TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1451
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....ived 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 under section 143(3) of the Act with a prejudiced mindset ignoring the evidences relating to the identity, creditworthiness of the shareholders and genuineness ....
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....otice 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 was the only the basis for additions of Rs. 79,00,000/- received from Dhanlakshmi Tie Up Private Limited without giving any specific findings relating to transactions with the Company and that the complete report was never shared with....
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.... 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, not being satisfied with the details, the AO sent a commission u/s 131(1)(d) of the Act to DDIT(Inv), Unit-1(3), Kolkata on 09-03-2016 who furnished his report dated 22-03-2016. In the said report, the DDIT(Inv) stated that the Inspectors attached with his office could not find the....
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....e 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 not place any credible evidence to prove that they were in genuine business activity, the AO had rightly made the addition u/s 68 of the Act. In support of the action of the AO, the Ld. CIT-DR placed reliance on the judgment of the Hon'ble Apex Court on the case of Pr.CIT vs. NRA Iron & Ste....
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.... 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 person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing c....
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....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 in section 68 of the Act, by the Finance Act, 2012, w.e.f. 01.04.2013, we must bear in mind that there is no change or amendment in the substantive provision of section 68 of the Act wherein if any sum is found by the AO to have been credited in the books of an assessee in the relevant financial year, then when called upon by him (AO) to the assessee to expla....
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....tion 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 was able to invest in the assessee company. And if the 'source of source' of share application/ capital/ premium is shown to AO and if he is satisfied with the explanation, then the deeming provision will not apply. 13. Having regard to the above legal position, we now proceed to examine the facts of the case on hand. So, in this relevant assessment year, as ....
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....see 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 Global Impex Ltd are set out at Pages 252-313 of the paper book. From the reply furnished by this shareholder in response to the notice u/s 133(6), which is at Page 252-253 of the paperbook, it is noted that this shareholder is a flagship company of the Group to which the assessee belongs. The shareholder is noted to be a Star Export House having CIN: U51101WB2007PLC117031 ....
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..... 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 this shareholder is having CIN: U65921PB1995PTC016302 and is a Non-Banking Finance Company having registration no. B.02.00304 [Page 390]. Being an NBFC, the shareholder is primarily engaged in the business of granting loans, from which it had derived interest income of Rs. 66.89 lacs during the year. The shareholder is also noted to be engaged in the business of trading in derivatives on....
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....rd 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. are set out. Perusal of the reply furnished by this shareholder in response to the notice of AO u/s 133(6) of the Act, which is enclosed at Page 113 of the paperbook, shows that this shareholder is a private limited company having PAN AAKCA0971H and CIN: U74999WB2011PTC171062. Perusal of the audited financial statements, set out at Pages 102-112 of the paperbook, it is noted that the company was havin....
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....16 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 that the investment was made on 05.11.2012 by way of account payee cheque. The source of source funds is also evidenced by the bank statement, which is explained to be the proceeds received on sale of investments to M/s Spice Merchants Pvt. Ltd., whose certificate of incorporation, PAN details are found to be available on record. ix. Shyama Properties Sales Pvt. Ltd. - Rs. 73,00,000/- : We find that at Pages 80-10....
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....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 which are found to have been placed on record at Pages, 480-481,503-508 of the paperbook. From the bank statements of M/s Rika Global Impex Ltd, M/s Rudramukhi Distributors Pvt. Ltd. and M/s Oversure Construction Pvt. Ltd. [Pages 557-558, 564, 604 to 623], it is noted that there was no prior deposit of cash at the source of source of funds. xi. Panchkoti Infrabuild Pvt. Ltd. - Rs. 20,00,000/- : It is noted that the share applic....
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.... 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 as well as financial statements. Perusal of the same shows that the shareholder is a private limited company having PAN AAQCS9037A and CIN U45400WB2012PTC172960. The net worth of this shareholder as on 31.3.2013 was in excess of Rs. 4,33,00,000/- [Page 69 of PB] in comparison to investment of Rs. 75,00,000/- made by this shareholder in the assessee company. From the bank statement of the shareholder, it is noted that the payments towards share applic....
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....27 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 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. 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. x....
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.... 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 the sixteen (16) share subscribers, noted that none of the companies were engaged in any active business activities. For such reason, the AO held that their creditworthiness was in doubt. The Ld. AR of the assessee however pointed out that this observation made of the AO was factually incorrect. In support of the same, he invited our attention the financial statements of M/s Dhanlaxmi Tie-Up Pvt Ltd, M/s Kingstone Jewellery Pvt Ltd, M/s Rika Global Impex Ltd, which as alrea....
