TaxTMI 
TaxTMI 
2023 (2) TMI 1207
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....n facts in allowing addition of Rs. 13,41,60,000/- on account of unexplained capital introduction u/s. 68 of the Act. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in restricting the profit estimated on URD purchase at Rs.72240 at 0.24% as against Rs. 18,06,014/- estimated by the A.O. 3) On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 4) It is, therefore, prayed that the order of the CIT(A) be set aside and that of the A.O. be restored to the above extent." 4. The first issue raised by the Revenue is that the learned CIT(A) erred in deleting the addition of Rs. 13,41,60,000/- under section 68 of the Act made on account of unexplained credit of share capital & premium. 5. The facts in brief are that the assessee is a private limited company and engaged in the business of manufacturing of Brass Parts. The assessee company was incorporated as on 01-06-2010 i.e. during the year under consideration by converting the running business of proprietary concern of Shri Ramgopal O Maheswari with 1 lakh shares of Rs. 10 each allotted to Shri Ramgopal....
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....fication for not issuing the certificate to the concerned investors. Similarly, contention of the assessee that its directors were not qualified enough and the document were at the premises of consultant is also not acceptable for the reason that this fact will not absolve the assessee from its obligation. It is true that issue of physical copy of share certificate to the investor is prerogative of Companies Act 1956 or 2013 not the IT Act but the fact that investor credited such huge amount in the form of premium and share capital but neither assessee nor the such so called investor tried to comply with statutory requirements. All these facts suggest that it was the own money of the assessee received through accommodation entry in the form of share capital and premium. 7. The AO also found that the assessee company issued share at huge premium but there was no dividend issued. There was no justification for charging such huge premium. The AO also found some of the investor were not found on the given address. However, the notices under section 133(6) of the Act were issued on the new addresses and reply was also received but such reply were not satisfactory. The AO also referred ....
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.... investors appearing at S No 12,6 to 9 and 11,12, as mentioned in para 4 of the assessment order, were cash creditors of the erstwhile proprietary concern of Shri Ramgopal Maheshwari These cash credits were duly examined by the AO during assessment proceedings u/s 153A simultaneously when the proceedings in the case of the assessee were also in progress The Assessment orders of the erstwhile proprietary concern of Shri Ramgopal Maheshwari and that of the assessee were completed for AY 2010-11 and 2011-12 respectively on the same date The appellant reiterated that the identity of the investors, their creditworthiness and genuineness of their transactions were established as the AO found these cash credits in the books of the proprietary concern of Shri Ramgopal Maheshwari in order It is a fact on record that Shri Ramgopal Maheshwari received loan from 8 parties during the FY 2009-10 and these creditors invested the said loan in the share capital of the assessee, when the erstwhile concern was converted into a company and also some of them made further investments in the share capital of the assessee The AO has also mentioned these facts in the assessment order However, the AO treate....
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....osed copy of audited balance sheet at Page No 108 of the paper book in support of his explanation Shri Ramgopal Maheshwari was having capital worth of Rs 5.15 crore as on the date of conversion of his concern as a company The business was developed by him with his hard working and also earned reputation in the market and Brass Industries The company issued shares to Shri Ramgopal Maheshwar for its capital balance in the proprietary concern on the same amount of premium which was charged from other investors He furnished chart having details of profit of the proprietary concern in the financial year 2008-09 to 2010-11 8.7 The AO attended proceedings alongwith case records. The case records were examined during appeal proceedings with the help of the AO, but there was no material on the record which could support the statements of the directors of some the investing companies In other words, the veracity of the contents of the statements remained unproved The AO did not establish any nexus between the assessee and the investors in these transactions The AO did not give even single instance of any cash deposit in the statements of the bank A/Cs of the investors which could lead the....
