TaxTMI 
TaxTMI 
2023 (8) TMI 1017
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilaspur erred in confirming the addition of Rs. 1,21,88,00,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on irrelevant considerations and arbitrary grounds. 3. That the learned Commissioner of Income Tax (Appeals), Bilaspur erred in confirming the addition of Rs. 1,21,88,00,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on the basis of judgments which are distinguishable on facts as well as on law. 4. That the learned Commissioner of Income Tax (Appeals), Bilaspur erred in confirming the addition of share capital of Rs. 1,21,88,00,000/- made under section 68 of the Income Tax Act, 1961 in disregard of the binding judgments of Hon'ble Apex Court, Hon'ble High Courts and the Hon'ble ITATs which directly lays down ratio on the merits of the addition of share capital under section 68 of the Income Tax Act. 1961. 5. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal." 2. Succinctly stated, the assessee company, which is registered as a Non-Banking Financial Corporation (NBFC) and is primarily engaged in the business of providing unsecure....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd creditworthiness. The A.O., in all fairness, provided a copy of the report received from DDIT (Inv.), Kolkata, to the assessee company. 5. Further, the A.O., to verify the identity and creditworthiness of the share applicant/subscriber companies a/w. genuineness of the transactions of receipt of the share application money from them, issued summons to the director of the assessee company, viz. Shri Sarad Kumar Darak. The statement of Shri Sarad Kumar Darak (supra) was recorded on oath by the A.O. in the course of the assessment proceedings on 13.12.2016. As is discernible from the assessment order, Shri Sarad Kumar Darak (supra) on being directed to produce the directors of the share applicant/subscriber companies for a necessary examination so that their identity and creditworthiness a/w. genuineness of the transaction of receipt of the share application money from them could be verified; however, he explained his inability to do so and requested that the Department may summon the said persons. Also, Shri. Sarad Kumar Darak (supra), in his attempt to discharge the onus that was cast upon the assessee company as regards proving the authenticity of its claim of having received....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its claim of having entered into genuine transactions of receipt of share application money from the investor companies were liable to be drawn. Apart from that, the A.O., on scrutinizing the documents that the assessee company had filed, observed that the amount of share application money was stated to have been received from the share applicant/subscriber companies, which had virtually no worth and no fixed assets. The A.O. further observed that the financial status of the share applicant/subscriber companies during the year under consideration was found to be very pathetic, which established that their creditworthiness to invest a substantial amount with the assessee company was highly questionable. Elaborating on his view above, the A.O. observed that the share applicant/subscriber companies had meager income during the year under consideration, which was not commensurate with the towering figure of their alleged investments towards share capital/premium with the assessee company. The A.O. further observed that though the share applicant/subscriber companies were incorporated about 4-5 years back, their financial status revealed meager profit and loss figures. The A.O. further ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re application forms, etc., therein relied on certain judicial pronouncements and observed that the said facts would by no means establish the identity of the companies which in reality might be existing only on papers and were factually non-existent. Rather, it was observed by the A.O. that mere furnishing of the aforementioned details/documents, i.e., names, addresses, PAN particulars, etc., of the share applicant/subscriber companies would not on such a standalone basis suffice to discharge the onus that was cast upon the assessee company u/s. 68 of the Act. Elaborating on his aforesaid view, the A.O. relied on the judgment of the Hon'ble Supreme Court in the Case of A Govindarajulu Mudaliar, 34 ITR 807 (S.C.), and observed that if on verification of the documents, the A.O. was unable to contact the share applicants or the information was found to be unverifiable, then the onus shifted back to the assessee to substantiate his claim by making available the requisite details, failing which, the addition would be called for u/s. 68 of the Act. 9. As the assessee company had failed to substantiate the creditworthiness of the share applicant/subscriber companies, therefore, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....drawn by the A.O. by submitting as under: "With the reference to the above captioned subject, I on behalf of the assessee company do hereby submits following facts along with supporting documents are as under- In your letter dated 20/12/2016, you have mentioned that in response to the commission issued under section 131(d) to the Hon'bie DDIT(inv.), unit 4(1), Kolkata for the enquiry of 48 companies for their investment of Rs. 120,71, 50,000/- during the relevant assessment year are well known entry operators and are of doubtful credentials. Further you have also mentioned that the identity, credit worthiness and genuineness of the 48 shareholders of our company are not proved. On the contrary attached documents of the report u/s. 131(d) of Hon'ble DDIT(inv.), unit 4(1), Kolkata clearly shows that all the alleged companies are duly assessed regularly u/s. 143(1) and u/s. 143(3). Further statement of some of the directors of some of the alleged companies 4tere recorded on Aug 2014 & March 2015 in case of another assessee not specifically directly or indirectly reared to our company Hon'ble DDIT(inv.), unit 4(1), Kolkata has not enquire our transactions with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the objects of the company and the name and address of its directors, authorized capital, issued capital, and its registered head office address are clearly mentioned. Therefore it proves that the identity of the alleged 48 companies is duly substantiated. -Directors have further furnished an audited financial statements of all the alleged 48 companies to prove their