TaxTMI 
TaxTMI 
2022 (6) TMI 1451
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....9,00,000/- received from Dhanlaxmi Tie up Private Limited out of total Rs. 21,86,05,000 in respect of deposits received is arbitrary, against the principal of natural justice, bad in Law and liable to be set aside. 2. For that the learned CIT(A) erred in confirming the additions to the extent of a) Rs. 6,22,05,000/- received from certain companies out of total Rs. 13,13,50,000/- in respect of share allotted against share application money; b) Rs. 79,00,000/received from Dhanlaxmi Tie up Private Limited out of total Rs. 21,86,05,000/- in respect of deposits received; inspite of holding and appreciating the fact that there was no specific findings made in the assessment Order by the Assessing Officer as regards the creditworthiness of the share applicant and/or depositor and the enquiries made by the Assessing Officer were sketchy and sporadic. 3. For that the order of Learned CIT (A) erred in not adjudicating each grounds raised by the appellant before allowing part relief, instead of deleting the additions in full. 4. For that on the facts and in the circumstances of the case, the Assessing Officer erred in passing the Order und....
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.... to discharge the primary onus of producing the shareholders and failing to appreciate that neither there is any mandatory provision for producing the shareholder before the Assessing Officer nor any such notice to this effect was issued by the Assessing Officer. 9) a) For that the Assessing Officer and CIT(A) erred in presuming the deposits to be loans and advances and making additions without issuing any show cause notice. b. For that the CIT(A) failed to appreciate that not only the nature and source of receipt of Rs. 79,00,000/- from Dhanlakshmi Tie Up Private Limited was brought on record but also identity, creditworthiness and genuineness was proved beyond doubt by the Appellant. c. For that the CIT(A) failed to appreciate that the 1st proviso to section 68 is not applicable in case of deposits i.e. receipts other than Share Capital and that amount of Rs. 79,00,000/- received from Dhanlakshmi Tie Up Private Limited in no circumstances can be added to the total income of the appellant under Section 68 of the Act applying the rule of 1st proviso to the section. d) For that the CIT(A) failed to appreciate that the report of investigation Wing ....
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.... appellant craves leave to amend, alter, delete or add grounds which may be necessary." 3. Ground No. 1 of the Revenue's appeal and Ground Nos. 1(a), 2(a), 3 to 8 of the assessee appeal are inter-connected and are therefore being taken up together. Briefly stated, the facts of the case are that, the assessee is a company, which is engaged in the business of letting out properties. For the relevant AY 2013-14, the assessee had filed return of income declaring total loss of Rs. 1,68,66,440/- on 25-09-2013. The case of the assessee was selected for scrutiny and notice u/s 143(2) of the Act was issued on 04-09-2014. In the course of assessment, the AO noted that, during the year the assessee had issued 2627 shares having face value of Rs. 100/- at a premium of Rs. 49,900/- to sixteen (16) bodies corporate and had accordingly raised share capital of Rs. 13,13,50,000/-. Based on the information provided by the assessee, the AO made enquiries from each of the share subscribers by issue of notice u/s 133(6) of the Act dated 10-122015. All the notices were served, except one. The AO at Para 4.3.2 of the order has observed that all replies were received from the share subscribers. However....
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....onies aggregating to Rs. 6,91,45,000/- whose 'source of source' emanated from RGIL was genuine and the remaining sum of Rs. 6,22,05,000/- whose 'source of source' of funds were other unrelated bodies corporate were bogus. Accordingly, out of the total addition of Rs. 13,13,50,000/- made by the AO u/s 68 of the Act, the Ld. CIT(A) deleted sum of Rs. 6,91,45,000/- and confirmed the remaining amount of Rs. 6,22,05,000/-. 5. Aggrieved by the above order of the Ld. CIT(A), the Revenue is now in appeal before us contesting the deletion of addition of Rs. 6,91,45,000/- u/s 68 of the Act [Ground No. 1]. On the other hand, the assessee is in appeal against the Ld. CIT(A)'s action of upholding addition u/s 68 of the Act to the extent of Rs. 6,22,05,000/- [Ground Nos. 1(a), 2(a), 3 to 8]. 6. Assailing the action of the Ld. CIT(A) in giving relief to the assessee, the Ld. CIT-DR supported the order of the AO. The Ld. CIT-DR submitted that the AO had made field enquiries by way of commission made u/s 131(1)(d) of the Act through DDIT, Unit 1(3), Kolkata, whose report, according to him, showed that the very existence of these shareholders were in doubt, and since these shareholders could n....
