AI Drafter 
TaxTMI 
TaxTMI 
2023 (3) TMI 1315
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....tition by the revenue, are of the considered view that the delay is for sufficient reasons and accordingly condoned the delay. 3. The only issue raised by the revenue in various ground of appeal is against the deletion of addition of Rs. 7,22,00,000/- by the Ld. CIT(A) as made by the AO u/s 68 of the Act as unexplained cash credit on the ground that the assessee failed to prove genuineness of the transactions and creditworthiness of the subscribers. 4. Facts in brief are that the assessee filed return of income on 25.09.2012 declaring total income of Rs. 1,419/-. The case of the assessee was selected for scrutiny under CASS for the reason that the assessee has received large share premium. The statutory notices were duly issued and served on the assessee. The assessee company was incorporated on 13.01.2012 and during the year itself issued shares to different companies at a high premium. According to the AO issued notice to the assessee to explain these transactions and justify the receipt of share premium. The assessee, in response to the notice ,file memorandum & articles of association , return of allotment of shares filed before ROC, share application forms by allottee co....
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....dmittedly, the AO has never given any opportunity to the appellant to submit an explanation in terms of s. 68 of the Act. The power of the Assessing Officer under section 68 is not an absolute one. It is subject to his satisfaction where explanation is offered. The satisfaction with regard to explanation is in effect an inbuilt safeguard in section 68 to protect the interest of the assessee. It provides for an opportunity to the assessee to explain the nature and source of the funds. It was pointed out by the A/R that no opportunity was provided to the appellant to meet the assumption conceived in this respect. Admittedly, in the instant case, no opportunity was allowed to the appellant as per the second limb of the provisions of s. 68 of the Act. In the case of Colonizers vs. ACIT (1992) 41 ITD 57 (Hyd) (SB), the issue before the Hon'ble Special Bench was whether the additions made by the Assessing Officer in violation of the principles of natural justice should be set aside as void ab initio and thus deleted or should the case be restored to the ITO with directions for redoing? In this respect, it was held as under: "In regard to the second point of difference, two s....
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....the Assessing Officer in violation of the principles of natural justice had to be set aside as void only insofar as the additions by way of cash credits alone were concerned, which were separable from the other additions in the order that were not challenged." In view of such authoritative legal position, I am of the considered view that the well-settled principles of natural justice have not been followed by the AO. The appellant was never given any opportunity to explain the nature and source of the share application monies received by it. In fact, such affording of opportunity to tender an explanation is embraced within the second limb of the provision of s. 68 of the Act which the AO ought to have provided. Most respectfully, following the ratio laid down in the case of Colonizers vs. ACIT (supra as discussed above, the conclusion reached by the AO without adhering to the rule of audi alteram partem is ex-facie null and ab initio void and the same is hereby struck down on this score alone. 6. Be that as it may, on merits also it is observed that the addition was made with the predetermined mindset that share application monies received by the appellant is not ....
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....udited books of accounts, filed copies of its audited annual accounts including various details and other documents as desired by the AO. The details and documents so produced and filed with the AO included, inter alia, full details of each of the fourteen share applicants, who had subscribed to the aggregate share capital as well as share premium money raised by the appellant during the assessment year under appeal. The AO, on receipt of the aforesaid details from the appellant did not pursue the matter further. He solely doubted the genuineness of the said share capital and the creditworthiness of the share applicants in the teeth of the cast iron evidence to the contrary on mere presumption and added the sum of Rs.7,22,00,000/- in respect of the share capital to the total income of the appellant in respect of the assessment year under appeal. 6.2 It is observed that the corporate share applicants are registered under the Companies Act, 1956 and are on the records of Registrar of Companies functioning under Ministry of Corporate Affairs, Government of India and are having independent Permanent Account Numbers. The appellant had provided the copies of the Permanent Accoun....
