TaxTMI 
TaxTMI 
2023 (12) TMI 1087
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....t judging the case on merits and appreciating the fact that the source of funds received by the Investor Company, namely, Bhillai Holding Pvt. Ltd. were from paper / shell entities, and thus, it remained unexplained within the meaning of section 68 of the Act. That the department craves leave to addition, alter or modify any Grounds of appeals in the course of appellate proceedings." 3. Facts in brief are that the assessee is a private limited company and is engaged in the business of manufacturing of sponge iron. Assessee filed return of income for Assessment Year 2013-13 on 25/09/2012, declaring 'Nil' income. Case Selected for scrutiny followed by issuance and service of notices u/s 143(2) and 142(1) of the Act. During the course of assessment proceedings, the directors of the assessee company appeared from time to time and made due compliances by submitting various details as sought for by the Assessing Officer. The Assessing Officer observed that the assessee company had received share application money of Rs. 27,22,00,000/- during the year under consideration and allotted the shares to one company, namely, Bhillai Holdings Pvt. Ltd. However, the Assessing Officer was of the....
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....tatements of the share applicant and came to a plausible conclusion. He vehemently argued supporting the order of the ld. Assessing Officer and stated that merely filing paper documents cannot be treated as a compliance to explain the nature and source of the alleged sum. Surrounding circumstances which includes the meagre income offered by the share subscribers, no regular business activity carried out by the share subscriber and the typical nature of flow of funds in the bank statement indicates that share subscribing companies are engaged in rotation of funds for providing accommodation entries and they are jamakharchi or shell/paper companies and, therefore, the ld. Assessing Officer has rightly added the sum in the hands of the assessee. The Ld. D/R has further relied upon the decision of the Hon'ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. reported in [2019] 103 taxmann.com 48(SC). 7. On the other hand, the ld. Counsel for the assessee apart from referring to the detailed written submissions and paper book containing 181 pages again asserted the fact that the assessee company which is engaged in the business of manufacturing of sponge iron, issued equi....
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.... 19,66,237 Amount transfer to share application a/c Rs. 6,54,00,000 Rs. 6,54,00,000 (c) Fresh share application taken during F.Y. 2011-12 Rs. 20,68,00,000 (d) Share Application Return Rs. 4,22,00,000 (e) Share allotted out of fresh share application amount Rs. 16,46,00,000 (7) The appellant company received share application money of Rs. 20,68,00,000/- through banking channel from its sister concern M/s. Bhillai holdings Pvt. Ltd. (investor company) as below:- Source of share Application Date Mode of Receipt Amount (Received) Source 25-04-2011 RTGS 15,000,000.00 Premature withdrawal of F.D 28-04-2011 RTGS 96,00,000.00 Premature withdrawal of F.D 02-05-2011 RTGS 15,000,000.00 Premature withdrawal of F.D Rs. 1,00,09,873 & 50,00,000 from sale of investment 04-05-2011 RTGS 25,00,000.00 Premature withdrawal of F.D 09-05-2011 RTGS 15,000,000.00 Premature withdrawal of F.D 20-05-2011 RTGS 17,000,000.00 Premature withdrawal of F.D Rs. 1,24,69,832 & 40,00,000 from sale of Investment 27-05-2011 RTGS 35,00,000.00 Premature withdrawal of F.D 02-06-2011 RTGS 25,00,000.00 Bank Balance 03-06-2011 RTGS 25....
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....ceived share application money of Rs. 27,22,00,000/- from one investor company, namely, Bhillai Holdings Pvt. Ltd.. No share premium has been charged on the issue of equity shares of face value of Rs. 10/- each. 10. We further observe that during the course of assessment as well as appellate proceedings before the ld. CIT(A), the assessee has complied and has filed all the details, evidences and relevant documents which are necessary to prove the identity and creditworthiness of the share applicant and genuineness of the transactions. Though these details have been filed in the paper book but the same can be summarized as filing of the copy of PAN card, share application form, allotment advices, relevant bank statements, ITRs for Assessment Year 2012-13, audited financial statement, source of funds i.e., the immediate source of fund which has been utilised by alleged share applicant to apply for the equity shares of the company. Assessee has also filed copy of the summons issued u/s 131 of the Act along with the certified copy of reply submitted in compliance to notices u/s 133(6) of the Act by the investor company. During the course of assessment proceedings, reply of investor co....