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.... adverting to the facts, let us first look at Section 68 of the Act. We note that the relevant assessment year [A.Y] before us is A.Y 2013-14 wherein we note that a Proviso has been inserted by Finance Act 2012 w.e.f. 01.04.2013 in section 68 of the Act which is applicable for this relevant AY and for ready reference, the relevant and applicable in this case of section 68 of the Act with the aforesaid proviso is reproduced as under : "Where any sum is found credited in the books24 of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the 25[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of 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 pe....
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....support of the credit and makes out a prima facie case, then the 'onus of proof' shifts to the Revenue. Such shifting of 'onus' is a continuous process in the evaluation of evidence. If the evidence on record weighs in favour of the assessee [ based on preponderance of probability which is the standard of proof required in income tax assessments ] or that the explanation put forth cannot be said to be completely unsatisfactory, then the onus cast upon the assessee u/s 68 of the Act can be said to have been discharged. In view of the foregoing, we are of the considered view that the initial burden on the assessee was only to substantiate the source of its share application monies and if it is found that the identity and creditworthiness of the share applicants along with the genuineness of the transaction is established, then the addition u/s 68 of the Act would be unwarranted. 12. Now the next aspect which requires our consideration, is the proviso to Section 68 of the Act, which was inserted by the Finance Act, 2012, which now put further burden upon the assessees to substantiate the 'source of source' of funds. We note that even though the Parliament has inserted the proviso i....
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.... of 'source of source' of the share application money, share capital, share premium. So, we note that till AY 2012-13, the requirement of law as per section 68 of the Act was that when there is a credit entry in the books, then assessee was required to satisfy the AO in respect of the nature and source (i.e. First source from which it received) and that position of law remains in force till now also, except that after 01.04.2013 (i.e. AY 2013-14) onwards when an assessee company (not a public company) if they collect share application money, share capital, share premium then an additional burden is imposed by the first proviso to bring to the notice of AO the "source of source" of the credit entry i.e. source of the share applicant which had been invested in the assessee company. In other words from AY 2013-14 and onwards, in the event if an assessee company when called upon by the AO to explain the nature of the credit in its books claims that the credit entry is share application money, share capital and share premium, then the additional requirement of law as per the proviso to section 68 of the Act kicks in and share subscriber should be able to show the source from which it wa....
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....king investments. This shareholder is assessed to income-tax under the PAN AANCS23371J. From the audited financial statements, which is found placed at Pages 23 to 33 of the paper book, it is revealed that the company was having sufficient own funds in the form of capital and reserves to the tune of Rs. 7720 lacs to make the investment of Rs. 20,00,000/- in the assessee company. With regard to the source of source of funds, it is noted that the shareholder had initially placed on record its bank statement, which evidenced the source out of which it subscribed to the shares of the assessee. Before the Ld. CIT(A), explanation regarding the source of funds of the shareholders was also placed on record, which is noted to comprise of proceeds from repayment of the loans advanced earlier to M/s Eversight Tradecomm Pvt. Ltd. In support of the source of source of funds, Certificate of Incorporation of M/s Eversight Tradecomm Pvt. Ltd as well as its Annual Return filed by M/s Eversight Tradecomm Pvt. Ltd before the ROC was placed on record, which is available at Pages 490-497 of the paper book. ii. Rika Global Impex Limited - Rs. 50,00,000/- : We note that the details of M/s. Rika ....
