonafide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paper work though important may not be always conclusive or determinative of the final outcome or finding whether the transaction was genuine. When and under what circumstances onus is discharged, as held in NR. Portfolio (P.) Ltd. (supra), cannot be put in a strait jacket universal formula. It will depend upon several relevant factors. Cumulative effect has to be ascertained ....