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....he 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 share capital at a premium in earlier years, whose details were not furnished by the assessee, raised doubt on their creditworthiness. This observation of the AO is also found to be of no relevance in as much as by AO's own admission, these shareholders had raised securities premium on issue of shares in their own right in earlier year/s. No fresh capital was issued during the year by these shareholders and therefore the securities premium balance appearing in their financial ....
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.... 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 shareholders could not be traced at their address was ex-facie false, which thus raised serious doubt on the overall authenticity of the said report claiming that none of the sixteen (16) shareholders were traceable. 20. The Ld. AR further invited our attention to Para 3 of the report of the DDIT, wherein he referring to a Database, had alleged that all the shareholders (including the six group companies) belonged to certain entry operators. In this regard, the Ld. AR first took us through ....
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....ts 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 [reproduced at Para 4.3.10 of the assessment order], the Director had denied the allegation/contents of the said report and claimed that all the shareholders are real companies actively involved in business. To buttress this statement, the assessee had furnished a rejoinder on 0902-2016 wherein it negated the allegations levelled by the AO. Having regard to these facts and the sequence of events, in our considered view, if the AO wanted to rely on the commission report stating that the shareh....
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....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. On appeal, both the Ld. CIT(A) and this Tribunal held that, inspite of request, the assessee was never afforded the opportunity to cross examine the Inspector and therefore the appellate authorities held that the Inspector's report could not be relied upon. Further, in the case of Sanjay Kr. Mishra Vs DCIT (100 TTJ 862) also, this Tribunal had held that, when the assessee had disputed the veracity of the Inspector's report by furnishing an affidavit, then his affidavit could not have been rejected witho....
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....elty 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 report stating that the shareholders were not traceable at their given addresses has been found to be unreliable. In our humble understanding, the decision in the case of NRA Iron & Steel (P.) Ltd. (supra) is based on the aforesaid facts. Hence, this judgment can be applied only on those cases having similar facts and circumstances and not other cases having different facts and circumstances. In the given facts of the present case, as discussed above, this judgment relied upon by the Ld. CIT-DR is found to be factually distinguishable. 26. In this regard, we draw support and g....
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.... 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 previous year under consideration but the Assessing Officer recorded that these creditors had very meager income as disclosed in their returns of income and therefore, doubted credit worthiness of the three creditors. Finally, Tribunal held as under:- "5.7 As per the provisions of Section 68 of the Act, for any cash credit appearing in the books of assessee, the assessee is required to prove the following- (a) Identity of the creditor (b) Genuineness of the transaction (c) Credit-worthiness of the party (i) In this case, the assessee has already proved the identity of the share applicant by furnishing their PAN, copy of IT return....
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.... 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 discharged its onus of proving identity of the creditors, genuineness of the transactions and credit-worthiness of the creditors which finding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below. 24. Under these circumstances, we find no error or infirmity in the view taken by the Tribunal. No question of law, much less any substantial question of law, arises from the order of the Tribunal. Consequently, the appeal is dismissed. However, there shall be no order as to cost." 27. Gainful reference may also be made to the decision rendered by the co....
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....en 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 which is reported at 107 Taxmann.com 85. Similar is the position of decision of Hon'ble Delhi High Court rendered in Pr. CIT v. Himachal Fibers Ltd. [2018] 98 taxmann.com 172/259 Taxman 4 against which revenue's Special Leave Petition was dismissed by Hon'ble Supreme Court which is reported at 98 Taxmann.com 173. Similar is the decision of Hon'ble High Court of Madhya Pradesh in Pr. CIT v. Chain House International (P.) Ltd. [2018] 98 taxmann.com 47/[2019] 408 ITR 561 against which revenue's Special Leave Petition has been dismissed by Hon'ble Supreme Court on 18/02/2019 which is reported at 103 Taxmann.com 435. Similar is the recent decision of Hon'ble Bombay High Court in Pr. CIT v. Ami Industries (India) (P.) Ltd. [2020] 116 ta....
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.... 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 RGIL). For the sake of convenience, the bifurcation made by the Ld. CIT(A) is set out below: Name of Shareholder (A) Source of Source of Funds - RGIL (B) Source of Source of Funds - Other Bodies Corporate (C) Sharma Hire Purchase Ltd - 25,00,000 Nitin Hire Purchase Ltd - 1,20,00,000 Siddheshwari Vyapar Pvt Ltd - 20,00,000 Flyhigh Exports Pvt Ltd - 65,00,000 Balajee Vinimay Pvt Ltd 1,85,50,000 - Nupur Vinimay Pvt Ltd 1,00,00,000 - Kingstone Jewellery Pvt Ltd 50,00,000 - Rika Global Impex Ltd 50,00,000 - Manmohan Infrastructure Pvt Ltd - 50,00,000 Allied Dealmark Pvt Ltd - 55,00,000 Speedfast Construction Pvt Ltd - 75,00,000 Oversure Construction Pvt Ltd - 5,00,000 Panchkoti Infrabuild Pvt Ltd - 20,00,000 Shyama Properties Pvt Ltd -....