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....of funds from which this shareholder had made the share application is also available on record [Page 48 of PB] viz., the shareholder had sold some of its existing investments to M/s.Hardsoft Exim Pvt. Ltd. and the proceeds received was re-invested in the assessee. The shareholder has placed on record the certificate of incorporation and IT acknowledgement of M/s Hardsoft Exim Pvt. Ltd. at pages 470-471 of the paperbook. Also, the bank statement of M/s Hardsoft Exim Pvt. Ltd. is available at Pages 519 of the paperbook evidencing that the source of funds out of which M/s Hardsoft Exim Pvt. Ltd. purchased the investments of the shareholder, which in turn, was utilized by this shareholder to invest in the shares of assessee company. iv. Nitin Hire Purchase Pvt. Ltd. - Rs. 1,20,00,000/- : We find at Pages 355-367 of the paper book, the details of M/s. Nitin Hire Purchase Pvt. Ltd. are set out. This shareholder had filed their response-dated 28.12.2015 to the notice of AO u/s 133(6) of the Act, which is at Page 368 of the paperbook. The shareholder had furnished its IT Acknowledgement, financial statements, share valuation report as well as the bank statement. It is noted that ....
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....acs which is sufficient to make the investment. It is noted that this shareholder had reported profit of Rs. 25.08 lacs as against revenue from operations of Rs. 33.35 lacs, on which it had paid taxes aggregating to Rs. 7.75 lacs. This shareholder is also noted to have declared dividend to its preference shareholders on which it had paid dividend distribution tax u/s 115-O of the Act. With regard to the source of source of funds, it is noted from the bank statement, that this shareholder had received funds from the flagship company of the Group, M/s Rika Global Impex Ltd. by way of refund of advances granted to the latter in earlier year/s, which in turn was utilized to invest in shares of the assessee company. From the bank statement of M/s Rika Global Impex Ltd which is found at Pages 604 to 623 of paper book, it is noted that its source of funds was a mix of the overdraft facility availed from the Oriental Bank of Commerce, proceeds received from sale of goods or maturity of fixed deposits held by M/s Rika Global Impex Ltd. vi. Allied Dealmark Private Limited - Rs. 55,00,000/- : We note from pages 102-115 of the paper book, the details of M/s. Allied Dealmark Pvt. Ltd. ....
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....rding the source of funds of the shareholders was also placed on record, which was the proceeds from sale of investments to M/s Mukesh Textile Mills Pvt. Ltd. and M/s Lower Vyapaar Pvt. Ltd, whose Certificate of Incorporation and PAN details are found available at Pages 477-479 and Pages 498-500 of the paperbook respectively. viii. Manmohak Infrastructure Pvt. Ltd. - Rs. 50,00,000/- : We note from, Pages 116 to 130 of the paper book the details of share applicant M/s. Manmohak Infrastructure Pvt. Ltd is set out. The share applicant had submitted IT acknowledgement, explanation of source of fund, financial statements and bank statement along with the reply dated 20.12.2013 before the AO, in response to the notice issued u/s 133(6) of the Act, which is available at page 129 of the paperbook. Perusal of these documents shows that the shareholder is a Private Limited Company having CIN - U70109WB2011PTC162458. It is noted to be regularly assessed to tax under PAN - AAHCM17368. The net worth of the shareholder as on 31.3.2013 is noted to be Rs. 376.61 lakhs (PB page 123) as against the investment of Rs. 50 lacs made in the assessee. The bank statement of the shareholder shows t....
