TaxTMI 
TaxTMI 
2023 (12) TMI 1087
X X X X Extracts X X X X
X X X X Extracts X X X X
....F.Y.201 1-12, from Bhillai Holding Pvt. Ltd., without 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he facts of the case extensively and also scrutinised the financial statements 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-20 Reconciliation of Rs. 27.22 cr. (a) Addition made by AO Rs. 27,22,00,000 (b) Loan as on 31.03.2011 Rs. 6,73,66,237 Interest paid 19-04-2011 Rs. 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-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and perused the material placed before us and carefully gone through the decisions referred and relied by both the sides. 9. The sole effective ground raised by the revenue is against the finding of ld. CIT(A) deleting the addition u/s 68 of the Act made for alleged unexplained share application money in the form of share capital amounting to Rs. 27,22,00,000/-. During the year, the assessee company received 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 stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Thus, the aforesaid sum of Rs. 6,54,00,000 was received during the A.Y. 2011-12 and not in A.Y. 2012-13 and it was merely a brought forward balance of the loan amount which stood in the books of accounts of the appellant company in the name of investor company. It appears that the A.O. has overlooked this aspect and erroneously added the entire amount of share application i.e. Rs. 27,22,00.000 under section 68 of the Income Tax Act, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n money. It is seen that as per settled law the initial burden is upon the appellant to explain the nature and source of the share application money received by it. In order to discharge this burden, the appellant is required to prove (i) the identity of the share-holder, (ii) the genuineness of the transaction, and (c) the creditworthiness of the shareholder. As far as identity of investor co is concerned, on the basis of information received from appellant company the A.O. issued notice u/s 133 (6) which was complied by investor co by submitting 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 g....
X X X X Extracts X X X X
X X X X Extracts X X X X
....subscribed to the share capital issued by the appellant company, in the impugned previous year relevant to the assessment year under appeal, as clearly evident not only from their respective books of accounts , but also from their audited accounts filed with the income tax authorities in relation to their own income tax assessments, and the sources of such funds are also explained by the investor company in their replies addressed to the A.O. However, the A.O had not brought these indisputable facts on record but acted on his whims and fancies. It is observed that 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 unaccoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntity of share applicant was clearly revealed but Assessing Officer did not conduct any enquiry except resting his conclusions on surmises. Accordingly, addition made by Assessing Officer was deleted" c. In this connection, I may refer some other judicial pronouncements to hold that the appellant's case is not a fit case where provisions of sec. 68 of the Act can be attracted. The Honourable ITAT in the case of Income-Tax Officer, Ward -7(3), Kolkata v. M/s. Sancheti Projects Private Limited, 2010-LL-1126-94, held 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch clearly states that the assessee has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions. So far as the reliance of the Ld. DR on the decision of the Hon'ble Supreme Court in the case of "PCIT v/s NRA Iron & Steel (P) Ltd." (supra) is concerned, we note that the Hon'ble Supreme Court in the said case has taken note of the observations made by the Supreme Court in the "the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laying down the proposition that 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid down by the Hon'ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. (supra), impugned additions are not warranted in this case. 13. After going through these detailed finding and examining the same in the light of the documents filed before us, we notice that the investor company is a body corporate and annual returns have been regularly filed on the Ministry of Corporate Affairs portal. It has been regularly assessed to tax and even passed through scrutiny proceedings also. From perusal of the financial statements of the investor company, we notice that it had sufficient share capital and accumulated Reserves and surplus which are sufficient enough 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 peru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evidence including premature withdrawals from FDRs by the share applicant. Thus, the assessee has successfully discharged the primary onus to establish the three ingredients, namely, identity and creditworthiness of the said sources of funds, casted on it. 15. In the above given facts and circumstances, we are inclined to hold that the assessee has successfully explained the nature and source of alleged sum and even the source of source has been proved by providing details of the funds received from other sources through banking channel which has subsequently been used to make investment in the equity capital of the assessee company. 16(a). Our view is further supported by 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the year under consideration the appellant company had raised share capital of Rs. 7,60,00,000/-from 6 parties. In the course of the assessment proceedings, to verify the receipt of share capital, the AO issued notices u/s.133(6) to all the 6 share applicants and in response, they all confirmed the transactions submitted the details/document in respect of the subscription of shares of the appellant. In the course of the appellate proceedings, the appellant filed copy of each of the assessment orders passed in all the 6 cases of the shareholders for that year in which the share subscription amount has been received by the assessee company. Besides, the income-tax return filing acknowledgment, Audited Balance and sheets 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me is directed to be deleted. The appeal of the assessee company on Grounds No.1 & 2 are treated as allowed. Ground no. 3 is general in nature, which does not require adjudication. 6. In the result, the appeal of the assessee is treated as allowed." 6. A perusal of the above concluding part of the order of the CIT(A) reveals that the ld. CIT(A) has not only taken note of the accounts of the share subscribers but also, noted that all the six share subscribers were assessed u/s 143(3) of the Act. Out of which, no additions were made in case of two share subscribers. However, in the case of other four share subscribers, the additions were made regarding their source of income. Now, it is settled law, once the addition has been made in 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 h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee has rightly placed reliance upon the decision of the Hon'ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon'ble High Court has held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case. Further the jurisdictional Calcutta High Court in the case of "Crystal networks (P) Ltd. vs CIT" (supra) has held as under: "We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore it shall be assumed 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 pursua....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by 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 t....