TaxTMI 
TaxTMI 
2023 (10) TMI 326
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.... upholding the action of the learned assessing officer in making the additions of Rs. 3600000 under section 68 of the Income tax Act, 1961 for the reasons stated in the order of the first appellate authority. 3. That on the facts and in the circumstances of the petitioner company's case, the learned Commissioner of Income tax (Appeals), erred in law and on facts in confirming the action of the learned assessing officer charging interest amounting to Rs. 432438 and Rs. 10976 respectively under section 234B and 234C of the Act." 3. Ground No.1 has not been pressed. It is dismissed as not pressed. 4. Ground No. 3 relating to charging of interest under section 234B and 234C of the Income Tax Act, 1961 (the "Act") is consequential in nature. 5. We now consider ground No. 2 which relates to confirmation of addition of Rs. 36,00,000/- under section 68 of the Act by the Ld. CIT(A). Briefly stated, the assessee is a private limited company engaged in the business of real estate and dealing in immovable properties. It filed its return for AY 2012-13 on 27.09.2012 declaring income of Rs. 17,12,600/-. The case was selected for scrutiny. In response to statutory notice(s) along with qu....
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....arned Rs. 20,57,000/- from sale of fruits and vegetables and dairy farming, the breakup of which is as under:- Sl. No. Particulars of land Area Present value Crops cultivated Income earned 1. Khatra no. 573, Kairana in the name of father of Arvind Mittal 14 Bighas, 19 Bissas Approx. Rs. 1.80 cr. Fruits 1342000 2. Khasra no. 325, 326, 329, 330 and 57, Panjeeth, Kairana 3 acres. (15 Bighas) Approx. Rs. 1.20 crs. Vegetables 4,65,000 3. DairyFarming 2,50,000 Total 20,57,000 3.5.1 Therefore, it is seen that the sources of investments are not entirely explained. Even with regard to the sources explained, I have perused the land revenue extract of khata no. 573, Kairana available at Page 34 of the paper book and find that the total land is 11 bighas included in the checkbandi Khata Khatoni and not 14 Bighas & 19 Bissas. No details have been submitted before me to show that the entire amount received on account of fruit cultivation was available for the said investment. If, as argued, the land was being looked after by late Arvind Kumar Mittal, as per family arrangement, then it would be necessary for the undersigned to understan....
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....plain the sources. On the contrary, it is noted that the family of the two share holders, late Arvind Kumar Mittal and Sh. Avdhesh Mittal have, in fact, made substantial investments, in land. Neither the year of registration of these immovable properties nor the share in the land holding have been brought on record. But it would be difficult to presume that sufficient funds were available for share investment when these Investments in land have also been made during the corresponding period to the year under appeal. 3.5.3. The other share holder Sh. Avdhesh Kumar Mittal was present before the AO on 11.03.2015 in which he claimed to have invested a sum of Rs. 14 lacs on 02.08.2011 and the sources were explained as having been generated from sale proceeds of crops grown on agricultural lands and sale of residential plots. Hence his identity stands proved but no substantiating documents in the form of evidence for sale of crops, expenses Incurred or statement of affairs showing the cash receipts and withdrawals on account of both the sources Le. agricultural land and sale of residential properties were filed before the AQ. The AO has noted that the three residential plots were sold ....
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....erein the sources are mentioned entirely on account of agricultural activities and there is no mention of the sale of residential properties. The AR has claimed that these persons are carrying out regular agricultural activities even at present and regularly paying land revenue tax. However, the facts on record show that in most of the cases the land revenue tax has been paid by the persons in whose name the lands were registered. Although briefly mentioned by the AR in the written submission that cash was available with both the shareholders from the sale of family owned agricultural land from time to time, no details in this regard have been filed in the paper book. Keeping in view the entire conspectus of the discussion herein above there is found no merit that the contention of the appellant that the genuineness and creditworthiness of the shareholders stand established. 3.6 The issue involved here is addition u/s 68. Normally the burden is on revenue to show that a receipt which is sought to be taxed is in the nature of income and where the income is exempt under the taxing provisions, the burden is on the assessee to show that it is exempt. However, under the deeming provis....
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....Mudallar v. CIT, [19581 34 ITR 807 (SC) observing that there were ample authorities for the proposition that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during an accounting year, the Assessing Officer is entitled to draw inference that the receipts are of an assessable nature. Whether explanation should be accepted or not is not to be examined factually but having regard to test of human probabilities and normal course of conduct. Reference can be made to CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), CIT v. Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC) and other cases referred to in CIT v. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi). In these cases, it has been observed that what is apparent must be considered real until it is shown that there are reasons to believe that the apparent is not real. Caution must be exercised on self-serving statements made in the documents as they are easy to make and rely upon in case an assessee wants to evade taxes. Proof is required and the assessing authorities should not put blinkers while looking at the documents before them. Sur....
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.... "29. In CIT v. Nipun Builders & Developers (P.) Ltd. (2013) 350 TTR 407 (Delhi), this principle has been reiterated holding that the assessee and the Assessing Officer have to adopt a reasonable approach and when the initial onus on the assessee would stand discharged depends upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is/was a continuing one. In such cases, therefore, the assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the assessee cannot plead that they had received money, but could do nothing more and it was for the assessing officer to enforce for to holders attendance. Some cases might require or justify visit by the Inspector to ascertain whether the shareholders/subscribers were functioning or available at the ad....