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....olders/ directors. This shareholder having U27100WB2008PTC123879 is a Core Investment Company of the Rika Group whose primary objective is to make investments in group entities and provide them financial assistance. From the audited financial statements, which is found placed at Pages 314 to 331 of the paper book, it is revealed that the shareholder was having sufficient own funds in the form of capital and reserves to the tune of Rs. 686 lacs as opposed to the investment of Rs. 230 lacs made in the assessee company. The bank statement of the shareholder shows that the source of funds comprised of monies received from group entity, M/s Rika Global Impex Ltd. [Rs.1,45,95,000] and other bodies corporate, M/s Spice Merchants Pvt. Ltd., M/s Rudramukhi Distributors Pvt. Ltd. and M/s Oversure Construction Pvt. Ltd [Rs.1,43,65,000]. The details of M/s Rika Global Impex Ltd are already available on record, which has already been discussed earlier. With regard to the other three bodies corporate from whom this shareholder had received monies out of which it invested in shares of the assessee, it is noted that the shareholder had furnished their Certificate of Incorporation and PAN details w....
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.... paid taxes aggregating to Rs. 8.91 lacs. This shareholder is also noted to have declared dividend to its preference shareholders on which it had paid dividend distribution tax u/s 115-O of the Act. With regard to the source of source of funds, it is noted from the bank statement of the shareholder that it had received funds from the flagship company of the Group, M/s Rika Global Impex Ltd. From the bank statement of M/s Rika Global Impex Ltd which is found at Pages 604 to 623 of paper book, it is noted that its source of funds was either the overdraft facility availed from the Oriental Bank of Commerce or proceeds received from sale of goods or maturity of fixed deposits held by M/s Rika Global Impex Ltd. xiii. Speedfast Constructions Pvt. Ltd. - Rs. 75,00,000/- : We note that Pages 49 to 66 of the Paper book contain the details of share applicant M/s. Speedfast Constructions Pvt. Ltd. It is noted that this shareholder had furnished two letters dated 11.01.2016 & 22.12.2017 before the AO in support of the investment made with the assessee, which inter alia comprised of certificate of incorporation, IT Acknowledgement, Bank statement, explanation regarding source of fund a....
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....ailable at Pages 516 & 516A of the paperbook. xv. Kingston Jewellery Pvt. Ltd. - Rs. 50,00,000/- : It is noted, from pages 209-229 of the paper book, the details along with the reply furnished by M/s Kingston Jewellery Pvt. Ltd. in response to the notice of AO u/s 133(6) of the Act, is set out. This shareholder is noted to be a group company of the assessee having CIN U27205WB2008PTC123886. From the audited financial statements, which is at Page 209 to 227 of paperbook, it is noted that the shareholder was having own funds in the form of capital and reserves to the tune of Rs. 573 lacs which was sufficiently higher than the investment made in the assessee company. The shareholder is noted to have derived revenues of Rs. 135.54 lacs from the business of dealing in agri-commodities, against which it reported net profit of Rs. 36.91 lacs. The shareholder is assessed to tax under the PAN - AACCN4477B. This shareholder is also noted to have declared dividend to its preference shareholders on which it had paid dividend distribution tax u/s 115-O of the Act. With regard to the source of source of funds, it is noted from the bank statement of the shareholder that it had received f....
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....ng their return of income, (iii) the share application money was paid by account payee cheques, (iv) the applicants are having substantial creditworthiness which is represented by capital & reserves and/or revenues/income as noted above from their financial statements, and (v) all the shareholders have explained their respective source of funds out of which share application monies was paid. Each of the shareholders is noted to have complied with the requisition issued by the AO u/s 133(6) of the Act and the shares are noted to have been issued by the assessee at a price marginally lower than the fair market value as certified by the Chartered Accountant in his valuation report. Hence, the share premium paid by the shareholders also stands justified. Thus, the inference that flows from the aforesaid facts is that the assessee has discharged its initial onus imposed under section 68 of the Act [as it stood in AY 2013-14]. 15. In light of the above facts, we first proceed to examine the findings given by the AO qua the above sixteen (16) share subscribers for holding it to be unexplained cash credit u/s 68 of the Act. It is noted that, the AO after analyzing the financials of all ....
