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TaxTMI 
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2023 (8) TMI 29
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....AO that the assessee company failed to prove the genuineness and creditworthiness of the investor company as per the parameters of the legal provisions u/s 68 of the Act?" 3. Whether on points of law and on points of facts & circumstances of the case, the Ld. CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was justified in deleting the addition of Rs. 10,72,80,000/- made by the AO in the absence of satisfaction of parameters prescribed u/s 68 of the Act?" 4. "Whether on points of law and on points of facts & circumstances of the case, Ld. CIT(A) was justified in giving a finding which is contrary to the ratio of the decision of Hon'ble Supreme Court in the case of M/s Rajmandir Estates Pvt. Ltd. vs PCIT-III, Kolkata (SLP No. 22566-22567 dt. 09.01.2017?" 5. "Whether on points of law and facts & circumstances of the case, the Ld. CIT(A) was justified in giving a finding which is contrary to the ratio of the decisions of ITAT, Kolkata 'B' Bench in the case of M/s Subhlakshmi Vanijya (P) Ltd. Vs CIT-1, 6. "Whether on points of law and facts & circumstances of the case, the Ld. CIT(A) was justified in giving a finding which is contrary to the ratio o....
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....Finance Pvt. Ltd. 28600000 4. Lectrodyer Marketing Pvt. Ltd. 10600000 5. Sunderm Consultants Pvt. Ltd. 21700000 6. Admire Vinimay Pvt. Ltd. 19980000 7. Ginni Vinimay Pvt. Ltd. 9450000 Total 10,72,80,000 4. It was further observed by the A.O that out of the aforesaid seven companies, three companies, viz. (i) Balsaria Holding Pvt. Ltd.; (ii) JIT Finance Pvt. Ltd.; and (iii) Lectrodyer Marketing Pvt. Ltd. were companies which belonged to Shri Abhishek Chokani, an infamous accommodation provider, who had admitted in his statements recorded on oath in course of certain survey proceedings conducted u/s.133A of the Act by the Investigation Wing, Kolkata that he was engaged in providing accommodation entries in the form of bogus bills, bogus share capital, unsecured loans etc. to various business houses through certain paper/jamakharchi companies. The A.O on the basis of the aforesaid fact held the entire amount of share application money of Rs. 10,72,80,000/- received by the assessee company from M/s. Kush Trading & Commerce Pvt. Ltd. as unexplained cash credit u/s.68 of the Act. The A.O after, inter alia, making the aforesaid addition of Rs. 10,72,80,000/- u/s.6....
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....f 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:" Thus, based on the above provisions undisclosed amount of Rs. 10,72,80,000/- is disallowed and added back to the income of the assessee." 5. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). During the course of appellate proceedings, it was submitted by the assessee company that it was in receipt of share application money of Rs. 10.50 crore (wrongly mentioned by the AO as Rs. 10,72,80,000/-). It was observed by the CIT(Appeals) that though the assessee company while discharging the primary onus th....
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.... company, viz. M/s. Kush Trading & Commerce Pvt. Ltd. had not relied upon the statement of Shri Abhishek Chokani (supra) for drawing any adverse inferences as regards the authenticity of the transaction of receipt of share application money by it from the seven share applicants, thus, there was no justifiable basis for the AO to have taken a view to the contrary on the same issue while framing assessment in the case of the assessee company for the same year. In sum and substance, the CIT(Appeals) was of the view that now when the department while scrutinizing the case of the share applicant, viz. M/s Kush Trading & Commerce Pvt. Ltd. for the year under consideration i.e AY 2013-14 had not drawn any adverse inferences in its hands as regards the receipt of share application money of Rs. 10.72 crore (approx.) from the aforesaid seven investor companies, therefore, there was no justification for the department to have thereafter taken a view to the contrary on the very same issue at the stage of scrutinizing the case of the assessee company. As such, the CIT(Appeals) was of the view, that now when the department while framing scrutiny assessment in case of M/s Kush Trading & Commerce ....