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.... the genuineness and creditworthiness of the transaction in questions remains a big question. 3.6.4 At this stage it would be relevant to state that the share application forms, the form no. 2 filed with ROC, evidencing the allotment of shares and even the ledger account of share holders have not been placed in the paper book in order to indicate that any shares were allotted to these shareholders. It is also relevant to note that, out of the investment of Rs. 22 lakhs and Rs. 14 Lakhs respectively by late Sh. Arvind Mittal and Sh. Avdhesh Mittal respectively, the share premium alone amounts to Rs. 21,56,000/- and Rs. 13,72,000/-. It somewhat incongruous to note that share application money have been received of Rs. 3,55,000/- from one of the Directors, Smt. Anuradha Goel and Rs. 11,50,000/- has been received from Sh. Shubham Goel another Director without any share premium, in the relevant assessment year. Apparently the two share holders were related to the Directors and have invested in the purchase of shares due to their faith In the company (as per the submissions filed before A.O dated 17.03.2015). This argument is considered but found fallacious, as the company was incorpor....
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....le of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real Intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real Intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provision introduced later to depict the real inte....
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....on 40(b) was introduced with effect from 1st April, 1985 providing that where an individual is a partner in a firm otherwise than as partner in representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of clause (b) to section 40. The Hon'ble Supreme Court in the case of Brij Mohan Das Laxman Das V. CIT [1997] 223 ITR 825/90 Taxman 41 held this insertion to be declaratory in nature and hence retrospective. In this case it was held that the interest paid by the firm to a partner on his individual deposits is not hit by section 40(b), if the person is a partner not in his Individual capacity but as representing HUF. The same view was taken in Suwalal Anandilal Jain v. CIT (1997) 224 ITR 753/91 Taxman 337 (SC). However in Rashik Lal & Co. v. CIT [1998] 229 ITR 458/96 Taxman 16 (SC), somewhat contrary view was expressed. That is how the matter came up before the larger bench of the Hon'ble Supreme Court in Kanji Shivji & Co. (supra). In this case Explanation 2 to section 40(b) has been held as declaratory and hence retrospective in operation by affirming the judgments in the cases of Brij Mohan Das Laxman Das (supra) ....
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.... application of section 68, the assessee must satisfy the AO as to the identity and capacity of the creditor in addition to the genuineness of transaction. When we advert to the language of section 68, it transpires that it refers to any sum credited in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision. Thus, it would extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to any sum credited, there can be no reason to restrict its application only to loans and not to share capital. The burden of proof under 68 can be no different in respect of issue of share capital by closely held companies vi....
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....Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional one, the sum shall be treated as income of the company and added to its income. It is therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium, etc, in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee-company in the hands of the resident-shareholder. However, even in the care of closely held companies, it is proposed that this additional omur of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, Le.. a Venture Capital Fund, Venture Capital Company registered with the Securities and Exchange Boa....
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....d be made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. 13.ae. The about discussed judgments from the Hon'ble Summit Court holding a clarificatory substantive provision as retrospective, despite the same being made applicable from a particular year, fully govern the position under consideration. It is Interesting to note that the judgment of the Hon'ble jurisdictional High Court in Mathan International (supra) holding that the burden of proving the credit of share capital etc. is on a closely held company and failure to do so attracts the rigour of section 68, has been delivered on 21.1.2015, much after the amendment carried out by the Finance Act, 2012. This case pertains to pre-amendment era as the order of the tribunal assailed in this case is dated 24.6.2011. It shows that the Hon'ble High Court has also impliedly approved the proposition that the position anterior to the A.Y. 2013-14 was the same inasmuch as the onus to prove the share capital by a c....
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....hifted merely by producing evidence/material before the Ld. AO. Irrespective of amendment brought w.e.f. 01.04.2013 the basic burden of proving the identity, creditworthiness and genuineness of the transaction has to be successfully discharged by the assessee which has not been done. He submitted that it is hard to believe that such huge cash was kept at home when banking facilities are available. He referred to the decision in the case of P.K. Noorjahan 237 ITR 570. 11. We have given our careful thought to the rival submissions and perused the record. The undisputed facts are that two individuals namely Mr. Arvind Mittal (since deceased) & Mr. Avdesh Mittal made investment in cash of Rs. 22 lakhs and Rs. 14 lakhs towards purchase of 4400 and 2800 equity shares of face value of Rs. 10/- and premium of Rs. 490 per share respectively of the assessee private limited company during the year. Admittedly both the investors are related to the directors of the assessee company. Since the above sums are credited in the books of the assessee company maintained for the previous year relevant to AY 2012-13 onus to prove the nature and source thereof lay on the assessee company. It is now sett....
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....e of the considered view that the assessee's case before us falls in this category. We cannot be oblivious of the glaring fact that we are dealing with a case where the assessee is a private limited company of real estate developers and the two investor creditors are relatives of its directors. In case of such a type more heavy burden lies upon the assessee to prove the creditworthiness and genuineness of the transaction which in our humble opinion the assessee failed to discharge. 12. In para 3.6.4 of his appellate order, the Ld. CIT(A) has observed that necessary evidence of allotment of shares and even the ledger account of the shareholders have not been brought on record. The contention of the assessee that the two creditors invested in purchase of shares due to their faith in the company has been found to be fallacious on the basis of facts culled from the records of the assessee company itself. 13. We have gone through the order of the Mumbai bench of the Tribunal in the case of Royal Rich Developers P Ltd. rendered on 24.08.2016 in ITA No. 1835 & 1836/Mum/2014, extracted by the Ld. CIT(A) in para 3.6.5 of his appellate order. The decision (supra) of Mumbai Tribunal provide....