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....ng of the AO cannot be countenanced. 16. Another reasoning given by the AO to justify the impugned addition was that, some of the shareholders had reported NIL or meagre income which did not commensurate with the investments made by them and it therefore raised doubts on their creditworthiness. As already noted by us above, each of the shareholders had sufficient own funds and reserves to justify the investments made by them in the assessee company. The fact that some of the shareholders did not derive sufficient profits during the year cannot be the sole determinative factor to doubt their creditworthiness. It is noted that, such shareholders have demonstrated that the investments made by them with the assessee, were either out of the proceeds received on sale of investments which were made in earlier years and/or refund of loans granted earlier. The source of source of funds has also been provided, which has already been discussed above. On these facts, in our considered view therefore, nothing much turns on the fact that some of the shareholders had reported meagre income in the relevant year. 17. Further, according to the AO, the fact that the share subscribers had issued....
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....s) were able to locate the shareholders at their given addresses and serve the notices, then how come the Inspectors were unable to trace these companies. According to the Ld. AR, the fact that the commission report did not mention or provide the report/s given by the Inspector, raised further doubts as to whether any physical verification was actually conducted by the office of the DDIT or not. To buttress his contention, the Ld. AR showed us that, even the flagship public company of the assessee, M/s Rika Global Impex Ltd was alleged to be untraceable in the said commission report. To this, he pointed out that RGIL was a Star Export House having turnover in excess of Rs. 1000 crores. RGIL has also been extended several credit facilities by several Public Sector Banks and had been operating from the same registered office address since several years. He further pointed out that the other five (5) shareholders, which are admittedly group/related entities of the assessee and belong to the Rika Group also had the same registered office as that of M/s Rika Global Impex Ltd. The Ld. AR thus strenuously contended that the commission report stating that, even the group company shareholde....
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....ack of the assessee, we agree with the Ld. AR that the same cannot be relied upon, without first providing the copy of the same and the assessee given an opportunity to rebut the same and even cross-examining them. In this regard, we may refer to the decision of the Hon'ble Supreme Court in the case of Andaman Timber Industries Vs. CCE reported in (2015) 281 CTR 241 (SC) wherein it has been held that "failure to give the assessee the opportunity to cross examine witness, whose statements are relied upon, results in breach of principles of Natural Justice. It is a serious flaw which renders the order a nullity." We may also gainfully refer to the judgment of the Hon'ble Apex Court in the case of CIT Vs. Odeon Builders Pvt. ltd. (418 ITR 315) wherein also it was held that, the addition/disallowance made solely on third party information without subjecting it to further scrutiny and denying the opportunity of cross examination of the third party renders the addition/disallowance bad in law. 22. It was also brought to our notice that, when this commission report was confronted to the Director of the assessee company and his statement was recorded on oath u/s 131 of the Act [repr....
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....report. Since the Assessing Officer did not permit the correctness or otherwise of the report to be tested, there is a clear violation of the principles of natural justice committed by him in relying upon it to the detriment of the assessee. As observed by the Constitution Bench in C.B. Gautam v. Union of India [1993] 199 ITR 5301 (SC) that, "The observance of principles of natural justice is the pragmatic requirement of fair play in action." 10. We do not find any error in the view taken by the Commissioner of Income-tax (Appeals) or by the Income-tax Appellate Tribunal in setting aside the assessment order on the ground that the principles of natural justice were not complied with by the Assessing Officer who did not permit the assessee to cross-examine the analyst on the basis of whose report the assessment order was passed against the assessee." 23. We may also refer to the decision this Tribunal in the case of DCIT Vs Diven Dembla (145 ITR 377). In this case, the AO had assessed the income under the head 'house property' with reference to the fair market rent ascertained by the Inspector in his report which was higher than the actual rent received by the assessee. ....
