TaxTMI 
TaxTMI 
2024 (9) TMI 1450
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.... in law. 2. For that on the facts and circumstances of the case, the Ld. CIT (Appeals), NFAC grossly erred in confirming the addition made by the Ld. AO of share capital and share premium amounting to Rs 18,03,30,000/- u/s 68 of the Income Tax Act, 1961, by merely citing some judgements passed by the judiciary without considering the actual facts of the case and ignoring the judicial pronouncements passed in favour of the appellant, which is in gross violation of the principles of natural justice, illegal, arbitrary and highly unjustified. Relief Claimed: The addition to the tune of Rs. 18,03,30,000/- is liable to be deleted. 3. For that on the facts and circumstances of the case, the Ld. CIT (Appeals), NFAC arbitrarily confirmed the addition of Rs. 18,03,30,000/- merely on the ground that the Director of the appellant company did not comply to the notice issued u/s 131 of the IT. Act, 1961, with utter disregard to the judicial pronouncements passed in favour of the appellant on the same ground by the judiciary, which is perverse, unjustified, not tenable in law and liable to be deleted. Relief Claimed: The addition to the tune of Rs. 18,03,30,00....
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....icer issued summons u/s 131 of the Act to the director of the company for personal deposition and to produce various documents along with a write-up on justification of large share premium. However, the assessee company neither filed any submission nor any appearance for personal deposition was made by the director of the assessee, as was required vide the summon issued u/s 131 of the Act. The assessee also failed to produce the investors who had invested in shares at a premium. The Assessing Officer thus concluded that the assessee was asked to represent its case by explaining the sources of the share capital receipt through various notices and letters issued, but in spite of several opportunities granted, the assessee failed to establish the three ingredients viz. identity, genuineness and creditworthiness of the sources/investors of fund introduced as share capital. The Assessing Office relied upon several judicial pronouncements as mentioned in the assessment order which state as under: i. It is for the assessee to prove its claim for share capital (ITA No. 1493/KOL/2013). ii. Merely because the share application with huge and unjustified share premium was rec....
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....4(3), Kolkata, ITA No. 855/Kol/2023, AY 2014-15, dated 06.11.2023 and Income Tax Officer Vs. M/s Express Tradelink Pvt. Ltd. ITA No. 43/Kol/2021, AY 2009-10, dated 08.02.2024 which have also been perused. 7. It is submitted vide written submission filed that the company was incorporated with the main objective of undergoing a joint venture project and is also engaged in the business of investment by way of equity and debt in shares and securities of corporate bodies. During the year under consideration the assessee company had raised its equity share capital of Rs. 1,04,40,000/- along with premium of Rs. 16,96,60,000/- and had also received Rs. 2,30,000/- as share application money pending for allotment of shares. 7.1 The details of the above shares allotted during the year under consideration are as under: S. No. Name of the shareholder No. of shares allotted Face Value Premium Total amount 1 Amritvani Dealer Pvt. Ltd 50000 50000 - 50000 2 Astvinayak Vanijya Pvt. Lid 50000 50000 - 50000 The above two are the promotors of the appellant company to whom initial allotment was done. 7.2 Thereafter, on 02.12.2011, 1,00,00....
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.... incorporation of the appellant company, plus 4,00,000 shares as per allotment dated 02.11.2011, plus 46,00,000 shares purchased from the individual parties = Total 50,50,000 shares at the end of the year at face value of Re. 1/- per share. 2) M/s. Astvinayak Vanijya Pvt. Ltd.: 50,000 shares subscribed at the time of incorporation of the appellant company, plus 25,70,000 shares as per allotment dated 02.11.2011, plus 24,30,000 shares purchased from the individual parties = Total 50,50,000 shares at the end of the year at face value of Re. 1/- per share. 7.4 On 29.12.2011, second round of allotment was made (Copy of FORM 2 has been attached as Annexure C). The details of the second allotment of equity shares vide Form-2 submitted dated 29.12.2011 are as given below: As per Form 2 dated 29.12.2011 S. No. Name of the shareholder No. of shares allotted Face Value Premium Total amount 1 Amritdhara Vinmay Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 2 Kingfisher Tradlink Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 3 Linkline Tradekink Pvt. Ltd. 60,000 60,000 2,99,40,000 3,00,00,000 4 Man....