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.... 8. Ld. AR of the assessee company had at the very threshold of hearing of the appeal, submitted that the assessee company during the year under consideration was in receipt of an amount of Rs. 10.50 crore (wrongly mentioned by the AO as Rs. 10,72,80,000/-) from M/s. Kush Trading & Commerce Pvt. Ltd., against which 42 lac equity shares of a face value of Rs. 10/- per share were issued at a premium of Rs. 15/- per share. Our attention was drawn by the Ld. AR to the financial statements of the investor company, viz. M/s. Kush Trading & Commerce Pvt. Ltd. in support of his aforesaid claim, Page 57 of APB. It was further averred by the Ld. AR that the CIT(Appeals) had duly considered the aforesaid factual mistake of the AO and corrected the same in the course of the proceedings before him. 9. As is discernible from the records, it transpires that the assessee company on being called upon to substantiate the authenticity of the transaction of receipt of share application money of Rs. 10.50 crore (supra) from M/s. Kush Trading & Commerce Pvt. Ltd., had vide its letter dated 26.02.2016, Page 37-88 of APB a/w. letter dated 21.03.2016, Page 93 of APB and letter dated 30.03.2016, Page 94 of....
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....succeeding year, further fortified the genuineness of the transaction of receipt by the assessee company of share application money of Rs. 10.50 crore (supra) from the said share applicant company during the year under consideration. Accordingly, the CIT(Appeals) on the basis of his aforesaid deliberations vacated the addition of Rs. 10.50 crore (supra) that was made by the A.O u/s.68 of the Act, observing as under: "3.3 Facts being as above, the appellant has received share application money from M/s Kush Trading and Commerce Pvt Ltd. (AO has erringly taken the figure as Rs. 10,72,80,000/- where as the assessee has received Rs. 10,50,00,000/-). This is an in-house company and directors are common in this company and the assessee company. AO has held the credit to be non-genuine and has added the whole amount as assessee's income. AO has based his decision on fact that M/s Kush trading has received' funds from seven companies out of which three companies belong to a person Shri Abhishek Choukshe and who has admitted in his statement that he manages paper companies to provide accommodation entries to various business concerns. From the assessment order it does not reveal t....
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....evenue, has not rendered the decision holding the finding of the First Appellate Authority regarding applicability of Sec. 131 and 133(6) of the Act, as the case may be, is erroneous in laws. So much so, the impugned decision of the Tribunal' sands faulted on a substantial question of law relatable to the contents of Sec. 68 of the Act and the failure of the revenue to take recourse of Sec. 131 and 133(6) of the Act, in the case of the assessee, where the primary onus u/s 68 of the Act stood discharged by the assessee. For the forgoing reasons, we are of the view that the impugned order of the Tribunal has to be set aside answering the question of law, farmed and quoted above, in favour of the assessee. We do so." If no proper opportunity is given to the assessee to controvert the documents/information in possession of AO, the resulting assessment order is void ab initio as has been held by the Hon'ble Supreme Court in the case of M/s Andaman Timber 281 CTR 241 SC 2015. As per the Apex Court " Not allowing assessee to cross examine witnesses by Adjudicating Authority though statements of those witnesses were made as basis of impugned order, amounted in serious flaw whic....
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....AO it shows that the companies do exist. Also these companies are duly registered with ROC and having registered offices and registration numbers. As per bank statements payments have received by the assessee from shareholder's accounts to assessee's account. Therefore, genuinenessof the transaction cannot be doubted without making an inquiry and bringing on record any adverse finding. Coming to the source of source, M/s Kush Trading has advanced money to the assessee out of its source. As per explanation, M/s Kush Trading has advanced funds to the assessee out of the money received from seven other companies as listed in the assessment order. In the hands of M/s Kush Trading its capital has already been accepted in scrutiny assessment. When the capital of investor has been accepted by its AO and it has confirmed having paid share application money to the assessee and both the companies are run by common directors, there is no scope to doubt the genuineness of capital without bringing any adverse facts on record. For genuineness of the transaction, the same is verifiable from the bank statement of the appellant, copies of share application and share certificates, thus, with....