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....d the amount of premium were not specified by certain companies, namely Super Finance Ltd. Kolkata, Ganga Builders Ltd. Kolkata. Furthermore, these companies had not enclosed the bank statement. (vi) In addition to above, 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. 25. It was in light of the above conspectus of facts that it was held by the Hon'ble Apex Court, that the Assessee-Company failed to discharge the onus required under Section 68 of the Act. However in the case on hand, we find that, the shareholders had complied with the independent enquiries conducted by the AO and discharged the onus cast under the provisions of Section 68 of the Act which has been elaborated in the preceding paragraphs. Moreover, as noted above, the commission re....
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....on 68 of the Act having been discharged, Assessing Officer was not justified in making the additions. Therefore, the additions were deleted. 19. In appeal, Tribunal noted that before the Assessing Officer, assessee had submitted the following documents of the three creditors:- (a) PAN number of the companies; (b) Copies of Income-tax return filed by these three companies for assessment year 2010-11; (c) Confirmation Letter in respect of share application money paid by them; and (d) Copy of Bank Statement through which cheques were issued. 20. Tribunal noted that Assessing Officer had referred the matter to the investigation wing of the department at Kolkata for making inquiries into the three creditors from whom share application money was received. Though report from the investigation wing was received, Tribunal noted that the same was not considered by the Assessing Officer despite mentioning of the same in the assessment order, besides not providing a copy of the same to the assessee. In the report by the investigation wing, it was mentioned that the companies were in existence and had filed income tax returns for the previou....
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....re 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 NRAIron & 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 non-existent 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. 23. Therefore, on a thorough consideration of the matter, we are of the view that the first appellate authority had returned a clear finding of fact that assessee had discha....
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.... 195, dismissing revenue's appeal, observed as under: - 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. Hence, we find no infirmity with the impugned judgment. 3. Subject to the above, Special Leave Petition is dismissed. The ratio of said decision has subsequently been followed by various judicial authorities in catena of judicial pronouncements. The said decision has been followed by Hon'ble Bombay High Court in the case of Gagandeep Infrastructure (P.) Ltd. case (supra) & subsequently in CIT v. Orchid Industries (P.) Ltd. [2017] 88 taxmann.com 502/397 ITR 136 (Bom.). The Hon'ble Delhi High Court followed the said decision in Pr. CIT v. Adamine Construction (P.) Ltd. [2019] 107 taxmann.com 84 against which revenue's Special Leave petition was dismissed by Hon'ble Supreme Court ....
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....onsidered opinion, are not sustainable in the eyes of law. The settled legal position as enumerated by us in the opening paragraphs duly support the said conclusion. Therefore, we delete the impugned additions as sustained by Ld. CIT(A). The grounds, thus raised, stand allowed." 28. For the reasons as aforesaid and on the given facts of the case, we thus hold that the assessee had discharged the burden cast upon it under the substantive Section 68 of the Act. 29. Now coming to the question as to whether the additional burden cast upon the assessee under proviso to Section 68 of the Act was discharged or not; as noted above at Para 15(i) to (xvi), the assessee and the shareholders had furnished relevant evidences in support of the 'source of source' of funds of the share subscription monies. These details are noted to have been examined by the Ld. CIT(A), who after analyzing the money trail, divided the share subscription monies received by the assessee into two parts viz., (a) share subscription monies whose 'source of source' was funds received from M/s RGIL and (b) share subscription monies whose source of source was funds received from other bodies corporate (apart from RG....