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....ar have been enclosed as Annexure D to the written submission. 7.6 It is further submitted by the assessee that the Ld. AO at the time of assessment enquired about the increase in the share capital. The appellant submitted complete details about the increase in share capital. The details of the shareholders were also submitted. All the details as required by the Ld. AO in his notice u/s 142(1) were submitted by the appellant. The Ld. AO had also issued notices u/s 133(6) of the Income Tax Act, 1961 to the shareholders to verify the transactions done by them. All the shareholders replied to the notice issued u/s 133(6) of the Income Tax Act, 1961 (Copies of the replies submitted by the shareholders have been attached as Annexure E) and confirmed the transaction carried out by them, so is claimed. It is also submitted that the Ld. AO did not find any infirmity in the submission made by the appellant and the subscriber companies. However, the Ld. AΟ issued notice u/s 131 to the directors of the appellant company. The directors of the appellant company appeared before the Ld. AO; however, the Ld. AO did not accept their attendance and no hearing was taken. Further, the Ld. A....
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....ain the facts of the case. As the details of the share applicants could not be ascertained from the return of income and the director of the said company did not comply with the summons under section 131 of the Act, there was no other option left with the Ld. AO but to complete the assessment on the basis of information available on record. In the paper book filed, point wise submission was made. This was the first year of operation and addition of Rs. 18 crores has been made by passing a two-page order and addition has been made in one paragraph. As regards the premium charged at Rs. 499 per share on the face value of Rs. 1, the basis of calculation was as per the commercial practice and the amount of premium to be decided was at the liberty of the director, it was so submitted by the Ld. AR during the course of the appeal before us when queried in this regard. It was also stated that there is no bar in charging the premium under the Act. Rule 11UA of the I. T. Rules, 1962 is applicable for valuation. The Ld. AR also filed copies of orders in ITA No. 43/Kol/2021 and ITA No. 855/Kol/2023 wherein on similar issue, the appeal had been decided in favour of the appellant and the additi....
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.... by the Ld. AO at the time of assessment. It shall not be out of place to mention here that the Ld. AO failed to note the names of share subscribers, the shares allotted to them, whether premium was charged or not and the facts of the present case, which are different from the rampant practice that was going on. Merely relying on certain case laws, the assessment was completed in mechanical manner, in just three pages, making addition of Rs. 18,03,30,000/- to a newly incorporated company, in which also 1 page is copy of the letter issued by him and I page is only case laws. Your Honour, we would vehemently like to submit that such assessment made in mechanical manner, without application of mind, with a pre biased mind set is grossly incorrect, bad in law and not sustainable. 9. The assessee has reproduced the provisions of section 68 of the Act and goes on to submit that only in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income tax as the income of the assessee for that year. It is submitted vide written submission filed that the primary onus stands discharged to prove the identity, credit worthiness and genuineness of the share sub....
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.... 3 Amritdhara Vinmay Pvt. Ltd. 12,01,02,569 1,00,00,000 4 Kingfisher Tradelink Pvt. Ltd. 11,50,61,435 1,00,00,000 5 Linkline Tradekink Pvt. Ltd. 550,89,223 3,00,00,000 6 Manikaran Sales Pvt. Ltd. 3,00,89,173 2,00,00,000 7 Originals Shoppers Pvt. Ltd. 4,50,91,748 1,00,00,000 8 Primeline Sales Pvt. Ltd. 11,00,58,707 1,00,00,000 9 Primesoft Tradecomm Pvt. Ltd. 15,50,57,765 2,00,00,000 10 Sairam Vincom Pvt. Ltd. 11,00,31,527 1,00,00,000 11 Sanyam Deal Trade Private Limited 10,51,10,414 1,00,00,000 12 Snowhill Agencies Private Limited 15,51,05,712 1,00,00,000 13 Starmark Mercantile Private Limited 3,50,92,073 2,00,00,000 14 Tigerhill Tradelink Private Limited 11,00,58,773 1,00,00,000 11. It is stated that from the perusal of the above table it is crystal clear that all the share subscribers were having sufficient financial strength to make the investment in the appellant company. The bank statement reflecting the transactions and source of funds were submitted before the lower authorities. The Ld. AO miserably failed to point out any defect in....