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....t, 1961 which also includes aforesaid Rs. 6,54,00,000. c. Further, during the assessment year 2012-13, the appellant company had received share application money of Rs. 20,68,00,000 through banking channel as per chart given in page no 3 & 4 from its sister concern i.e. the investor company. Out of this amount Rs. 4,22,00,000 had been refunded to the investor company through banking channel in the same assessment year. For the balance amount of Rs. 16,46,00,000 the appellant company had allotted 1,64,60,000 shares g Rs. 10/- each on 23.02.2012 to investor company which was clearly evident from the copy of audited financial statements and documents submitted by the appellant company as well as the investor company during the assessment proceedings. d.Further on the basis of information received from the appellant company, the A.O. had issued notice u/s. 133 (6) vide their letter dated 12.08.2014 which was duly complied by the investor company. In response to the aforesaid notice, the investor company had submitted the following documents on 26.08.2014 namely i. Ledger copy of appellant company standing in the books of investor company (Enclosed certified copy in paper book pag....
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....g the tcquired documents vide their letter dated 23.08.2014. Further summon u/s 131 to investor company was also issued, which was served and complied by the investor company. The aforesaid facts established identity of investor company. So far as genuineness of transaction the appellant company has submitted copy of audited financial statement, copy of share application, copy of bank statement, copy of allotment letter, copy of return of allotment in form 2, Copy of share certificate, ledger copy of Investor Company. A.O. has not pointed out any defects in these documents. When the money is received through banking channels, the genuineness of the transaction would be proved. Further it is seen that as on date also investor company is a major shareholder holding 47.94% of total shares of appellant company and playing major role in taking decisions related to company's affairs as per provisions of Companies Act. Based on the above genuineness of transactions can not be doubted. It is also observed that Investor Company explained the source of funds by submitting their bank statement in their replies to notice u/s. 133 (6) of the Act, from which they made payments to the appel....
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....at the burden which lies on the appellant company, in relation to sec. 68 of the Act, has been duly discharged. There is no evidence on record to show that the identities of the investor company is not proved or that the introduction of share capital by them was not genuine or the source of investment was not fully explained to the satisfaction of the A.O . Once it is proved by documents, the appellant company would have satisfactorily discharged the onus cast upon them. It is seen that although the A.O. had doubted that the appellant company entered into a sham transaction with the investor company to introduce the unaccounted income in form of share application, but no cogent material except suspicion could be brought on record and he also could not point out any discrepancy in the documents submitted by appellant company and investor company in respect of aforesaid transactions. To discredit the documents produced by the appellant company as well as the investor company, having complied to the notices issued u/s. 133 (6) and u/s. 131 there has to be some cogent reasons and materials without having them. A.O cannot go into the realm of suspicion & guess them Based on the above do....
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....oney on surmises and conjecture and has not brought any cogent material on record to establish his such doubt that the appellant's own unaccounted money came back to it by way off introduction of share capital. Accordingly, addition made by Assessing Officer was deleted" d. Hon'ble Apex Court in the case of CIT vs. Daulat Rant Rawatmuli 187 ITR 349 (SC)] has held that- "onus to prove that the apparent is not the real is on the person who claims it to be so." Therefore, the onus is on the A.O. to prove that the share application money subscribed to the share capital of the appellant company by the above named investor company is not the money of the investor company but of the appellant company, is on the A.O. In the instant case, the A.O. has not brought any material on record to establish the same. In view of the above, it is seen that the A.O. doubted the genuineness of the share application money on surmises and conjecture and has not brought any cogent material on record to establish such doubt that the appellant's own unaccounted money came back to it by way of introduction of share capital. The addition was made with the predetermined mindset that share capi....
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....at the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source." Thereafter the Hon'ble Supreme court summed up the principles, which emerged after deliberating upon various case laws, as under: "11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bo....