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....rporate from whom the shareholders had received monies, out of which they had subscribed to the share capital of the assessee, were paper companies engaged in the business of providing accommodation entries. The general yardstick adopted by the Ld. CIT(A) across all the twelve (12) shareholders mentioned in Column (C) above was that, the source of source of the remaining sum of Rs. 6,22,05,000/- (including Rs. 1,14,05,000/- received from two group entities) did not emanate from the coffers of RGIL but was received from unrelated bodies corporate, and therefore he treated it to be bogus, alleging the source of source to be paper companies. This yardstick applied by the Ld. CIT(A) is found to be on erroneous assumption/basis in as much as it is found to be not based on any material or evidence. As we have noted earlier in Paras 15(i) to (xvi) above, the documents placed on record evidenced the "source of source" of the investment made by the share subscribers in the assessee's share capital viz., the PAN, Certificate of Incorporation, bank statements of the 'source of source' etc. It is thus noted that source of money from which these share subscribers could subscribe in assessee was....
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....vestigated about the source companies and in any case, if he nursed such a suspicion, he [Ld. CIT(A)] enjoying co-terminus powers as that of AO ought to have dug deeper/enquired/investigated and thus should have brought on record evidence to substantiate the allegation or his adverse assumption of these companies. According to us, the Ld. CIT(A) could not have abdicated from his duty, if he harbored a suspicion that, what was apparent was not real. It is further noted that the Ld. CIT(A) was unable to point out any defect in the documents furnished by the assessee to discharge the burden to prove the "source of source" as required as per proviso to Section 68 of the Act and that of the shareholders. Therefore, his conclusion that the source of source of funds qua Rs. 6,22,05,000/- were unexplained or represented unaccounted monies of the assessee cannot be sustained Hence, the impugned action of the Ld. CIT(A) confirming addition of Rs. 6,22,05,000/- cannot be countenanced. 33. In support of the above, we may gainfully refer to the decision of the Delhi Bench of this Tribunal in the case of Prime Comfort Products (P.) Ltd Vs DCIT (179 ITD 647). In the decided case also, the AO h....
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....ctions are 'make believe arrangements' or all the evidences are mere paper trail. 19. One of key reasons harped upon by the Assessing Officer is that there were common directors. Commonality of Directors will not render a transaction non- genuine or colourable, unless any inquiry or material is found to prove the nexus of the directors involved in some kind of accommodation entry routing any unaccounted income of the assessee company. If these entities are separate corporate entities having separate legal identity and separately assessed to tax, then they have to be treated independently, unless there is any doubt regarding the source of credit or source of the source is colourable. In that case the same needs to be examined by the Department in the case of the person who has given the money and if anything adverse is found regarding source; or source of the source then, onus shifts heavily upon the assessee. The Assessing Officer cannot presume the transaction to be bogus sans any inquiry or material. Doubt cannot be raised on the explanation backed by evidences without any adverse material coming before Assessing Officer. Here the genuineness of the transaction i....
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....e. The assessee has brought on record the facts about the same by adducing documents in respect of entire share subscription monies received by the assessee company and we note that the shareholders have also discharged the burden of proving their source of money from which they had given credit/money to the assessee company. No independent material/evidence has been brought on record by the AO or Ld. CIT(A) to allay or rebut the evidences filed by the assessee company or by the shareholders. Thus, ratio of all these judgments will not apply in the present case because the facts in those cases were different. 36. For the above reasons, the action of the Ld. CIT(A) confirming the addition u/s 68 of the Act to the extent of Rs. 6,22,05,000/- is held to be unsustainable. 37. To sum up, we hold that share subscription monies of Rs. 13,13,50,000/- received by the assessee during the year cannot be held to be non-genuine. Accordingly, the order of Ld. CIT(A) deleting addition to the extent of Rs. 6,91,45,000/- is upheld and the remaining addition of Rs. 6,22,05,000/- confirmed by the Ld. CIT(A) is directed to be deleted. Hence, Ground No. 1 of the Revenue stands dismissed and Groun....
