TaxTMI 
TaxTMI 
2023 (2) TMI 506
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....ne grounds are not reproduced for the sake of brevity. 3. Present appeal is against the assessment order passed under section 143(3) which is giving effect to the order passed under section 263 of the Act. Brief facts of the case along with chronology of relevant events are stated as under: i. Assessee filed its return on 31.08.2009, reporting loss of Rs. 2,811/-. Case of the assessee was reopened by issuing notice under section 148 of the Act. Assessee had allotted 21,07,000 shares at the rate of Rs. 1/- per share with a premium of Rs. 99/- per share to sixteen subscribers during the year. ii. Assessment order was passed under section 147 read with section 143(3) dated 31.12.2010, determining total income at Rs. 50,340/-. This order was set aside by the Ld. CIT by exercising revisionary powers section 263 vide order dated 20.03.2013. iii. Ld. AO thereafter, issued notice under section 142(1), directing the assessee to submit, inter alia, details of shareholders along with necessary evidence in support of its claim for share capital and share premium. Notice under section 133(6) to all the sixteen subscribers of shares and summons under section 131(1) ....
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....the Ld. CIT u/s. 263 of the Act which reads as under: "i) Examine the genuineness and source of share capital, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. ii) Further the AO should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. iii) The A.O. is directed examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any." 6.1. He thus, submitted that AO has not complied with the directions given by the Ld. CIT to conduct the required examination in respect of source of share capital, directors of the company and hence, the addition made by the AO has to be upheld. 7. Per contra, Shri Miraj D. Shah, AR represented the assessee, placed on record a paper book con....
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....applicant company to the office of Ld. AO. (viii) In respect of non-compliance to summon issued u/s. 131 of the Act, it was submitted that it was issued on only one of the directors of the assessee viz., Smt. Ritu Jain who could not appear in person owing to her travel on one day and not keeping well on the other, though all the required details with documentary evidences were placed on record by her. Assessee also submitted that summon u/s. 131 of the Act were never issued on the share applicant companies for which certified true copy of order sheets of the assessment proceedings obtained from the office of the Ld. AO were referred to by the Ld. Counsel in the course of hearing before us. Ld. Counsel pointed to the order sheet entry dated 26.02.2014 which states that "issue summon u/s. 131(1) to all the directors to appear personally with supporting documents on 11.03.2014". Ld. Counsel also referred to the order sheet entry dated 06.02.2014 which states that "issue notice u/s. 133(6) of the Act to the shareholders". It was thus contended that assessee had discharged its onus in respect of the share application money received by it and therefore, no addition is called for....
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....trate their creditworthiness so as to make investment in the assessee company. Ld. Counsel further submitted that though for the impugned assessment year, there is no statutory requirement to explain the source of source, however, assessee had duly fulfilled its onus by giving all the details in respect of source of funds in the hands of each of the share applicant companies, details of which are provided in the replies filed by them against notice issued u/s. 133(6) of the Act. He thus, strongly submitted that Ld. AO had not brought anything contrary to these undisputable facts and has merely acted on whims and fancies. 8.3. To buttress his submissions, Ld. Counsel placed on record the decision of Hon'ble Jurisdictional High Court of Calcutta in the case of CIT, Kolkata-III vs. Dataware Pvt. Ltd. ITAT No. 263 of 2011 dated 21.09.2011 wherein Hon'ble jurisdictional High Court held that "After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing of....
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....cumstances, the view taken by the Tribunal could not be faulted. No substantial question of law was involved in the appeal." 8.6. He also placed reliance on the decision of Hon'ble Madras High Court in the case of Pranav Foundations Ltd. (2015) 229 Taxman 58 (Mad.) wherein it was held as under: "In view of the fact that all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment. Thus, the assessee has categorically established the nature and source of the said sum and discharged the onus that lies on it in terms of section 68. When the nature and source of the amount so invested is known, it cannot be said to undisclosed income. Therefore, the addition of such subscriptions as unexplained credit under section 68 is unwarranted." 8.7. Ld. Counsel also submitted that mere non-appearance of directors is no basis for invoking provisions of section 68 of the Act for which he placed reliance on the decision of Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation (P) Ltd. [1986] 159 ITR 78 (SC) wherein it was held as under: ....