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....gh to cover up the share application money invested in the equity of the assessee company. 14. We further observe that the assessee company is regularly engaged in the business of manufacturing of sponge iron. Turnover during the year under consideration is Rs. 17.35 Crores and in the immediately preceding year the same stood at Rs. 12.68 Crores. The gross value of the fixed assets is Rs. 5.91 Crores. The closing stock of sponge iron/raw material/finished goods as on 31/03/2012 is Rs. 21.86 Crores. Also on perusal of the audited financial statements, it is clearly discernible that the assessee company is duly registered under the Excise Act and regular business of manufacturing is being carried out. It is not the case of an accommodation entry provider where the cash credits received are immediately transferred to other private limited companies by way of making investment in their equity or giving loans and advances. We also notice that the alleged sum received during the year is from Bhillai Holdings Pvt. Ltd., which is a group concern of the assessee. Directors of the assessee company, Mr. Upendra Rai, Mr. Harendra Roy and Mr. Parmeshwar Nath Rai, are also the directors of the ....
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.... the following judicial pronouncements:- i) The ITAT Kolkata Bench in ITO vs Cygnus Developers (I) P Ltd in ITA No. 282/Kol/2012 dated 2.3.2016, held as follows: 9. We have considered the rival submissions., We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.2004-05 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.2005-06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed ....
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....ts as on 31.03.2012, relevant bank, copy of the notices issued u/s 133(6) to the shareholders and reply thereof were also submitted. It is observed form the details & documents furnished by the appellant that in the cases of 2 share holders, namely 1) M/s Alfort Merchants Private Limited, 2) M/s Sharekhan Merchants Private Limited, the Assessment Orders u/s 143(3) for Lne AY 2012-13 were passed u/s. 143(3) without taking any adverse view. Therefore, it can be assumed that the respective Assessing Officers have all verified the accounts and therefore any amount that is credited from these two companies to the assessee company is fully explained. The assessment in the case of the other 4 share holders, namely, 1) M/s. Dhanamrit Commercial Private Limited, 2) M/s Jealous Commercial Private Limited, 3) M/s Mutual Merchants Private Limited, 4) Winsom Vanijya Private Limited were also passed u/s.143(3) where additions u/s 68 & u/s.14A of the Act were made. Therefore, the entire capital of all the above mentioned share holders had been added in its hands u/s 68 of the I.T. Act Thus, once an amount is already taxed, whatever investment is being made out of it in the assessee company can ....
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.... the hands of the share subscribers, the investments by which share subscribers in the hands of the other company whose shares have been subscribed stood explained then no additions in such a case would be warranted in the hands of the assessee company as it would amount to double additions of the same amount. Even if the said addition stand confirmed in the appeal or stand deleted, in both the instances, the investment in the hands of the assessee company will stand proved. Reliance has been placed in this respect on the decision of the Coordinate Kolkata bench of the Tribunal in the case in the case of DCIT vs. M/s Maa Amba Towers Ltd. in ITA No.1381/Kol/2015 vide order dated 12.10.2018. The aforesaid decision has been further relied upon by the coordinate Kolkata bench of the Tribunal in the case of "Steelex India (P) Ltd vs. ITO, Ward-3(2), Kolkata"I.T.A. No.2666/Kol/2019 decided vide order dated 09.09. 2022. 7. Further, a perusal of the Assessment order would reveal that the AO has duly acknowledged the receipt of the relevant documents/evidences not only from the assessee, but also from the subscriber companies. However, he insisted for personal appearance of the director....
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....ed that the assessee failed to prove the existence of the creditors or for that matter creditworthiness. As rightly pointed out by the learned counsel that the CIT(Appeals) has taken the trouble of examining of all other materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the produce of the assessee or not. When it was found by the CIT(Appeal) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding." 8. As the ld. CIT(A), in this case, has not only duly examined the facts and explanation as furnished by the assessee but also has given a categorical finding that the identity and creditworthiness of the share subscribers and genuineness of the transaction stood established. 9. The ld. DR could not point out any distinct facts warranting our interference in the order of the CIT(A). 10. In view of ....
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.... the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained." 16(b). Our views are further fortified by the judgment of the Jurisdictional Calcutta High Court in the case of Principal CIT vs. Sree leathers reported in [2022] 448 ITR 332 (Cal) has held as follows: "Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that where any sum is found credited in the books 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 Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The crucial words in the provision are "the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit b....