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....m A.Υ. 2013-2014 and it does not have retrospective effect. iv. CIT Vs Gangeshwari Metal (P) Ltd (ITA No. 597 of 2012) dated 21.01.2012 (Delhi). v. Principal Commissioner of Income-tax vs. Anmol Stainless (P.) Ltd. [2022] 138 taxmann.com 535 (Calcutta) vi. Income Tax Officer Vs. M/s. Goodluck Merchants (P) Ltd. (I.T.A. No. 1812/kol/2016 dated 16.11.2018) of ITAT Kolkata Bench 14. As regards the nonappearance of the directors of the appellant company, it is mentioned that the directors of the appellant company were called upon and not of the investor companies. It is stated that the directors visited but their presence was not noted. Further reliance has been placed upon several other judicial pronouncements which have also been considered. 15. We have considered the submissions made. At this stage, it would be relevant to refer to the order of the Ld. CIT(A), relevant paras of which are extracted as under with emphasis supplied wherever required: 7.1 I have carefully examined the action of the Ld. AO and the circumstances which led to the completion of the impugned assessment order. I observe that there has been non-compliance by th....
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....tity and creditworthiness of the share applicants as well as genuineness of the transactions, issued summon u/s 131 of the Act to the Director of the assessee company who was also asked to the produce the subscriber companies/individuals requesting for personal appearance, which are apparent from the assessment order, but none attended for personal hearing. In such a situation, the assertions of the appellant were to be disbelieved, as brought forth in the ratio emanating from the case decided by the Hon'ble High Court of Madras by their order dated 24th April, 2017, in BR Petrochem (P) Ltd Vs ITO, Ward-1(1), Chennai reported in [2017] 81 taxmann.com424 [Mad]. The head notes in the said case are as under IT: Where assessee received share capital from various contributors, in view of fact that those contributors were persons of insignificant means and their creditworthiness to have made contributions had not been established, impugned addition made by authorities below in respect of amount in question under section 68 was to be confirmed. Similarly, in the case of CIT Vs. Nipun Builders & Developers Pvt. Ltd. reported in [2013] 30 taxmann.com 292 (Delhi) the Ho....
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....ppellant are enough to justify the premium Rs. 499/- with face value of Rs. 1/- for each share taken from 12 companies and when no such premium was taken from 21 subscribers (two companies and 19 individual) when the appellant company did not have any profit which commensurate of such premium. The appellant company was incorporated on 01.08.2011 having no activity or income or assets. A close look at the return of income of subsequent years of the appellant show the following gross income: (i) A.Y 2113-14 other income Rs. 6,60,622/- (ii) A.Y. 2014-15 interest income Rs. 6,66,000/- (iii) A.Y.2015-16 interest income Rs. 7,47,921/-, (iv) A.Y. 2016-17 interest income Rs. 3,27,350/-, (v) A.Y 2017-18 profit on sale of investment Rs. 38,350/- Stock-in-trade (in respect of goods acquired for trading) 15,59,76,215/- when there is no purchase during the A.Y 2017-18. (vi) A.Y. 2018-19 the appellant has shown sale of shares of Rs. 13,64,94,893/- as revenue receipts when there is purchase of Rs. 2,75,000/- only and no purchase in the immediately preceding year. 7.8 The AO may examine the return of income for A.Y 2017-18 and....
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....ving recitals. The law in the matter of self-serving recitals has been long established by the Hon'ble apex Court. In the case of CIT vs P. Mohankala 291 ITR 278, the Hon'ble Supreme Court held that "the money came by way of bank cheque and was paid through the process of banking transactions was not by itself of any consequences." The burden of proof is on the assessee in the matter of justification of receipts which are of suspicious and dubious nature. In the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC), their Lordships laying down the significance of human probabilities held as under "in a case where a party relied on self serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals." Similarly in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), their Lordships held as under: "In view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assesses of that previous year if the explanati....
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....rs. 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. We cannot lay down or state a general or universal procedure or method which should be adopted by the assessing officer when verification of facts is required. The manner and mode of conducting assessment proceedings has to be left to the discretion of the assessing officer, and the same should be just, fair and should not cause any harassment to the assessee or third persons form whom confirmation or verification is required. The verification and investigation should be one with the least amount of intrusion, inconvenience or harassment especially to third parties, who may have entered into transactions with the assessee. The ultimate finding of the assessing officer should reflect due application or mind on the relevant facts and the decision should take into consideration the entire material, which is germane and which should not be ignored and exclude that which is irrelevant Certain facts or aspects may....