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....uineness of the impugned transactions. 15. It is observed from the records and assessment order that for the purpose of making addition as unexplained cash credits, the AO has heavily relied upon the judicial pronouncements, however, the appellant has made elaborate submissions distinguishing the facts, I am convinced with the explanation of the appellant that the decisions relied upon by the A.0 are not applicable in the facts of the present case as there is nothing on record which can indicate that the receipt of share application money was by way of accommodation entries only. It is also not the case of the A.O that the investors have accepted by way of statement that the sums paid to the appellant was in fact received from the appellant and investors merely routed the undisclosed income of the appellant through money laundering process in the form of share application money. On the contrary, the A.O himself has stated in the assessment order that the investors have sent confirmatory letters. In the backdrop of these facts and documentary evidences, in myconsidered opinion, the identity and creditworthiness of the subscribers has been established and cannot be doubted, it is n....
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....s rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share applicants were duly reflected in the audited financial statements of the corporate investors. It is a settled principle of law that reason for suspicion, however grave it may be, cannot be a basis for holding adversity against appellant. 17. The Assessing Officer has disregarded the documentary evidences adduced by the appellant such as confirmation from the share applicants, their PAN, certificate of incorporation of subscriber companies. The subscription for the shares was received through cheques. The Investor-companies are duly registered with ROC. Those companies were also having their income tax PAN numbers and regularly filed returns of income. No material was brought on record by the A.O independently of the information received, if any, from the investigation wing of the Income Tax Department to show that the monies represented the appellant'....
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....ition of share capital money of Rs. 10,72,80,000/- as unexplained cash credits u/s 68 is uncalled for and hence deleted. The appeal is allowed." 10. We have given a thoughtful consideration and find that the onus that was cast upon the assessee company to prove the authenticity of the transaction of receipt of share application money during the year under consideration i.e AY 2013-14 has two facets, viz. (i) an explanation about the nature and source of the sum so credited in its books of accounts; and (ii) an explanation of the share applicant company as regards the nature and source of its investment i.e share application money credited in the books of account of the assessee company. 11. As observed by us hereinabove, the assessee company had discharged the primary onus that was cast upon it as regards explaining the nature and source of the sum credited in its books of accounts by placing on record supporting documentary evidences, viz. (i) share application form; (ii) bank statement of the share applicant company; (iii) copy of PAN; (iv) copy of return of income a/w. audited financial statements of the share applicant company; and (vi) memorandum of association and articles ....
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....rt of Delhi in the case of CIT-II Vs. Kamdhenu Steel & Alloys Ltd. (2014) 361 ITR 220 (Del). Also a similar view had been taken by the Hon'ble High Court of Delhi in the case of PCIT Vs. N.C Cables Ltd. (2017) 391 ITR 11 (Delhi). It was observed by the Hon'ble High Court that now when the assessee had furnished documents to evidence genuineness of transaction and identity and creditworthiness of parties, then in case of failure by the AO to conduct adequate and proper enquiry no addition could be made u/s 68 of the Act. The Hon'ble High Court further observed that though the Investigation wing had leveled several allegations as regards the receipt of share application money by the assessee company, and also the AO was in possession of certain bank accounts of the share applicants which disclosed facially that the amounts were infused in cash at the relevant time before shares were subscribed, the AO ought to have carried out a more intensive investigation into the income-tax records to actually discern the volume of trade or commerce of the share applicants and their inability, if any, to invest the amounts in issue, as suspicious circumstances on a standalone basis could not form ....
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....ies) from whom the share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd. had received share application money belonged to Shri. Abhishek Chokani, an infamous accommodation entry provider, in our considered view in absence of any corroborating material could not have justifiably formed a sole basis for dubbing the transaction of receipt of share application money by the assessee company as bogus. Our aforesaid observation is supported by the order of the Hon'ble High Court of Delhi in the case of PCIT Vs. Krishna Devi & Ors. (2021) 431 ITR 361 (Del). It was observed by the Hon'ble High Court that reliance placed on the report of investigation wing without further corroboration on the basis of cogent material, does not justify AOs conclusion that the transaction is bogus, sham and nothing other than a part of the racket of accommodation entries. Considering the aforesaid judicial pronouncements, we are of the considered view that now when the assessee company had discharged the primary onus that was cast upon it as regards proving the identity and creditworthiness of the share applicants, as well as the genuineness of the transaction of receipt of share application mone....
