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2024 (1) TMI 359
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....nd therefore my kindly be condoned. The AR on the other hand did not oppose the admission of appeal. Accordingly we find the reasons to be sufficient and therefore the delay is condoned. 3. The only issue raised by the assessee is against the order of Ld. CIT(A) upholding the order of AO where the AO has made addition of Rs. 5,10,00,000/- on account of unexplained cash credit u/s 68 of the Act. 4. Facts in brief are that the assessee filed return of income on 30.08.2012 declaring total income of Rs. 13,906/-. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The upon perusal of the balance sheet observed that the assessee company has issued equity shares to 11 subscribers of face value of Rs. 10/- each at a premium of Rs. 990/- thereby raising Rs. 5,10,00,000/- towards share premium. The AO observed that the assessee is private limited company having a very meager income and thus there was no justification for issuing equity shares at such a high premium. The called upon the assessee to furnish the address proof , utility bills, if any, , net worth ,proofs of source of investments ,bank statements, photo id....
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....eal of the assessee observed and hold as under: In making investigations in relation to authenticity of share capital/premium, it is imperative to keep the provisions of section 68 in mind. The initial onus for proving the identity and creditworthiness of the share applicants as well as the genuineness of the transaction lies upon the assessee who is claiming that such an investment was received by him. This can be done through the production of evidence in support of the identity and creditworthiness of such an applicant and also by providing sufficient evidence/ reasoning to establish that the said transaction was genuine and not bogus. This adducing of evidence and providing of cogent reasoning has to be such as to provide a satisfaction in the mind of the AO (a prudent person) regarding the bona fides of the transaction. Once this onus is discharged by the assessee, the burden shifts to the AO, who can either agree with the evidence /reasoning produced before him, or can disagree with it. In case of disagreement, the onus shifts to the assessing authority to provide cogent reasoning and/or concrete evidence for his reasons for doing so. In the present....
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....s or taxable income to allow them to invest the large amounts that had been invested as share premium. Therefore, in effect, he has doubted the creditworthiness of these share applicant companies. In this respect, it has to be noted that in order to prove the creditworthiness of a company, it is not always necessary to look only for these investments to have been made from the profits of the company. It is by now an accepted position in law that net profits are not the only indicators of the investment making capacity of an entity. What has to be examined is the net worth of entity as well the availability of money with it. There are plethora of judicial decisions that have expounded this proposition. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), has observed in this connection that, "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismiss....
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.... Evergreen Residency Pvt. Ltd vs ITO, Ward 8(2), Kolkata on 09.08.2019 in ITA no. 416/Kol/2018, in which it was held, "A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2011 12 and the relevant Bank Statement are attached at Page 80108 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs. 9,83,20,364/-. This very clearly shows the high creditworthiness of the company to make investment in the assessee company. Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies." Of particular import is the decision cited by the appellant in the case of ACIT Vs Supreme Placement Services (P) Ltd. (ITATDelhi) in ITA no. 5259/Del/2013 dated 17.03.2021; wherein it was held that: "6.16. The A.O. merely doubted the financial capacity of the Investors because they have reported low income in their return of income. This cannot be the sole basis to doubt the explanation of assessee. It may be suspicion of the A.O. only without bringing any evidence on record. Rather the documentary evidences produ....
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....ly higher, it has gone up to the range of only 5-6% of the net worth of the share applicant company - which is not unreasonable. Even though, on this subject, several judicial authorities have already been cited by the appellant in his submissions, while some of them have been discussed supra, I find that it is worthwhile to cite what the Hon'ble Jurisdictional Tribunal of Kolkata has stated on this subject in the decision of the Hon'ble ITAT Kolkata in the case of ITO vs. Goodpoint Commodeal (P) Ltd. in ITA No. 1204/Kol/2015 for AY 2012-13 order dated 07.06.2019: "6. Thus, we note that we find all the four share subscribers have been assessed by the Department and that too u/s. 143(3) of the Act and the genuineness of the transactions, cannot be disputed since the payments have been made through banking channel and we note that there cannot be any dispute in respect to worth/own fund in its kitty to invest in the assessee company. It would be creditworthiness of the share subscribing companies since they had sufficient net worthwhile to take note the observation by Hon'ble Justice A. K. Sikri while delivering the judgment in CIT Vs. Mayawati when His Lordship then was....