credentials, wherein clearly mentioned sufficient funds for providing share application money to our company. -Directors have also produced rill the bank statement of many alleged companies to prove that all the share application money transactions passed through proper banking channels like RTGS/account pay cheques. Apart from the above since your good office has also compelled to the director of the assessee company during the statement recorded under section 131 dated 13/12/2016 to produce directors of all the 48 alleged companies whereas director stated that companies are located far away from Bilaspur city. Therefore kindly summon the directors as you deem fit necessary. However our company has compelled to the directors/ principal officers of all the alleged 48 companies through a written letter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss and credentials of their companies. It is our humble request that all the ingredients of Section 68 along with its provisos are duly discharged and submitted to you for your kind satisfaction. On the basis of similar facts Hon'ble Income Tax Appellate Tribunal A Bench, Ahmedabad in the case of Chartered Speed Pvt. Ltd. ... vs Assessee on 28 August, 2014 wherein it was held that "We find that in the instant case, the addition is made u/s. 68 of the Act on the ground of unexplained cash credit. As per the previsions of section 68, the initial onus lies upon the assessee to prove the nature and source of amount credited in his books of account. We find that this initial onus was discharged in the instant case by the assessee by furnishing documents like MOA, AOA, share application & board resolution, Certificate of In corporation, Certificate of Commencement, acknowledgements of ITRs, audited accounts etc. of concerned. companies. Thereafter, in our view, the onus shifted upon the Department and it was for the Department to bring on record relevant material to show that why inspire of the above stated documents, the addition is still to be made in the hands of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said company in the eyes of the public. 11. Apropos the fact that the payments from the investor companies were received by the assessee company through cheques/banking channels, the A.O., by relying on the judgment of the Hon'ble High Court of Calcutta in the Case of CIT Vs. Precision Finance Pvt. Ltd., 208 ITR 465 (Cal.), observed that the mere fact that the transactions were carried out through banking channels would not conclusively establish the identity of the creditors or their creditworthiness. As regards the judicial pronouncements that were relied upon by the assessee company, the A.O. was of the view that as all of those were rendered before the amendment to Section 68 of the Act vide the Finance Act, 2012 w.e.f. 01.04.2013, i.e., before insertion of the "1st proviso" to the said section; therefore, the same would not come to its rescue. The A.O. observed that the assessee company had, except for furnishing some documents, failed to file the other requisite details as were required per the mandate of Section 68 of the Act; therefore, the entire amount of share capital/premium of Rs. 121.88 crore (approx.) received by it during the year under consideration was t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-10, 2012-13, and 2013-14. Documents such as PAN, MOA, AOA, share application forms, and audited financial statements in respect of some of the investor companies; were submitted and were duly accepted by the A.O.; therefore, similar documents in the current assessment year should also be accepted. In the AY 2012-13 and 2013-14, the A.O. had issued notices u/s 133(6) to all alleged investor companies, and these companies furnished all required information to establish identity, creditworthiness, and genuineness. The Ld. A.R. wants the Department to accept a certain set of papers on the ground that similar papers were accepted in earlier years also. However, estoppels do not apply in I.T. proceedings, and each assessment year is separate and exclusive from earlier years. Moreover, there was no inquiry caused through the DDIT Inv at Kolkata in earlier years as has been caused in the current year with findings adverse to the assessee. If, on an inquiry, different facts are found, and it is revealed that the directors and persons related to the purported share application companies have accepted having provided accommodation entries to the assessee company, then the share application m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urial skills of the management. With the amendment to section 68, applicable w.e.f from AY 2013-13, not only is the assessee required to explain the source of share application money, but in case the applicant is a company, then the said applicant company is also required to explain the source of money in is handing out of which the amount of share application money was advanced to the assessee. In the present case, none of the share applicants has appeared and explained its finances, out of which the amount was advanced to the assessee. In conclusion, the credit in the assessee's books as share application money is unexplained. The addition of the amount of Rs. 121,88,00,000/-in the hands of the assessee, made in the assessment order, is hereby sustained, and the ground of the assessee is dismissed." 13. The assessee, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before us. 14. On 05.06.2023, the assessee company had moved an application seeking adjournment of the appeal on the ground that as the appeal in the case of its sister concern, viz. M/s. Jayganga Exim India Pvt. Ltd for A.Y. 2012-13 involving identical fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Tribunal with a direction to consider the document/certificate that the appellant had filed with the latter after hearing of the appeal was concluded and order was reserved, and decide the matter afresh. Also, the assessee appellant had, along with its aforesaid application filed a short synopsis/written submission in support of the grounds raised in the memorandum of appeal a/w an affidavit of Shri Rohit Darak, director of the assessee company. 