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....e ld. AR subsequent to the insertion of the "1st proviso" to Sec. 68 of the Act vide the Finance Act, 2012 w.e.f AY 2013-14 cannot be accepted. 12. Fact that the share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd. was an in-house company of the assessee with certain common directors, holding PAN and filing its returns of income; coupled with the fact that assessment in its case for the year under consideration i.e AY 2013-14 was framed by the ITO, Ward-14(2), Kolkata, wherein after, inter alia, carrying out necessary verifications and recording the statement of its director u/s 131 of the Act the returned income was accepted as such vide order passed u/s 143(3) of the Act, dated 30.12.2015, Page 95-96 of APB, therein conclusively proves the identity of the investor company. Further, as the assessee company was in receipt of the entire amount of investment from the share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd., in tranches, through banking channel i.e remittances through RTGS/transfers from bank A/c No. 01522320008170 with HDFC Bank Ltd, Branch: Devendra Nagar Road of the said share applicant company, Page 40-43 of APB; and 42 lac shares (disti....
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....t in the case of the assessee company for the year under consideration i.e AY 2013-14. Our aforesaid view that where assessment of the share applicant company which had invested in the share capital of the assessee company is completed u/s 143(3) of the Act, then no addition of such share application money can be made in the hands of the assessee company u/s 68 of the Act is supported by the order of the ITAT, Bench "A", Kolkata in the case of Ninestar Merchants Pvt. Ltd. Vs. ITO (2021) 61 CCH 201 (Kolkata). Also, support is drawn from the judgment of the Hon'ble High Court of Delhi in the case of CIT-II Vs. Kansal Fincap Ltd. (2014) 42 taxmann.com 147 (Delhi). It was observed by the Hon'ble High Court that where the transactions relating to receipt of share application money are genuine, and are fully recorded in the books of accounts of the share applicants, then, no addition would be called for in the hands of the assessee company. As in the case of the present assessee company before us, the AO i.e ITO, Ward-14(2), Kolkata while framing assessment in the case of the share applicant company, viz. M/s Kush Trading & Commerce Pvt. Ltd., vide his order passed u/s 143(3) of the Act,....
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....ad gone undetected due to lack of requisite enquiry into increase of share capital (including premium) received by the assessee company, therefore, revised the order u/s 263 of the Act. On appeal, the High Court observed that as the assessee company with an authorized share capital of Rs. 1.36 crores had raised nearly a sum of Rs. 32 crores on account of premium and had chosen not to go in for increase of authorised share capital to avoid payment of statutory fees, thus the same was an important pointer necessitating investigation and thus, the CIT had rightly exercised the powers vested with him u/s 263 of the Act. On further appeal, the Hon'ble Apex Court dismissed the Special Leave Petition (SLP) filed by the assessee. (ii). As the facts involved in the present case before us are clearly distinguishable as against those involved in the case before the Hon'ble Apex Court, therefore, reliance placed on the same in our considered view would not carry the case of the department any further. (B). Navodaya Castle (P) Ltd. Vs. CIT (2015) 56 taxmann.com 18 (SC) (i). As in the aforesaid case there was material to show that the subscriber company was not a genuine investor, therefor....
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....Once again, as the facts involved in the case of the present assessee company before us are factually distinguishable as against those involved in the aforesaid case, therefore, the same would be of no assistance to the revenue. 14. Apropos the obligation that was fastened upon the assessee company as per the "1st proviso" to Sec. 68 of the Act (as was made available on the statute vide the Finance Act, 2012 w.e.f 01.04.2013), which mandates an explanation from the share applicant company about the nature and source of the sum credited in the books of account of the assessee company, it transpires that in discharge of the said statutory obligation, it was in the course of the assessment proceedings submitted before the AO that the investment made by the share applicant company was in turn sourced out of the share application money which the latter had received from seven investor companies. However, we find that the only reason which had weighed in the mind of the A.O for treating the entire amount of share application money of Rs. 10.50 crore (supra) as unexplained cash credit u/s.68 of the Act was that three share applicant companies (out of seven companies), i.e. (i) Balsaria H....