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.... wherewithal to make the combined investment in share application as well as premium. This is particularly so when the AO himself has accepted the share capital as genuine and fully explained, in terms of the identity of the share applicants, their creditworthiness and the genuineness of the transaction and the mode of the transaction. The AO has nowhere made a comment regarding the fact that all the share applicants explained the source of funds in their respective replies filed in response to summon u/s 131 of the Act and also by appearing personally before the AO. The facts furnished on record by the share applicants, in the context of the aforesaid discussions, clearly bring on record their capacity for making such payments and accordingly the criteria of their creditworthiness is also explained. As already discussed above that it is uncontroverted that all the 11 share applicants in their respective replies furnished copies of their income tax return acknowledgements evidencing filing of income tax return, copies of their audited accounts including Balance Sheet wherein such investments, made by each of them by virtue of the subscription of share capital issued by the....
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....03.2017, the Hon'ble Court has examined the issue of retrospectively or otherwise of the amendment to section 68 of the Act via which the proviso to the said section was inserted from 01.04.2013. The facts in this case were that during the previous relevant to the subject Assessment Year the assessee had increased its share capital from Rs.2,50,000/to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the Act. This addition was deleted by the CIT(A) and the Tri....
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.... credit." The above is then the settled position of law for cases pertaining to 2012-13 and earlier. I find that in the instant case, the AO, either during assessment or during remand, has not expressed any dissatisfaction with the explanation offered by the appellant, when the latter was explaining the source of source. Therefore, even though there was no legal requirement cast upon him to do so, the appellant has nevertheless provided the AO with the source of source without eliciting any adverse comment from him. In these circumstances it cannot be held that the appellant did not discharge the onus cast upon him u/s 68 of the Act. Per contra, I find that there is no evidence on record to show that the identities of the share applicants are doubted by the AO and / or that anything has been brought on record by him to show that the introduction of share capital by them was not genuine and / or the source of investment was not fully explained by the appellant to the satisfaction of the AO. Once the appellant has duly discharged the onus cast upon him in this context, it was incumbent upon the AO to bring evidence and/or reasoning on record to show that the explanations off....
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....icult to see how this addition could have been made u/s 68 of the Act. Coming to another aspect of this matter, which, even though not explicitly raised by the AO, is pertinent in cases like the present one. This pertains to the question whether, since the said amount of share premium could not be added u/s 68, it could have been added u/s 56(2) of the Act; since section 56(2) (viib) envisages a situation where a company receives consideration for issue of shares which is in excess of the fair market value of the shares, then such consideration can be added to his income under this clause as income from other sources. The appellant, in this connection, has explained that although the justification for premium was not a requirement of law during the relevant assessment year but even then the share premium has been justified by the appellant with reference to the explanation filed by it with reference to relevant facts and figures. It has been explained that this premium was paid on account of the anticipated future prospects of the appellant company and the fact that it was felt by the investing companies' Boards that it would be prudent to invest in the appellant company. I fin....
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....ntity, creditworthiness of the shareholders and the genuineness of the transactions, as far as share capital is concerned, have been established within all the dimensions of legal enquiry, it could not be held to be an unexplained or bogus transaction insofar as it relates to the share premium, without bringing on record compelling reasons for doing so. This last has neither been done in assessment or in remand or is indeed discernible from the entire material on record. Further the AO's reliance upon the decision of Supreme Court in Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 412 ITR 161 is in my opinion misplaced, even though the addition made towards cash credit was rendered in favour of the revenue in that case. It is noted that the said decision is factually distinguishable as in the appellant's case all the share applicants appeared personally u/s 131 and filed documentary evidences and the AO after conducting independent enquiries has accepted the share capital from the same set of share applicants. In the instant case, all the share applicants had confirmed their investment with the appellant and as such, there was no basis for the AO to come to any adver....