16. As the aforesaid application seeking to place on the record the written submission/synopsis a/w. the affidavit of the director of the assessee company after the culmination of the appellate proceedings was not in conformity with the procedure contemplated in Rule 18 of the Income Tax (Appellate Tribunal) Rules, 1963, regulating the mode and manner for an appellant or a respondent who proposes to refer or rely upon any document or statements or other papers on the file of or referred to in the assessment or appellate orders; therefore, initially, we were of the view that the same did not merit admission. Our conviction above was fortified by sub-rule (7) of Rule 18, as per which any paper/paper book filed in a manner that does n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee appellant company (after the appeal was heard), which would reveal that the copies of the same were also sent to the respondent department. The assessee appellant to impress upon us that the written submission/synopsis/affidavit that were being filed with us, though after the culmination of the hearing of the appeal, therein merit admission, had relied on the judgment of the Hon'ble Apex Court in the case of Aurangabad Electricals Ltd. Vs. Commissioner of Central Excise & Customs, Aurangabad (supra). 17. We have perused the aforesaid judgment of the Hon'ble Apex Court in the case of Aurangabad Electricals Ltd. Vs. Commissioner of Central Excise & Customs, Aurangabad (supra), and the facts/issues therein involved are for the sake of clarity being culled out by us, as under: Facts in the case before the Hon'ble Apex Court - Re: Aurangabad Electricals Ltd.: 18. In the case before the Hon'ble Supreme Court, the allegation against the appellants, viz. Aurangabad Electricals Ltd., who were manufacturers of "Magneto Assemblies," was that they were receiving inputs from M/s Bajaj Auto Ltd., which was the primary consumer of their goods, at an under- valued landed cost by no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stice to the litigants, had remanded the matter to the file of the Tribunal with a direction to consider the CA certificate that was filed by the appellant with the Tribunal, though after the case was heard and order was reserved for judgment, and therein verify as to whether the same would assist the appellant company in support of their defense. Respectfully following the aforesaid observation of the Hon'ble Apex Court, we find substance in the claim of the assessee-appellant that the written submission/synopsis/affidavit placed on our record, though after the conclusion of the hearing of the appeal, requires to be considered to verify as to whether the same in any way supports its claim that has been raised in the present appeal before us. 20. We have heard the ld. Authorized representatives of both parties, perused the orders of the lower authorities and the material available on record a/w. the synopsis/written submissions filed by the assessee appellant (received through post), as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 21. Although we, in terms of our observations above by re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ector of the assessee company. The A.O. directed Shri. Sarad Kumar Darak (supra) to produce the directors of the share applicant/subscriber companies so that the identity and creditworthiness of the respective investor companies a/w. genuineness of the transaction of receipt of the share application money from them could be proved. However, it transpires on a perusal of the record that the directions of the A.O. were not complied with by the assessee company. Shri. Sarad Kumar Darak (supra), in his attempt to discharge the onus that was cast upon the assessee company to substantiate the authenticity of receipt of the share application money from the investor companies, furnished copies of PAN, returns of income, audit reports, and bank statements, etc. of the share applicant/subscriber companies. Regarding the A.O.'s direction to produce the directors of the share applicant/subscriber companies for necessary examination before him, Shri Sarad Kumar Darak (supra) expressed his inability to do so and requested the A.O. to summon them. However, the A.O. not losing sight of the fact that the summons that were earlier issued u/s. 131 of the Act by the DDIT (Inv.) Unit-4(1), Kolkata ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....worthiness of the share applicant/subscriber companies, and genuineness of the transactions of receipt of the share application money from them, the A.O. concluded that having failed to do so, the amounts in question were to be held as unexplained cash credits u/s. 68 of the Act. 26. Shri Harsh Vijayvargiya, Ld. A.R. for the assessee vehemently submitted that the A.O. had grossly erred in law and facts of the case in not considering the substantial documentary evidence that was filed before him to substantiate the identity and creditworthiness of the share applicant/subscriber companies, and also the genuineness of the transactions of receipt of the share application money from the said investor companies. The Ld. AR drew our attention to the assessment order, wherein the A.O. had observed that he had received bundles of papers through post from the assessee company. Referring to the documents mentioned above, it was submitted by the Ld. A.R. that the view taken by the A.O. without addressing the contents of the said documents, which in turn substantiated the authenticity of the transactions of receipt of share application money by the assessee company, was in clear violation of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peared to be paper/shell companies that were being managed by infamous entry operators who had admitted to having carried out their nefarious activities of providing bogus/accommodation entries through the said companies; and (iv). the directors of the said companies were dummy directors. Considering the aforesaid details about the share applicant/subscriber companies as was reported by the DDIT(Inv.)-4(1), Kolkata, pursuant to a commission issued to him u/s 131(1)(d) of the Act, and the factum of the poor financial credentials of the said share applicant/subscriber companies, which, as could be gathered from their financial statements, were not involved in any real business activities, the A.O., in our considered view, was duly justified in carrying serious doubts as regards the authenticity of the claim of the assessee company of having received genuine share application money from the aforementioned share applicant/subscriber companies. In so far furnishing of the copies of PAN, income tax returns, audit reports, and bank statements by the assessee company in its attempt to discharge the primary onus that was cast upon it to prove the authenticity of its claim of having received....