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....Ms etc along with their replies to the questions in compliance to the notice us 133(6) The AO did not give any plausible reason as to how and these documents did not establish genuineness of the transactions. His finding was not based on any cogent material evidence on the record. 8.10 The assessee maintained proper books of accounts which were duly audited by Chartered Accountant. He made credit entry in the books of accounts in the share capital account and share premium account in respect of share capital introduced by the applicants. The investors filed their returns of income, balance sheets and profit and loss accounts which established genuineness of the transactions and their creditworthiness for investment. The bank account statement also evidenced the receipt of credit through normal banking channels The AO did not conduct any enquiry about the veracity of the statements of the directors of the investing companies from their returns of income, balance sheets and profit and loss accounts, bank statements etc to establish his finding before arriving at a conclusion that they were bogus companies and involved in giving accommodation entries. 8.11 The assessee requested....
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....issions were made a part of the assessment order from page no 16 to 27 Thus, after taking into consideration the facts of the case, submissions of the appellant and the findings of the AO, it was adequately clear that the assessee discharged his primary onus by submitting the required details to establish the ingredients i.e. the identity of the subscribers, their creditworthiness and genuineness of their transactions The Hon'ble Delhi High Court in the case of Divine Leasing & Finance Ltd 299 ITR 268 at page 288, para 16 discussed the issue of burden of onus and discharge thereof as below:- "16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act The assessee has to prima facie prove (1) the identity of the creditor/sub-scriber, (2) the genuineness of the transaction, namely whether it has been transmitted through banking or other indisputable channels, (3) the creditworthiness or financial strength of the creditor/subscriber, (4) If relevant details of the address or PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register....
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....pplication money as bogus by paper companies 9.3 The assessee made a request for cross examination of the persons whose statements were recorded However, the AO did not take any steps to allow effective opportunity to the assessee to cross examine the makers of statements The AO did not pursue the matter further Therefore, it was held by the Hon'ble Tribunal that the assessee was not allowed any real opportunity to cross examine the persons who made the statements at the back of the assessee, therefore, the statements of those persons cannot be read against the assessee Accordingly, the decision of the CIT(Appeals) was reversed and the appeal of the assessee was allowed." 9. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 10. The learned DR before us contended that once the shares have been subscribed by the parties then it is the duty of the assessee to hand over the share certificates to them. As such, there is no reason for the assessee to retain those share certificates with itself. Likewise, the company has not given any dividend to the shareholders which again creates the doubt about the genuineness of the transaction. There a....
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....be proven based on evidences. As such, the identity of a party can be established by furnishing the name, address and PAN detail, bank details, ITR etc. 14. The next stage comes to verify the genuineness of the transaction. Genuineness of transaction refers what has been asserted is true and authentic. A genuine transaction must be proved to be genuine in all respect not merely on a piece of a paper. The documentary evidences should not be a mask to cover the actual transaction or designed in a way to present the transaction as true but same is not. Genuineness of transaction can be proved by submitting confirmation of the parties along the details of mode of transaction but merely showing transaction carried out through banking channel is not sufficient to prove the genuineness. As such the same should also be proved by circumstantial surrounding evidences as held by the Hon'ble Supreme court in the case of Shri Durga Prasad More reported in 82 ITR 540 and in case of Smt. Sumati Dayal reported in 214 ITR 801. 15. The last stage comes to verify the creditworthiness of the parties. The term creditworthiness as per Black Law Dictionary refers as: "creditworthy, adj. (1924) (Of a ....
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....t the physical share certificates were not issued to the investors, charging of premium was not justified satisfactory and there was no dividend issued. 20. The entire thrust of the Revenue for treating share capital shown by the assessee as unexplained cash credit under section 68 of the Act is misplaced. It is for the reason that the fact that the physical share certificate issued to the shareholders were lying with the assessee cannot replace the other documentary evidences, as discussed above, filed by the assessee during the assessment proceedings. In other words, the fact that the share certificates were lying with the assessee can create suspicion in the mind but the same cannot partake the colour of the evidence especially in the circumstances where there was no change in the shareholder list as on 31st of March 2022. As such all the shares subscribers who subscribed the shares in the year ending as on 31 March 2011 were still the shareholders in the assessee company till 31 March 2022. Had the shareholders been bogus, those shareholders would have transferred the shares to the director's promoters of the company or their relatives or the associated enterprises. But it has....