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....31.03.2012 Amount invested with the appellant 1 Gajgamini Commercial P. Ltd. Rs.14,97,00,216/- Rs.1,05,00,000/- 2 Gyan Mandir Tradecom P. Ltd. Rs.18,99,95,458/- Rs.43,00,000/- 3 Kronje Suppliers P. Ltd. Rs.34,92,90,176/- Rs.40,00,000/- 4 Lily Retailers P. Ltd. Rs.22,55,66,726/- Rs.48,00,000/- 5 Mahadevi Merchants P. Ltd. Rs.19,27,31,756/- Rs.55,00,000/- 6 Nihon Impex P. Ltd. Rs.48,36,03,643/- Rs.60,00,000/- 7 Nirvaanam Tie-up P. Ltd. Rs.34,83,40,777/- Rs.60,00,000/- 8 Nishakar Traxom P. Ltd. Rs.10,73,77,362/- Rs.15,00,000/- 9 Priyakrit Trading P. Ltd. Rs.9,98,00,400/- Rs.55,00,000/- 10 Ranisati Mercandise P. Ltd. Rs.51,10,20,770/- Rs.50,00,000/- 11 Samvritah Vanijya P. Ltd. Rs.48,36,03,643/- Rs.25,00,000/- 12 Shivarpan Vanijya P. Ltd. Rs.42,74,69,170/- Rs.50,00,000/- 13 Sonali Suppliers P. Ltd. Rs.40,69,29,850/- 50,00,000/- 14 Suchandana Tie-up P. Ltd. Rs.17,82,54,523/- Rs.45,00,000/- It is accordingly observed that these facts adequately prove the creditworthiness of the share applicants to make investme....
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....is case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises." The ratio laid down in the aforesaid case is squarely applicable to the case at hand. In the instant case, thus, the AO had not controverted these indisputable evidences adduced on record but acted....
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....ies were not shareholders of the assessee company at the time when the case was reopened under section 147 or when the summons were issued to them. We find that the assessee has filed before the A. O. copies of share application forms duly signed along with the complete addresses of the investors along with their I. T. file numbers, account payee cheque numbers and the assessee's bank statements disclosing the deposits of these amounts. In these facts we find that the assessee has discharged its initial onus to prove the identity of the investors as well their creditworthiness. It is not the case of the Revenue that the investor parties did not exist or that the money was not invested by them through banking channels." Having found such, the Tribunal had relied on the judgment in Hindusthan Tea Trading Co. Ltd. v. CIT (Cal): 263 ITR 289 (Cal) to uphold the order of the CIT. In view of the findings above noted, no substantial question of law arises and therefore, the appeal and the application are dismissed." 7.2 Again, the Hon'ble Jurisdictional High Court in the case of CIT vs. Sanchati Projects (P) Ltd. [ITAT 140 of 2011 dated 08.06.2011] it was obs....
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....re capital money had been duly recorded in the books of the assessee company and the payment of share application money was also duly recorded in the audited account of each of the share applicants. We, thus, find that both the authorities below on the basis of the aforesaid materials on record were quite justified in deleting the aforesaid addition of Rs. 45,00, 000/- done by the Assessing Officer. We are of the view that the order impugned does not suffer from any defect whatsoever and question of substantial error of law arises justifying our interference. The appeal is, thus, summarily dismissed. " There is no evidence adduced on record to show that the identities of the share applicants are not proved and/or that the subscription made by them to the share capital of the appellant was not genuine and/or the source of investment was not fully explained to the satisfaction of the AO. Further, the Hon'ble Jurisdictional High Court in the case of CIT vs. Dataware Private Ltd. [ITAT No. 263 of 2011 dated 21.09.2011] wherein while examining the issue of addition of share application money received by the assessee therein u/s. 68 of the Act, the Hon'....
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....udiates the transaction set up by the assessed nor should the AO take such repudiation at face value and construe it, without more, against the assessed. (7) The Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber the genuineness of the transaction and the veracity of the repudiation." 7.4 Further this decision of the Hon'ble Delhi High Court was approved by the Hon'ble Supreme Court in CIT vs. Lovely Exports Ltd. (2008) 216 CTR 195 (SC) observing that if share application money is received by an assessee from subscribers, whose names are given to the AO, are allegedly bogus, then the Revenue is free to proceed to reopen their individual assessments in accordance with law. It was held that: - "2. Can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law." 8. It i....
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....one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. 3.4.2. In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the ground no.2 raised by the revenue is dismissed." (b) In the case of ITO vs. R.B. Horticulture & Animal Projects Co. Ltd [IT Appeal No.632 (Kol) of 2011, dated 13.01.2016], it was held as follows: "6. We have heard the Learned DR and when the case was called on for hearing , none was present on behalf of the assessee. However, we find from the file that the assessee had filed a detailed paper book and written submissions. Hence the case is disposed off based on the arguments of the Learned DR and written submissions and paper book already available on record. The facts stated in the Learned CIT(A) were not controverted by the Learned DR before us. We find that the assessee had ....