X X X X Extracts X X X X
X X X X Extracts X X X X
....On a careful perusal of the orders of the lower authorities, we would not hesitate to observe that the assessee company had absolutely adopted an evasive approach and except for placing on record certain documentary evidence, i.e., copies of PAN, returns of income, audit reports and bank statements, etc. of the share applicant/subscriber companies, and harping on the fact that transactions were carried out through banking channel, had however failed to substantiate the set of conditions envisaged u/s. 68 of the Act, i.e. (i) proving the identity and creditworthiness of the share applicant/subscriber companies; and (iii) establishing the genuineness of the transactions under consideration based on irrefutable supporting documentary evidence. As the DDIT(Inv.), Unit-4(1), Kolkata had vide his report dated 21.11.2016, i.e., pursuant to the commission issued u/s. 131(1)(d) of the Act by the A.O., therein stated that share applicant/subscriber companies had doubtful credentials and lacked identity, creditworthiness, and genuineness, which fact was brought by the A.O. to the notice of the assessee company, therefore, in our considered view a very heavy onus was cast upon the assessee com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hare applicant/subscriber companies speaks for itself, and reveals that the latter were merely name-sake investors forming part of a well-knit chain of paper/shell companies managed by entry operators who had facilitated the laundering of the unaccounted money of the assessee company in the guise of share capital/premium. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the Case of Pr. CIT, Circle-1 Vs. NRA Iron & Steel Pvt. Ltd. (2019) 103 taxmann.com 48 (S.C.). In the said case, the Hon'ble Apex Court had observed that where the assessee company had received share capital/premium but had failed to establish the creditworthiness of the investor company, then the A.O. was justified in treating the said amount as an unexplained cash credit u/s. 68 of the Act. The Hon'ble Apex Court, while concluding as hereinabove had, inter alia observed that the A.O. is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name- lenders. The Hon'ble Apex Court, while concluding as hereinabove, had laid down the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....#39; and had failed to substantiate the source of funds from where they made the alleged investments. 31. Considering the totality of the facts involved in the case before them, it was, inter alia, observed by the Hon'ble Apex Court that once the assessee has submitted the documents relating to identity, genuineness of the transaction and creditworthiness, then the A.O. must conduct an inquiry, and call for more details. It was further observed that 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. The Hon'ble Apex Court had further observed that the Department is obligated to carry out careful scrutiny of a private placement of shares, and the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., and failure of the same would justify the addition of the said amount to the income of the assesse, observing as under: "14. The practice of conversion of unaccounte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est such huge amounts aggregating to Rs. 121.88 crore (approx.) with the assessee company. Also, the fact that the said 40 investor companies had subscribed the shares of the assessee company, a loss-making company, of the face value of Rs. 100/- per share at a premium of Rs. 2400/- per share does not inspire any confidence as regards the authenticity of the transactions under consideration. Also, we may observe that as the aforesaid judgment of the Hon'ble Apex Court in the Case of Pr. CIT, Circle-1 Vs. NRA Iron & Steel Pvt. Ltd. (supra) was rendered in the context of pre-amended Sec. 68 of the Act; therefore, pursuant to the insertion of the "1^st proviso" to Sec. 68 of the Act vide the Finance Act, 2012 w.e.f 01.04.2013 which applies to the case of the present assessee company before us, a much heavier onus was therein cast upon it to substantiate the authenticity of the share application money that was credited in its books of accounts. Apropos the claim of the assessee company that the lower authorities had miserably failed to establish that the assessee's unaccounted money was routed back to its coffers in the guise of share application money received from the share appli....