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....nies had not enclosed the bank statement. (vi) In addition to above, ld. AO found that: a. Out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. b. With respect to the Kolkata companies, nobody appeared nor did they produce their bank statements to substantiate the alleged investments. c. Guwahati companies - Ispat Sheet Ltd. and Novelty Traders Ltd., were found non-existent at the given address. d. None of the investor-companies appeared before the A.O. 12.1 Based on the above it was held the by the Hon'ble Apex Court, that the Assessee-Company failed to discharge the onus required under section 68 of the Act. Therefore, the Assessing Officer was justified in adding back the amounts to the Assessee's income. However in the case on hand, we find that the assessee has discharged its onus cast upon it under the provisions of section 68 of the Act which has been elaborated in the preceding paragraphs. 12.2 In our humble understanding, we also note that the decision in the case of NRA Iron & Steel (P.) Ltd. (supra) is based on facts. Thus such case will become binding on those cases having similar facts and circumstances a....
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....the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source. 22. In NRA Iron & Steel (P.) Ltd. (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either nonexistent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case." 20.1 In view of the above and after considering the facts in entirety, in our humble understanding, the principles laid ....
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.... having purchases from unregistered suppliers in a considerable quantity. Admittedly, no discrepancy was found in stock during the course of search. This very fact leads to an impression that the assessee was having proper records of purchases from unregistered suppliers also. However, there is also a possibility that such suppliers do not have much bargaining capacity as they have to sell out their material in cash and in relatively small quantity. The element of profit from such purchases should be comparatively more profitable in this line of business. The AO has estimated gross profit @ 6% which is slightly higher than the percentage of gross profit disclosed by the assessee in his books of accounts. In my considered opinion, it would be in the interest of justice to restrict the addition on estimated basis to 0.24% only which is over and above the book results of the case as the assessee has already disclosed profit of @ 5.76%. Accordingly, the assessee gets part relief." 25. Being aggrieved by the order of the learned CIT(A) both the assessee and the Revenue are before us. The Revenue is in appeal against reduction of addition from 6% to 0.24 % of the URD purchases whereas ....
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....was not mentioned and no signature of the vendor was there on such vouchers. Furthermore, all the vouchers showing the URD purchases were of the value of less than Rs.20,000 so as to avoid provisions of section 40A(3) of the Act. Likewise, the URD purchases shown by the assessee stands at Rs. 3,01,00,245/- in the books whereas the aggregate purchases based on the self-made vouchers stands at Rs. 2,90,23,395/- leading to excess purchase of Rs. 10,76,850/- only. As per the AO, the purchases from the grey market is generally is of lesser value than the purchases shown from the registered parties. Thus, the AO has made the addition on the value of the purchases from the unregistered parties at the rate of 6% over and above the gross profit already declared by the assessee in its financial statement. However, the learned CIT(A) found that the assessee has already declared the gross profit as a whole including the purchase from registered parties at the rate of 5.76% and therefore he was of the view that if any addition is to be made it should be the difference between the profit determined by the AO on the URD purchases viz a viz the gross profit already declared by the assessee. As suc....
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....assessee is hereby dismissed. Coming to ITA No. 163-164 /RJT/2017 by the assessee for A.Y. 2012-13 to 2013-14 32. At the outset, we note that the issues raised by the assessee in its ground of appeals for AY 2012-13 and 2013-14 are identical to issue raised by the assessee in CO. No. 58/RJT/2015 for A.Y. 2011-12. However, there is small difference in the fact that in the AY 2012-13 and 2013-14, the learned CIT(A) confirmed the addition made by the AO in full whereas in AY 2011-12 restricted the addition to the extent of difference between GP estimated by the AO and the GP offered by the assessee. The cross objection of the assessee for the assessment 2011-12 has been decided by us vide paragraph No. 31 of this order where we have confirmed the order of learned CIT(A) restricting the addition to the extent of difference between GP estimated by the AO and the GP offered by the assessee. Therefore, the findings given in CO. No. 58/RJT/2015 shall also be applicable for the A. Y. 2012-13 and 2013-14. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2011-12 shall also be applied for the AY 2012-13 and 2013-14. Hence, the grounds of appea....