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...., of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b)"venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b)and clause (c) of 48b[Explanation]to clause (23FB)of section 10;" (emphasis given by us) 40. From the bare reading of the aforesaid provision of law it is noted that, it is the option of the assessee to choose from the valuation methodology set out in Explanation a(i) or a(ii) supra, or in case if both is applied, then the higher of the two, shall be considered for the purposes of Section 56(2)(viib) of the Act. 41. In the present case, the assessee had furnished a valuation report from a Chartered Accountant, as per which value per share was Rs. 51,135/-. According to Ld. AR, since the premium of Rs. 49,900/- was lower than the FMV, no addition was warranted u/s 56(2)(viib) of the Act. It was pointed out that, the Chartered Accountant, had valued the assets of the assessee at its fair....
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....ter he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee." (ii) The Mumbai Bench of this Tribunal in DCIT-1(2)-2 V/s M/s. Ozoneland Agro Pvt. Ltd. [ITA No. 4854/Mum/2016] held the following - "5.1. In our opinion, the valuation has been left to the discretion of the assessee. In other words the AO cannot adopt a method of his choice. In the case under consideration the whole controversy has arisen because of the AO has rejected the method adopt....
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....purposeless. Thus, to this extent the action of the authorities below is not justified and it is held that the assessee has got all the right to choose a method which, cannot be changed by the AO." 44. In view of our reasoning given above, Ground No. 2 of the Revenue's appeal stands dismissed. 45. Ground No. 3 of the Revenue and Ground Nos. 1(b), 2(b) & 9 of the assessee are in relation to the addition of Rs. 21,86,50,000/- made by the AO in respect of advances/deposits received by the assessee. Briefly stated, the facts are that the assessee had received funds by way of advances/deposits aggregating to Rs. 21,86,50,000/- from seven (7) group companies. Before the AO, the assessee had furnished confirmation letters, financial statements, Income Tax Acknowledgment, bank statements of all these seven (7) creditors. The AO noted that these advances/deposits primarily comprised of security deposits received from group entities for use of table spaces in the premises owned by the assessee. Upon tabulating the details of advances/deposits vis-à-vis the rent paid by these companies, the AO observed that the rent charged by the assessee was very minimal when compared with the ....
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....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: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10. 48. Bare reading of the provision makes it abundantly clear that the additional burden laid down in the proviso to Section 68 of the Act [made applicable from AY 2013-14], only applied to 'share application monies'. Hence, any company, in which public is not substantially interested, is required to substantiate only the first source of receipt in relation to advance/loan/deposit and nothing more. In the case at hand therefore, the proviso to Section 68 is not applicable. Under the extant provision of Section 68 of the Act [as it stood in AY 2013-14], the burden cast on the assessee is only to substantiate the source of receipt of the loan/deposit. Accordingly, the Ld. CIT(A)'s action of casting additional requirement on the assessee to....
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....y the assessee. 51. Apart from providing complete particulars of the lenders viz., their PAN, financial statements, bank statements, income-tax acknowledgments and source of making payments, it is noted that the Director of the assessee, Mr. Suresh Agarwal, who is also a common Director in these seven (7) lender companies had attended and complied with the summons issued by the AO u/s 131 of the Act. In that view of the matter, we are of the considered view that the assessee had discharged its onus of substantiating the identity, genuineness and creditworthiness of these seven (7) creditors. 52. The Ld. AR further brought to our attention that these advances/deposits were given by these group entities in the course of business based on commercial expediency. Referring to the lease/tenancy arrangements pursuant to which these deposits were placed by these depositor/creditors with the assessee, it was pointed out that neither did the AO disbelieve these rental agreements nor did the AO dispute the genuineness/correctness of the rental payments made pursuant thereto. We note that, the rent received by the assessee from these bodies corporate was assessed as regular business rece....
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....oubted the creditworthiness of the individuals and took a view that the assessee had not established genuineness of the loan. On appeal, the Hon'ble High Court deleted the addition by observing as under: "13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section68, the assessee has to explain or satisfy three conditions, namely : (i) identity of the creditor; (ii) genuineness of the transaction; and (iii) creditworthiness of the creditor. 14. In Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute ab....
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.... because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non- compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts,....