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....ll these persons. While accepting the explanation and the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of the assessee. The Commissioner (Appeals) upheld the decision of the Assessing Officer. On appeal, the Tribunal set aside the order of the Commissioner (Appeals) and deleted the additions. On further appeal: Held, dismissing the appeal, that the additional burden was on the department to show that even if the share applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose. " 6.3. We find that the argument of the Learned DR to set aside this issue to the file of the Learned AO for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In view of the aforesaid findings....
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....he given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of Rs.54,00,000/ -. The ground Nos. 2 and 3 are allowed." 7. Aggrieved by the order of CIT{A) the Revenue is in appeal before the Tribunal. 8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon'ble Allahabad High Court in the case of CIT vs Raj Kumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009 wherein the Hon 'ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Atte....
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....ny sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we confirm the order of ld CIT(A) in deleting the addition of Rs.1,60,00,000/- 45. In the result, the appeal of the Revenue is dismissed." 9. In the instant case, the doubts expres....
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.... dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine." Thus, it is evident that the facts of the instant case are quite different from the facts in the case of CIT vs Sumat Dayal (supra). In that case, there were claims for winning of substantial amounts in horse races in two consecutive years and the Hon'ble Supreme Court rejected the assessee's claim about her winnings from races as genuine and gave finding keeping in view the facts relating to that issue only. While in the case of the appellant, it had received share application monies and share premium monies from various corporates who were duly assessed to tax and have disclosed the transactions in their own records. Therefore, the ratio of decision in the case of CIT vs. Sumati Dayal (supra) is not applicable to the case of the appellant In this respect, it is observed that there was no ground to draw any adverse inference against the appellant, in relation to the provisions contained in s. 68 of th....
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....cts of the instant case. In my considered opinion, the issue of shares at premium is always a commercial decision which does not require any justification. In any case, the premium is a capital receipt which has to be dealt with in accordance with sec.78 of the Companies Act, 1956. In other words, it is a prerogative of the Board of Directors of the appellant to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. It is an accepted position that in case of unlisted companies, it is an undisputed fact that share premium is fixed upon mutual agreement. In this context the Hon'ble Income Tax Appellate Tribunal, Mumbai "G" Bench in the case of ACIT vs. Gagandeep Infrastructure P. Ltd. (ITA No.5784/Mum/11, dated 23.04.2014) has held as under: - 6. After considering the facts and the submissions, the Ld. CIT(A) observed that the AO has not given any reason as to why the investment with a premium is not genuine when the assessee has produced all the details of investors in the form of share application form, bank account details, copies of the return of income alongwith balance sheet. The Ld. CIT(A) further....
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....n on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. 317 ITR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. Therefore, charging of share premium cannot be questioned in isolation than that of share capital Once it is established that the share subscribers are genuine, their creditworthiness is established and the genuineness of the transaction is not doubted, the AO cannot justifiably claim to put himself in the arm-chair of the appellant or in the position of the Board of Directors and assume the role to decide how much premium is reasonable in the given circumstances. This is another reason for which the addition on this account will fail the test of reason. 10. Therefore, considering the totality of the facts and c....
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....entity, creditworthiness of the investors and genuineness of the transactions. However the AO came to the conclusion that the verification could not be done qua these investments because neither the directors of the assessee company nor were the share subscribers appeared and therefore the transactions remained unexamined and unexplained, thereby making an addition as unexplained cash credit. Before the Ld. CIT(A), we find that the assessee filed same documents as filed before the AO comprising names, addresses, copies of PAN, applications of share subscribers, bank statements of both the assessee as well as share subscribers, form 18 and various other evidences which have been minutely appreciated and examined by the Ld. CIT(A). The Ld. CIT(A) has examined on page 18 of the appellate order that the net worth of the investors and amount of investment in the assessee company and recorded a finding that the amounts invested were only a fraction of total net-worth of these investor companies. In the present case the assessee has filed all the evidences before the AO and AO in stead of carrying of further investigation only harped on the plea that summons u/s 131 of the Act were not co....