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.... Ltd. (2017) 397 ITR 82 (Del), had observed, that as the department had relied upon the statement of an accommodation entry provider that was recorded u/s 132(4) of the Act for drawing adverse inferences in the hands of the assesseee company, therefore, onus was cast upon the department to facilitate to the assessee company a cross-examination of the said person, and a failure to do so would be sufficient to discard the said statement. On the basis of the aforesaid facts r.w the settled position of law, we are of the considered view that as observed by the CIT(Appeals) and, rightly so, no adverse inferences could have validly been drawn by giving any weightage to the aforesaid unsubstantiated observation of the AO, that he had arrived at by referring to some statements of Shri. Abhishek Chokani (supra) which were never confronted to the assessee company in the course of the assessment proceedings. At the same time, we may further observe, that even if the aforesaid observation of the A.O was found to be in order and was to be acted upon, then, the same having been rendered in context of only three companies (out of seven companies) which had made investment towards share applicatio....
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....de by them is found to have been sourced out of any cash deposits made in their bank accounts prior to their making of investment with the share applicant company, viz. M/s. Kush Trading & Commerce Pvt. Ltd. 15. Apropos the alternative claim of the ld. DR that in case it was to be held that the AO had not carried out proper verifications for dislodging the authenticity of the transaction of receipt of share application money by the assessee company, as well as the source-of-source of the said investment, then the matter in all fairness be restored to his file with a direction to re- adjudicate the same, we are unable to persuade ourselves to accept the same. As the assessee company in discharge of the primary onus that was cast upon it as regards proving the authenticity of the transaction of receipt of share application money from the aforesaid investor company; as well as an explanation as regards the source-of-source as mandated by the "Explanation" to Sec. 68 of the Act, vide the Finance Act, 2012 w.e.f AY 2013-14, had placed on record supporting documentary evidences as had been referred by us hereinabove; thereafter the onus got shifted upon the AO to disprove the veracity o....
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....ortunity to cross-examine is not afforded to the assessee. (ii) On the contrary, it is a case where the AO(s) did not collect the required evidence which they were supposed to do. To put it otherwise, once the assessee had discharged their onus and the burden shifted on the AO(s), they could not come out with any cogent evidence to make the additions. No doubt, as indicate by us above, the AO(s) could have embark upon further inquiry. If that is not done and the AO(s) did not care to discharge the onus which was laid down, for this "negligence" on the part of the AO(s), he cannot be provided with "fresh innings". (iii) The order of the AO(s) had merged in the order of the CIT(A) and in some of the cases before us and before the CIT(A), the assessees had succeeded. (iv) This Court is acting as appellate Court and has to act within the limitations provided under Section 26A of the Act. The appeals can be entertained only on substantial questions of law. In the process, this Court is to examine as to whether the order of the Tribunal is correct and any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority, on th....
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....f the Hon'ble Apex Court in the case of Mohinder Singh Gill (supra), the High Court had observed that it is a trite law that validity of an order of a statutory authority must be judged on the basis of grounds mentioned therein and it cannot be supported by assigning different reasons in the court by filing counter affidavits. It was further observed that orders made by public authorities must be construed objectively with reference to the language used in the order itself. Considering the facts as can safely; or in fact inescapably be gathered on a perusal of the assessment order, viz. (i) the AO had blatantly failed to discharge the onus that was shifted on him for disproving the explanation and the documentary evidences which were filed by the assessee company to prove the authenticity of the transaction of receipt of share application money; and (ii). the observation of the AO that three companies (out of seven companies) which had invested in the share applicant company, M/s. Kush Trading & Commerce Pvt. Ltd. belonged to Shri. Abhishek Chokhani, an infamous accommodation entry provider, not having been confronted to the assessee company during the course of the assessment proc....