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.... 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 clearly discernible. The Ld. AR has therefore rightly pointed out that the assessee had discharged its initial burden of substantiating the "source of source" of funds, and no specific infirmity had been pointed out therein by the lower authorities. At the time of hearing, even the Ld. CIT-DR was unable to pin-point any defect in these evidences placed on record in support of source of source of funds in the paper book. 32. Further in our considered view, after the assessee had discharged its burden by furnishing the above documents in support of the source of source of funds, in compliance with proviso to Section 68 of the Act, then the onus of disproving or finding defects in these documents shifted to the Revenue. It was then the duty of the Revenue to bring on record cogent material/evidence, which would show that the source of source of funds was unreliable or not genuine, which w....
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....ion 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 had made additions u/s 68 of the Act in relation to share subscription monies received by the assessee alleging that the source of source companies were name lenders having no creditworthiness and the Directors of such companies had not attended the summons. On appeal the Tribunal while deleting the addition had observed as under: "18. Under the deeming provision of Section 68, the primary onus lies upon the assessee to prove the nature and source of credit. Here, in this case, the nature has been stated to be share application money which has been duly allotted by the assessee company to the subscribing company for which all the documentary evidences, including from ROC has been filed. The source of credit has been explained from the bank statement of the subscribing company, audited balance sheet, ITRs, etc. Further, the subscribing company, M/s. Aviskar Marketing Pvt. Ltd has also explai....
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....ly 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 is proven from the fact that M/s. Aviskar Marketing Pvt. Ltd. has subscribed the shares on premium out of loan taken from NBFCs and has given the immediate source; and not only that, it has also given the documents and confirmations from the NBFC companies confirming the loan given to the subscribing company who in turn has subscribed the share of the assessee company. Under these circumstances and facts of the case and without there any material that any unaccounted money has been routed through various channels, then simply based on presumption and hypothesis deeming fiction cannot be invoked. If the assessee has proved the source as well as the source of the source of the fund then onus shifts upon the Assessing Officer to carry some prima facie inquiry to rebut the explanation given by the assessee. In absence of any such exercise, addition cannot be sustained simply based on certain hypothesis." 34. ....
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....-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 Ground Nos. 1(a), 2(a), 3 to 8 of the assessee stands allowed. 38. Ground No. 2 of the Revenue's appeal is against the Ld. CIT(A)'s action of deleting the protective addition of Rs. 13,10,87,000/- made by the AO u/s 56(2)(viib) of the Act. It is noted that, apart from assessing the share subscription monies by way of unexplained cash credit u/s 68 of the Act, the AO was also of the view that the premium of Rs. 49,900/- at which each share was issued by the assessee did not commensurate with the fair market value of the shares in terms of Section 56(2)(viib) of the Act. According to the AO however, the valuation methodology followed by the Chartered Accountant of the assessee in terms of Explanation (a)(ii) to Section 56(2)(viib) of the Act was unjustified. The AO instead re-computed the value of share by applying the book value method set out in Explanation (a)(i) to Section 56(2)(viib) read with Rule 11UA(2)(b) and ....
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....remium 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 market value on the date of issue of shares viz., the investments held in unlisted companies were valued at the Net Asset Value Method ('NAV Method') and the immovable properties were valued with reference to their prevailing market/circle rate rather than its historical cost. This method of valuation adopted by the Chartered Accountant is thus noted to be in compliance with Explanation (a)(ii) to Section 56(2)(viib) of the Act. The AO however rejected this valuation methodology and changed it to Explanation (a)(i), in terms of which, he re-computed the value per share at NIL, following the book value method [as set out in Rule 11UA(2)(a)]. 42. Now the question before us, is whether the AO could have legally rejected the valuation methodology followed by the assessee and changed it to some other method. In this regard, as noted above, the option to choose the valuation method is with the issuer company and there is no enabling provision empowering the AO to reject and change the val....
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.... 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 adopted by the assessee. We find that in the case of Medplus Health Services P.Ltd.(supra)similar issue was deliberated upon and decided." (iii) The Jaipur Bench of this Tribunal in ITO v. Universal Polysack (India) (P.) Ltd. [IT Appeal No. 609 (JP) of 2017] held that - "16. .....Sub-Rule 2 of Rule 11UA is more specific for the purposes of determination of fair market value of unquoted equity shares under section 56(viib) and shall be applicable in the instant case. The latter provides an option to the assessee to determine the fair market value of the shares either as per the book Value or Discounted Free Cash Flow Method. The exercise of such an option by the assessee is not subject to fulfillment of any specified conditions and it is left to the sole discretion of the assessee as it deems fit to apply. In the instant case, the assessee company has exercised its option to value its shares as per DCF method and we find that the objection of the AO is primarily directed at not adopting the book value of determination....
