TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 895
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....ts 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 collected by the Ld. AO, he found that the transactions were no....
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....nally 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 any underlying movement of funds. Such a means of setting contractual liabilities, which also ha....
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....al 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 of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:....
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.... 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 cognizance of this situation from the tax perspective have looked at only one side of the transaction and totally ignored the other side of the transaction. 3.7 The Ld. AR of appellant has argued that the case in hand is a very unique kind of case. He ha....
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....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 both the parties, the ITAT held that, "8.3 We find force in the Ld. CIT(A)'s finding that the aforesaid addition cannot be sustained for another legal premise also. 3.8 It is undisputed that the cheque transactions by the appellant are only on paper and are in the nature of swapping of cheque at a very high premium. As submi....
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....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 form. The assessing officer has himself discussed in details as to how the series of transactions was carried out without any flow of money. Obviously there cannot be any unexplained cash credit in absence of cash (money in any form). The decision of Calcutta High Court in the Jatia Investment Company 206 ITR 718 relied upon by the unexplained cash credit cannot....
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....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 contended before the Revenue authorities that all these transactions are legally valid and that the Negotiable Instruments Act authorizes such endorsements and under the Companies Act , share capital (at a premium) has been validly allotted. Thus, the amount received by cheque and entered into the books of accounts of the assessee as a credit, in our view, satisfies the requirements of Section 68 of....
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....ese 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 credit of a sum in the books of account. 10. Thus, in our view, these case laws do not come to the rescue of the assesse. Hence in our view, the argument of the ld. Counsel for the assessee that Section 68 of the Act, per se would not be attracted, is devoid of merit and hence rejected. 11. The second argument of the ld. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor com....
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.... 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 have been floated and none of them have any business nor any asset worth mentioning. The first company issues a cheque to the second company for allotment of shares at a huge premium and the second company allots shares to the first company. The second company instead of encashing the cheque endorses this cheque to the third company as consideration of allotment of shares at a heavy premium in that company. The third company does not encash the cheque but in turn endorses th....
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...., 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 some explanation which is logical and rationale. Ld. Counsel could not demonstrate that the assessee company was in fact, carrying on the business of finance and investment. It is common sense that shares of loss making companies do not command a premium. The financial status or the projected cash flow of the assessee company or any such record has been produced by the assessee to justify the charging of such premiums for allotment. Discounted cash flow matter is one of the accepted methods to dete....
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.... 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 reference made under section 66 of the Indian Income Tax Act, 1922. The Supreme Court referred to the leading case of Edwards ( Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (H.L.) decided by the House of Lords in which Viscount Simonds observed as under: "For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have....
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.... 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, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 29. At para ....
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....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 genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Surrounding and corroborative factual detail are equally important and may justify further proof or details before it is held that onus is discharged. As held in N.R. Portfolio (P.) Ltd. (supra) the question of discharge of onus depends upon whether the two parties are related or known to each other, the manner in which the parties approached each other, whether the transaction was entered into through written documents to protect the investment, whether the investor professes and was an angel ....
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.... 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 and understood before forming any objective opinion whether or not onus has been discharged by the assessee. Of course suspicion or doubts may not be sufficient and care and caution has to be taken that the assessee has limitations but this cannot be a ground to ignore contrary incriminating evidence or material which when confronted, meets silence or no answer." (emphasis own) 32. The proposition of law laid down by the Hon'ble High Court in the case referred above and the surrounding facts and circumstances considered by it are applicable to the facts and circumstances of the assessee company. On a careful consideration of the documents filed by....