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....oney of 1,47,00,000/- to tax; commission of 2.5% on the amount, which worked to 3,94,500/- was also added on the ground that the assessee would have paid the same to get the accommodation entries of share capital. The matter ultimately found its way before the Hon'ble Delhi High Court before whom the revenue preferred an appeal. The following substantial question of law is framed: "Whether the Tribunal was right in law in upholding the order of the CIT(A) deleting the addition made u/s. 68 of the Act on the ground that the assessee has proved the nature and source of the share subscription amounting to 1,47,00,000/- and has established the identity and creditworthiness of the share subscribers and the genuineness of the transactions?" The revenue contends that the Tribunal failed to appreciate that the assessee could not establish satisfactorily the nature and source of the monies received as share capital nor could it discharge the onus of proving the identity and creditworthiness of the share subscribers and the genuineness of the transactions which are the fundamental requirements of section 68. The Hon'ble Court made the following observations in this ....
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.... who confirmed that no such companies functioned from the addresses furnished by the assessee. Let us see the attitude of the assessee towards discharging its onus in such circumstances. It says that the AO may get the addresses from the ROC's website. We do not think that an assessee can take such an unreasonable attitude towards his onus u/s. 68, little realising that when the finding is that the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the AO to even hold that the identity of the share-subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the AO to go to the website of the company law department/ROC and search for the addresses of the share-subscribers and then communicate with them for proof of the genuineness of the share subscription. That is the onus of the assessee, not of the AO." It is clear from the above pronouncement that an appellant is duty bound to explain the identity, creditworthiness of the share applicants and the genuineness of the transaction. In the circumstan....
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....e subscribers were examined. The Ld. D.R while admitting that in some cases, the statements of the subscribers as well as of the assessee were recorded and in 8 cases these subscribers companies were even assessed to tax and assessment were framed u/s 143(3) of the Act. The Ld. D.R however stated that the mere filing of returns, copy of audited accounts or bank statements could not automatically prove the genuineness of the transactions and creditworthiness of the subscribers. The Ld. D.R stated that these companies have meager sources to invest in the assessee company. Moreover there was no justification for the assessee to issue shares at such a high premium. Therefore the Ld. CIT(A) has wrongly allowed the appeal which may kindly be reversed and the order may kindly be restored. 7. The Ld. A.R vehemently submitted before us that in the remand proceedings, the AO has not carried out any further verification however reiterated his opinion that the premium paid by share subscriber were not justified and stated that with the share capital may be treated as expenditure whereas the share premium may be treated as unexplained cash credit u/s 68 of the Act. The Ld. CIT(A) dismissed t....
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....see. 9. We have heard the rival submissions and perused the material on record including the remand report and impugned appellate order. We find that in the original assessment proceedings the assessee did not appear before the AO nor any compliance was made to the summons issued u/s 131 of the Act. However in the appellate proceedings the Ld. CIT(A) called for these evidences from the assessee and which were duly filed comprising of copy of ITR, audited report and audited financial statements, summons u/s 131 and reply thereto copy of MCA data and copy of bank statement highlighting the transaction in respect of each subscribers. The Ld. CIT(A) called for a remand report which was filed by the AO vide letter dated 12.07.2022 a copy of which is filed at page 21 to 27 of PB. We note that in the remand report the AO has examined the directors of most of the share subscribing companies. We even note that the assessment u/s 143(3) were framed in 8 subscribers which were also filed before the AO during the remand proceedings. Finally the AO stated in the remand report that share capital may be treated as explained whereas the share premium charged by the assessee is without any justi....