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....s the rent paid by these companies, the AO observed that the rent charged by the assessee was very minimal when compared with the quantum of deposits. According to the AO, the enquiries made u/s 133(6) and 131(1)(d) revealed that these deposits/advances represented unaccounted monies of the assessee routed through shell companies and therefore added the same u/s 68 of the Act. 46. On appeal, the Ld. CIT(A) have followed the same line of reasoning which he adopted for adjudicating the addition made by the AO u/s 68 of the Act qua the share subscription monies. According to Ld. CIT(A), the assessee was required to substantiate the 'source of source' of these deposits/advances as well, and therefore he enquired into their money trail and found that these deposits/advances could be divided into two parts viz., (a) whose source of source was payments received from RGIL and (b) whose source of source was payments from other bodies corporate (apart from RGIL). Upon undertaking this exercise, the Ld. CIT(A) held the deposits/advances of Rs. 21,07,50,000/- to be genuine as the source of source originated from the overdraft account of RGIL and therefore deleted the same. The remaining sum o....
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....Accordingly, the Ld. CIT(A)'s action of casting additional requirement on the assessee to justify the 'source of source' of funds is held to be without the mandate of law. Instead, in our considered view, the onus cast upon the assessee is only to establish three things necessary to obviate attracting Section 68 of the Act which are, (i) identity of the creditor; (ii) their creditworthiness and (iii) Genuineness of the transaction. 49. In view of the above position of law, let us now examine the facts of the case. In the present case, the deposits/advances were received from the following parties: Sl No. Name of Creditor (A) Amount (B) a. Rika Global Impex Ltd 7,54,55,000 b. Kingston Jewellery Pvt Ltd 1,79,00,000 c. Nupur Vinimay Pvt Ltd 3,99,75,000 d. Balajee Vinimay Pvt Ltd 3,13,00,000 e. Sarwar Steel Pvt Ltd 60,75,000 f. Dhalaxmi Tie Up Pvt Ltd 79,00,000 g. Uma Vinimay Pvt Ltd 4,00,00,000 TOTAL 21,86,50,000 50. We have already discussed the facts pertaining to the companies mentioned at Sl No. (a) to (f) above, in Para 15 earlier. These six (6) companies have been noted to be group entities of the assessee having common shareholders and Direct....
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....ed as regular business receipts and not as unexplained cash credit by the AO. The AO is thus found to have accepted the bonafides of these agreements for use of table spaces. Having regard to this fact, we cannot countenance the action of the AO in doubting the genuineness of the transaction involving the receipt of loan/deposit from these seven (7) creditors. 53. As far as the impugned action of Ld. CIT(A) is concerned, it is noted that the Ld. CIT(A) had mis-directed himself, by treating the deposits from seven entities as if he was examining share application monies received from them and erroneously went ahead to verify the 'source of source' of funds in terms of proviso to Section 68 of the Act. Upon conducting such verification/exercise, the Ld. CIT(A) was of the opinion that 'source of source' to the extent of Rs. 21,07,50,000/- was proved and only 'source of source' of sum to the extent of Rs. 79,00,000/- was not proved. As noted by us earlier, this additional burden to prove 'source of source', which was fastened by the Ld. CIT(A) upon the assessee was not with the sanction of law and so his impugned action itself was not in accordance to law and so it cannot be sustained....
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....ispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section68 of the Act. What the Assessing Officer held was that sources of the source were suspect i.e., he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur. 15. In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required to explain the sources of the money provided by the creditor Smt. Savitri Thakur i.e. Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur. 16. Considering the above, we are of the....
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....uld have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 56. The above judgment was followed by another coordinate Bench of the Hon'ble Gujarat High Court in the case of CIT Vs Apex Therm Packaging (P) Ltd (42 taxmann.com 473). In the decided case also, in the course of assessment proceedings, the assessee had furnished complete details of loan creditors along with their PAN, financial statements, loan confirmations, bank statements etc,. The AO however added the entire loan received u/s 68 of the Act. On appeal the CIT(A) allowed the assesses appeal which was also confirmed by ITAT. On appeal by the Department u/s 260A, the High Court observed that when full particulars, inclusive of the confirmation with name, address, PAN, IT returns, balance sheet & profit and loss account in respect of all the lenders were furnished and that it has been found that the loans were received through cheques then the AO was not justified in making addition u/s 68 of the Act. Accordingly the High Court dismissed the appeal of the Department. 57. We may also gainfully r....