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pany to substantiate the authenticity of its claim of having received genuine share application money, and the respective investors were required to offer an explanation as regards the nature and source of the sum so credited against their name in the books of account of the assessee company. To sum up, the claim of the assessee company of having received share application money from the 40 share applicant/subscriber companies did further cast an obligation upon it to mandatorily supplement the same with the explanations of the respective investor companies about the nature and source of such sum credited against their names in the books of account of the assessee company. However, we find that in the present case before us, not only the assessee company had failed to substantiate to the hilt the nature and source of the amount credited in its books of account based on any clinching documentary evidence, but also, there is no whisper in the orders of the lower authorities about any explanation of the respective investor companies about the nature and source of such sum so credited against their names in the books of account of the assessee company. 34. Now, we shall deal with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es by satisfying the set of conditions envisaged u/s 68 of the Act, i.e. (i). proving the identity and creditworthiness of the share applicant/subscriber companies, and establishing the genuineness of the transactions under consideration based on irrefutable documentary evidence; and (ii). explanation of the share applicant /subscriber companies about the nature and source of the sum recorded against their name in the books of the assessee company; therefore, the reliance placed by the Ld. AR on the aforesaid order passed in the case of Chhattisgarh Metaliks and Alloys (P) Ltd. Vs. ITO (supra) would not come to its rescue. (B) Pr. Commissioner of Income-tax Vs. Chain House International (P) Ltd. (2019) 103 taxmann.com 435 (SC) 37. In the aforesaid case, it was observed by the Hon'ble High Court that once the genuineness, creditworthiness, and identity of investors were established, no addition could be made concerning the cash credit on the ground that the shares were issued at an excess premium. The Hon'ble High Court had observed that as there was no dispute about the identity, creditworthiness, and genuineness of the investors which was established beyond any doubt, theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... upon it as regards proving the authenticity of its claim of having raised genuine share application money of Rs. 121.88 crore (approx.) from the 40 investor companies, i.e., by satisfying the double facet conditions contemplated in the aforesaid statutory provision, i.e., Sec. 68 of the Act (post-amended), viz. (i) explanation about the nature and source of the credit in its books of account; and (ii) explanation by the investor companies as regards the nature and source of the sum so credited against their name in the books of account of the assessee company - therefore, finding no infirmity in the view taken by the lower authorities who had rightly held the entire amount as unexplained cash credit u/s. 68 of the Act, we uphold the same. Thus, the Grounds of appeal No(s). 2 to 4 raised by the assessee company are dismissed in terms of our observations above. 42. Ground of appeal No.5, being general, is dismissed as not pressed. 43. Although the assessee company has also assailed the order of the CIT(Appeals) on the ground that he had erred in dismissing the appeal without allowing a reasonable opportunity of hearing, we are unable to persuade ourselves to concur with the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 29 Safalta vinimay pvt. Ltd. 72700000 1300000 28000000 30 Srijan merchants pvt. Ltd. 6500000 31 Swarnchura tradelink pvt. Ltd. 49500000 32 Shri ram rathi marketing pvt. Ltd. (sthavistha) 39100000 33 Trishul retailers pvt. Ltd. 8800000 34 Unifour commosales pvt. Ltd. 75500000 35 Smart commosales pvt. Ltd. 4000000 36 Skybase infra pvt. Ltd. 37 Singrodiya bors. Holding pvt. Ltd. 38 Winsome commotrade pvt. Ltd. 39 Worldwealth deal trade ltd. 40 Zoom advisory pvt. Ltd. 2500000 45800000 1500000 72450000 2900000 1218800000 Document 3 S.no. Name of company Profit/ Total income EPS Non cureent loss shown in ITR investment 1 Accurate vinitrade pvt. Ltd. 2 Ambashree commotrade pvt. Ltd. -22496 Not enclosed 0.12 0 -4565 77475 0 367350000 3 Amritrashi merchandise pvt. -4030 0 0 86140000 Ltd. 4 Arrowlink vanijya pvt. Ltd. 1068 1545 0 58938954 5 Arrowspace trexim pvt. Ltd. 2471 6517 0 104147000 6 Arrowspace tracon pvt. Ltd. 7 Bhalanetra vinimay pvt. Ltd. 8 Blockdeal dealcom pvt. Ltd. 9 Club side deal ....