TaxTMI 
TaxTMI 
2024 (5) TMI 710
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....esaid, whether the Tribunal ought to give the appellant an opportunity to file documents and submissions countering the issues raised by it and the failure to do the same renders the order of the Tribunal to be in gross violation of the principles of natural justice? (iii) Whether the identity and creditworthiness of subscribers to the share capital and the genuineness of the transaction be doubted on account of a non-compliance to a notice issued under section 131 of the Act, especially since the notice was received after the completion of the assessment, and without considering the other documents and submissions filed by the appellant in support of the same? (iv) Whether the findings and observations of the Tribunal with respect to the identity and creditworthiness of the shareholders and the genuineness of the transaction are erroneous, perverse and contrary to law? (v) Whether the Tribunal could have rejected the genuineness of a share subscription transaction on the basis of a possible future use of the property acquired using the premium received? (vi) Whether the creditworthiness of a shareholder can be doubted on the basis of the fact that the investment in immovab....
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....the due diligence done, the steps taken for protection of the funds and most importantly the reason for investment in a company with no track record and that to with such huge premium was not clarified. Further since the assessee did not furnish the details of the shareholders, and hence the identity of the shareholders was questionable. 4. The assessing officer observed that in the light of the preponderance of probability and normal human behaviour, it may be easily inferred that the entire transaction lacks substance. The assessee company has been recently incorporated without any proven track record and does not in any way justify the high share premium. Further the assessing officer holds that the facts of the case clearly reveal that the receipt of share application money is only a façade for conversion of unaccounted money and the nonappearance of the directors only strengthen this point. 5. The assessing officer referred to the decision of this court in Commissioner of Income Tax Versus Precision Finance Private Limited 2008 ITR 465 as well as the decision of the Indore Bench of the tribunal in the case of Agarwal Coal Corporation Private Limited Versus Assistant C....
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....y and shares applications 1 to 5 received from five individuals. The second allotment made on 31.03.2012, share application forms, article and memorandum, audited balance sheet as on 31.03.2012 of M/s. Asthbhuja Mercantile Private Limited showing investments in the assessee company share application form and similar details of M/s. Maida Securities Limited showing investment in the assessee. Therefore the assessee contended that they have proved the genuineness of the amount received towards share application and premium, established the identity of the investors and the creditworthiness of the investors. 9. Further it was contended that all transactions were through banking channels and the assessing officer should have verified the same to examine the genuineness, the investment of the assessee company was in land and at the time of transaction and in view of huge quantity of land, the cost of the land was very low but after development of the same the sale price would be highly profitable. Further the assessee contended that the assessee is presently having the investment activities in land and it is reporting loss because it is the first year of the company and no activities h....
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....ing Counsel appearing for the respondent submitted that the assessee was incorporated on 29.06.2011 and the assessment year under consideration is the very first year of the operation of the company which is a broken year considering the date of incorporation. The assessee filed return of income reporting a total income at NIL. The assessee raised a share capital of Rs. 3,66, 00,000/- comprising of share capital at Rs. 11,71,000/- and security premium of Rs. 3,54,29,000/-. The assessee did not comply with the summons issued under Section 131 of the Act. It is submitted that the assessee allotted shares to five individuals on 30.03.2012 without any premium at the face value of Rs. 10/- and on the very next day on 31.03.2012 allotted shares to two companies with a share premium of Rs. 4990/- per share. 12. The assessee in the grounds of appeal before the CIT(A) stated that the summons issued under Section 131 was received after receiving the assessment order whereas in the supplementary affidavit filed by the assessee, in this appeal, it is stated that the summons under Section 131 were never served on the assessee companies which is a contrary stand taken by the assessee. Further i....
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....fully furnished. The shareholder's response was also referred to which is annexed to the supplementary affidavit in page 13 and 14 and in pages 27 to 30. Therefore, it may be submitted that the matter may be remanded back to the authorities for consideration of all the documents after affording opportunity to the assessee. 16. We have elaborately heard the learned advocates for the parties and carefully perused the materials placed on record. 17. The law on the subject is fairly well settled, the assessee as to the burden of proof would include the proof of identity of the investor, the capacity of the investors to advance the money and the genuineness of the transaction. The assessee has to prove these three factors by producing acceptable evidence and only then the onus shifts on the department. 18. In A. Govindarajulu Mudaliar Versus Commissioner of Income Tax (1958) 34 ITR 807 the Hon'ble Supreme Court pointed out that whether a receipt is to be treated as income or not must depend largely on the facts and circumstances of each case and where an assessee fails to prove satisfactorily, the source and nature of certain amount of cash receive during the accounting year, the inc....