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....vidence admissible under the Indian Evidence Act for the purpose of making an order of assessment. Court often took judicial notice of certain facts which need not be proved before them. The plain reading of section 142 and 143 clearly suggests that the assessing officer may also act on the material gathered by him. The ward 'material' clearly shows that the assessing officer is not fettered by the technical rules of evidence and the like, and that he may act on material which may not strictly speaking be accepted evidence in court of law. 7.12 The Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 at pages 545-547 made a reference to the test of human probabilities in the following fact situation :- It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real in a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals Otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax i....
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....ctions", and therefore the rules of suspicious transactions would apply to the case. Payment through Banks, furnishing of details of name and address of shareholders, their PAN, No. of shares allotted, share premium, mode of payment, utilization of money along with the copy of return of allotment filed with the ROC and Bank Statements and other such features are only apparent features, Therefore, I have to reach the inevitable conclusion that the transactions as discussed by the Ld.AO fall in the realm of "suspicious" and "dubious" transactions. The Ld. AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In the case of Win Chadha Vs CIT (International Taxation) in ITA No.30888 3107/Del/2005, the Hon'ble Delhi ITAT "B"-Bench has observed, on 31.12.2010 as under: "SUSPICIOUS AND DIBIOUS TRASANCTION HOW TO BE DEALT WITH: 6.11. The lax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct preponderance of probabilities and nature of incriminating information/ evidence availab....
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....st of evidence afforded by the bearing on the fact to be proved, of other and subsidiary facts, which are relied on as inconsistent with any result other than the truth of the principal fact. It is evidence of various facts, other than the fact in issue which are so associated with the fact in issue, that taken together, they form a chain of circumstances leading to an inference or presumption of the existence of the principal fact. In the appreciation of circumstantial evidence, the relevant aspects, as laid down from time to time are- 1) the circumstances alleged must be established by such evidence, as in the case of other evidence (2) the circumstances proved must be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. (3) although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced, some of these links may have to be inferred from the proved facts: (4) in drawing those inferences or presumptions, the Authorities must have regard to the common course of natural events, to human conduct and ....
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....ssee's contentions and objections in this behalf that the material available on record was not admissible as evidence and that it cannot be relied on by the AO, are devoid of any merit and are rejected outright......... 7.15 In a more recent case in the case of N.R.Iron & Steel Pvt Ltd. [2019] 110 taxmann.com 491(SC) 25.10.2019, hon'ble Apex court has held that- 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to scrutiny. This would be particularly so in the case of private placement of shares where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee." 7.16 From the assessment order, it is observed that the appellant was provided ample opportunity and principle of natural justice was also observed. To establish identity and creditworthiness of the share applicants as well as genuineness of the transaction....
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....en placed on a recent decision of the Hon'ble jurisdictional High Court in the case of Principal Commissioner of Income-tax v. BST Infratech Ltd. [2024] 161 taxmann.com 668 (Calcutta) to decide the issue of share premium treated as unexplained cash credit. The relevant extracts from the order are as under: 11. We have gone through the facts of the case, the written submissions filed by both the Ld. AR and the Ld. Sr. DR as well as the case laws cited. A similar issue came up for consideration before the Hon'ble Jurisdictional High Court and in the case of Principal Commissioner of Income-tax v. BST Infratech Ltd. [2024] 161 taxmann.com 668 (Calcutta) this issue has been discussed threadbare. Relevant paragraphs from the order of the Hon'ble High Court are extracted and reproduced as under: 14. Before we examine the correctness of the decision rendered by the learned tribunal it will be beneficial to take note of a few decisions which have elabo-rately dealt with Section 68 of the Act and what are the parameters which are required to be established to prove the creditworthiness or the genuineness of a transaction. 15. Mr. Om Narayan Rai, learned senior sta....
