TaxTMI 
TaxTMI 
2024 (9) TMI 1264
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....capital was Rs. 50 Crore (impugned amount). It is seen that since the initial assessment order was set aside u/s 263 of the Act for conducting inquiries for establishing the genuineness, creditworthiness etc. of the share applicants, hence the ld. AO had initiated the said proceedings to enquire on those facts. During the second stage assessment proceedings, summons u/s 131 of the Act were issued for 11 shareholders for enforcing their attendance. It is recorded in the assessment order that 4 such share subscribers could not be located on the given addresses and 6 share subscribers on whom the summons could be served requested for time to furnish details. The remaining share subscribers neither appeared nor sent any communication to the Assessing Officer (hereinafter referred to as ld. 'AO'). Admittedly the said proceedings were being conducted in December, 2016 when the proceedings were going to be barred by limitation on the 31st day of the said month. The Ld. AO proceeded to add Rs. 50 crores u/s 68 of the Act after holding that the identity and creditworthiness of the share subscribers and genuineness of the transactions were not established in this case. 1.1. The Co....
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....n all the 11 cases some documents which have been recorded as having been filed before ld. CIT(A) and the AO were actually never filed. The report of the ld. AO deserves to be extracted as under: Nexcare Agency Pvt. Ltd. A.Y.-2012-13 Checklist Sl. No. Particular As per Paper Book As available in assessment record 01 Balance Sheet as at 31/03/2012 of M/s Nexcare Agency Pvt. Ltd. Filed Filed 02 List of Shareholders who subscribe shares in A.Y.- 201213 Filed Filed 03 Documents of Fortune Trade & Vyapaar Pvt. Ltd. (Shareholder) i. Copy of Reply to Notice u/s 133(6) along with enclosures consisting : *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) *ITR Acknowledement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy of Notice u/s 131 and its reply fil....
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....it Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy of Notice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 07 i Documents of Fastflow Infra Projects Pvt. Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) * Copy of Declaration Filed Filed (Copy of Declaration) *ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) Copy ofNotice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 08 ....
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....s for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy ofNotice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 11 i Documents of Quantam Suppliers Pvt Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) * Copy of Declaration Filed Filed (Copy of Declaration) *ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy ofNotice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed P....
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....A) and whatever material has been filed through the paper book (supra). 3.1. Before the ld. CIT(A), it is seen that the assessee filed submissions regarding the satisfaction of the ld. AO in first round proceedings, where an exercise had been undertaken to gather information concerning the share capital subscribers through issuance of notices u/s 133(6) of the Act. It was submitted that necessary bank statements, balance sheet copies, assessment particulars, and other details were provided which eventually satisfied the then ld. AO (in first round assessment proceedings) regarding the genuineness of the transactions. it was also averred that in the second-round proceedings, very little time was given to the assessee to comply with the summons u/s 131 of the Act issued to the 11 share capital subscribers. Ultimately, it was asserted that the onus was discharged by the assessee for proving the impugned transactions and therefore, adverse inferences drawn were unjustified. 4. The Ld. D/R relied on the order of ld. CIT(A) and the ld. AO and stated that abnormally high share premium in closely held companies, with no clearcut profitability, would need to be justified and the asses....
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....rcumstances, the normal human conduct of a prudent investor, the probabilities that may spill over and then arrive at a decision. 37. Thus the CIT(A) was right in adopting a logical process of reasoning considering the totality of the facts and circumstances surrounding the allegations made against the assessee taking note of the minimum and proximate facts and circumstances surrounding the events on which charges are founded so as to reach a reasonable conclusion and rightly applied the test that a reasonable/prudent man would apply to arrive at a conclusion. On facts we are convinced to hold that the assessee has not established the capacity of the investors to advance moneys for purchase of above shares at a high premium. The credit worthiness of those investors companies is questionable and the explanation offered by the assessee, at any stretch of imagination cannot be construed to be a satisfactory explanation of the nature of the source. The assessee has miserably failed to establish genuineness of the transaction by cogent and credible evidence and that the investments made in its share capital were genuine. As noted above merely proving the identity of the investo....
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....rthiness has not been established. [Para 8.3] • The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9] • 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 creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus. ii. 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....
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....harge the onus required under section 68, the Assessing Officer was justified in adding back the amounts to the assessee's income. [Para 15]" 5.3. It is seen that in another case on somewhat similar facts, the Hon'ble Calcutta High Court in the case of BalGopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162taxmann.com465 (Calcutta) has held that action u/s 68 of the Act was justified. 6. A close reading of the case laws cited (supra) reveals that mere filing of confirmations and the income tax details etc. are not enough to justify payment of monies as share premium when the financial aspects of the recipient company would not merit such investments under any kind of prudent consideration. In the present case while 4 out of 11 share applicants were not traceable on given addresses and one more did not respond to the summons, it is evident that even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted (supra) would normally paint a grim picture to any prudent investor, however, i....