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....ion of law which was framed for consideration is whether the tribunal was right in deleting the additions under Section 68 of the Act and whether the decision of the tribunal is perverse. 17. With regard to the role of the assessing officer, the Hon'ble Court held that the assessing officer is both an investigator and an adjudicator; when a fact is alleged and stated before the assessing officer by an assessee, he must and should examine and verify, when in doubt or when the assertion is debatable. Normally a factual assertion made should be accepted by the assessing officer unless for justification and reasons the assessing officer feels that he needs/requires a deeper and detailed verification of the facts alleged. The assessee in such circumstances should cooperate and furnish papers, details and particulars, this may entail issue of notices to third parties to furnish and supply information or confirm facts or even attend as witnesses. The assessing officer can also refer to incriminating material or evidence available with him and call upon the assessee to file their response. A universal procedure or method which should be adopted by the assessing officer when verification....
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....ormal public issues. Doctrine of source of source' or „origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counter- productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate ill gotten and unrecorded money. Without being oblivious to the constraints of the assessee, an objective and fair approach/determination is required. Thus, no assessee should be harassed and harried but any dishonest façade ....
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....above speak and are obvious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. 21. In Rajmandir Estates Private Limited Versus Principal Commissioner of Income Tax 2016 SCC Online Cal 1237, one of the substantial questions of law which fell for consideration was whether the finding of the CIT(A) that unaccounted money was or could have been laundered as clean share capital by creating façade of paper work, routing the money through several bank accounts and getting the seal of statutory approval by getting the case re-opened under Section 147 suo motu and whether the same is perverse. The facts of the said case was noted wherein 19 out of the 13 applicants secured funds for the purpose of contributing to the share capital of the assessee therein, on account of share application money. In other words, those 19 applicants collected funds on account of share application money in their respective companies and that money was contributed to the share capital of the assessee. 15 out of the 39 applicants procured the requisite funds by selling the shares and the rest of the ap....
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....ditworthiness of the receipt, object and purposes for which payment/investment was made etc. The incorporation of a company and payment by banking channel etc. cannot in all cases tantamount to satisfactory discharge of onus. The principles which emerge were sums of money are credited as share capital/premium was summarised as follows:- 13.1. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness 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. 13.2. The assessing officer is duty-bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. 13.3. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the....
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....isclose address and the identities of the shareholders but the assessee has to show the genuineness of such individual and entities. Further the test of human probability has to be applied and it has to be examined as to the reason to invest in the shares of the assessee companies at such huge premiums. After noting the legal position, the appeal was dismissed. 26. One of the companies which had purchased shares at a premium of Rs. 4990/- per share namely Astbhuja Mercantile Private Limited appears be a company which does not have creditworthiness as could be seen from the director's report wherein it is stated that the company has earned a profit of Rs. 280/- against a profit of Rs. 130/- earned during the previous year. In the note on financial statements, it is stated that the said company does not own any tangible or intangible fixed assets during the financial year under consideration. This financial statement is annexed to and forming part of the balance sheet as at 31.03.2012. 27. In the annexure to the report on financial statements as certified by the auditors of the assessee having audited the financial statements of the assessee which comprises the balance sheet as at ....
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....would point out that in the objects incidental or ancillary to the attainment of the main objects, one of the objects is to acquire estate or interest whatsoever and to hold develop, plan etc. In any event, the assessee miserably failed to establish before the fact finding authority that they had infact, actively involved themselves in development of land and this is highly improbable as the assessee was incorporated only on 29.06.2011 and the assessment year under consideration namely 2012-2013 is the first year of operation of the company which is a broken year taking note of the date of incorporation. Thus, the charging of premium of premium of Rs. 4990/- is illogical and there is no basis for fixing such an amount especially when on 30.03.2012 shares of the companies were allotted to five individuals without any premium and on 31.03.2012 it was allotted to two companies with a share premium of Rs. 4990/- per share. Further certain facts relating to the land held by the assessee was placed before the learned tribunal stating that the assessee acquired 490.51 decimals of land. The tribunal on examining the facts found there is nothing on record to demonstrate as to how this land ....