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....point out the discrepancies or insufficiency in the evidence and details received in his office from all the sixteen subscriber companies and also pointing out as to what further investigation was needed by him by way of recording of statement of the directors of the assessee and the subscriber companies. We draw our force from the decision of the Hon'ble Bombay High Court in the case of PCIT vs. Paradise Inland Shipping Pvt. Ltd. [2017] 84 taxmann.com 58 (Bom) wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish its case. 9.2. We also draw our force from the decision of Hon'ble Jurisdictional High Court of Calcutta in the case of Crystal Network Pvt. Ltd. vs. CIT (supra) which held as under: "We find considerable force from the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter credi....
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....aborately appreciated the evidence and details placed on record and has given his factual findings, crux of which is contained in para 8.1 of his order, which is extracted below for ease of reference: "8.1. Basically the law requires documentary evidences on record in dealing with the issue of authenticity. It is not the case of the AO that necessary documentary evidences are not on record but the only major reliance placed on his action is based on non-attendance of the directors of the appellant company along with directors of subscriber companies before him u/s. 131 of the Act. It is no longer res integra that such non-attendance should be considered as a factor which should be used by the AO in coming to an adverse conclusion against the appellant. On an overall analysis of the issue, I find that the AO has not made out his case with cogent material on record that the appellant could come under the purview of section 68 of the Act with regard to share capital as reflected in the balance sheet when there is no finding with any cogent material evidence that the same was actually bogus in nature. It is accordingly observed that creditworthiness of the share subscribers to....
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.... application form and allotment letter is available on record, (iv) share application money was paid by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements are on record, (vi) in none of the transactions, there are any deposit of cash before issuing cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 10.4. For expressing our views as aforesaid, we draw our force also from the decision of Hon'ble jurisdictional High Court of Calcutta in the case of PCIT vs. Shree Leathers in ITAT/18/2022 (IA No. GA/02/2022) dated 14.07.2022 wherein Hon'ble High Court succinctly dealt with the aspect whether notices u/s. 133(6) of the Act are issued which are duly acknowledged or responded but ignored by the AO leads to perversity in the assessment order. Relevant extract from the said decision is reproduced as under: "...Bearing the above legal principles in mind, if we examine the case on hand, it is clear that the assessing officer issued show cause notice only in respect of one of the lender M/s. Fast Glow Distributors. The assessee....
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....cise, took into consideration, the creditworthiness of the 13 companies the details of which were furnished by the assessee. More importantly, the CIT noted that all these companies responded to the notices issued under Section 133(6) of the Act which fact has not been denied by the assessing officer. On going through the records and the net worth of the lender companies, the CIT has recorded the factual findings that the net worth of those companies is in crores of rupees and they have declared income to the tune of Rs. 45,00,000/- and 75,00,000/-. Therefore, the assessing officer if in his opinion found the explanation offered by the assessee to be not satisfactory, he should have recorded so with reasons. We find that there is no discussion on the explanation offered ITAT 18 OF 2022 by the assessee qua, one of the lenders. Admittedly, the assessee was not issued any show cause notice in respect of other lenders. However, they are able to produce the details before the CIT(A) who had in our view rightly appreciated the facts and circumstances of the case. As pointed out earlier, the assessing officer brushed aside the explanation offered by the assessee by stating that merely fil....
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....documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source." 11.1. Further, in para 9 of the said decision, Hon'ble Supreme Court has observed as under: "9. The Judgments cited hold that the Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the present case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the share-holders were either non-existent, or lacked credit-worthiness." 11.2. Thereafter, Hon'ble Supreme Court summed up the prin....
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....facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions. Accordingly, considering these facts and in the light of the judicial precedents referred above, we find no reason to interfere with the fact-based findings given by the Ld. CIT(A) and uphold his decision to delete the addition made by the Ld. AO towards share capital and share premium u/s. 68 of the Act. Accordingly, grounds taken by the revenue in this respect are dismissed. 13. In the result, appeal of the revenue is dismissed. Order is pronounced in the open Court on 28th December, 2022. ============= Document 1 MAINAK SUPPLIERS PVT LTD AY: 2009-2010 Details of Share Application Amount SL Investment Reserves & Misc. Accumulate No Name of Share Applicants Share Capital Invested in Net worth Surplus Expenditures (6) to Net Loss assessee worth (5) company 2 3 5 6 7 (1+2+3+4) (%) 1 M/s. Adonis Marketing (P) Ltd. 1540000.00 142560000.00 36450.00 -7224.37 ....