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....of Proba-bility applies. On the question of creditworthiness and genuineness of the transaction in the said case, the Hon'ble Court recorded the following finding:- 19. On the question of creditworthiness and genuineness, it was high-lighted that the money no doubt was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did not have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their credit-worthi-ness or even genuineness of the transaction. The beneficiaries, including the respondent-assessee, did not give any share-dividend or interest to the said entry operators/subscribers. The profit motive normal in case of in-vestment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubt....
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....r the fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soul-less and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, controls and manage them. 31. Identity, creditworthiness or genuineness of the transaction is not established by merely showing that the transaction was through banking channels or by account payee instrument. It may, as in the present case required entail a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by wh....
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.... established because they did not have money of their own, each one of them received from somebody and that somebody received from a third person and therefore prima facie, shareholders are near name lenders. 22. In Principal Commissioner of Income Tax, (Central - 1) v. NRA Iron and Steel Private Limited (2019) 15 SCC 529 the issue which fell for consideration is when share capital/premium is credited in the Books of Account of the assessee company, the onus of prove is on the assessee to establish by cogent and reliable evidence of the identity of the investor company, the creditworthiness of the investor and genuineness of the transaction, to the satisfaction of the assessing officer. The Hon'ble Supreme Court observed that the courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors but also the capacity of the creditors to advance money, and establish the genuineness of those trans-action. The initial onus of proof lies on the assessee. The decision in Roshan Di Hatti v. Commissioner of Income Tax (1977) 2 SCC 378 was referred to wherein it was held that if the assessee fails to disch....
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.... and proximate facts and circumstances surrounding the events on which the charges/allegations are founded so as to reach a reasonable conclusion and the test would be what inferential process that are reasonable/prudent man would apply to arrive at a conclusion. It was further held that the proximity of time and prior meeting of minds is also very important factor especially when the income tax department has pointed out the unnatural rise in prices of the scripts of very little known companies. 25. While on this issue it would be beneficial to take note of the decision in Yadu Hari Dalmia v. Commissioner of Income Tax, Delhi (Central) (1980) 126 ITR 48 wherein it was held that the whole catena of sections starting from Section 68 have been introduced in the taxing enactment step by step in order to pluck loopholes and in order to plug certain situation beyond doubts even though there were judicial decisions covering some of the aspects. It was pointed out that even prior to the introduction of Section 68 in the statute book, the courts have held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explan....
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....wever, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, could not apply if the shareholder is a well regulated entity namely a Venture Capital Fund, a Venture Capital Company registered with SEBI. 27. It is no doubt true that this amendment which was made to Section 68 applies in relation to the assessment year 2013-2014 and the subsequent years and it has been argued that the said amendment will not apply to the assessee's case as the case concerns the assessment year 2012-2013. Though this may be true, as pointed out in Yada Hari Dalmia Section 68 as it stood prior to the earlier amendment only codified the law as it existed before 01.04.1962 and did not introduce any new principle or rule and when Section 68 was inserted in the 1961 Act it only provided a statutory recognition to a principle which had been clearly adumbrated in judicial decisions. Therefore, it was held that ratio laid down in the earlier judgments of the Hon'ble Supreme Court is equally applicable to the interpretation of Section 68 of the 1961 Act. Thus, we can very well refer to the ob....
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....Limited remitted an amount of Rs. 35,00,000/- to the account which was im-mediately transferred to the assessee's account. On 18.07.2011, Superior Re-tail Private Limited credited an amount of Rs. 50,00,000/- to the account which was remitted to the assessee's account on 19.07.2011. On 20.07.2011 amount of Rs. 30,00,000/- was received through RTGS in the account and the amount was transferred to the account of the assessee on the same day. On 02.01.2012 an amount of Rs. 40,00,000/- was deposited into account by two companies and this was remitted to the assessee's account on 03.01.2012. On 03.01.2012 Salasar Garments Traders Private Limited credited to the account a sum of Rs. 20,00,000/- and out of the said amount Rs. 40,00,000/- was transferred to the assessee's account on 04.01.2012. The CIT(A) has in the above manner examined the factual position and has analysed the pattern of the transactions in the bank accounts of the five investor companies to that of the assessee's bank account. They have received cheques from somewhere and has immediately issued in favour of another company and the balance remaining in the account was very meagre the bank account has ....
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....n other companies and they have also issued unsecured loans to other companies; money obtained from the route of share premium is rerouted for supplying sources of receipts of money to other companies; the circuit of investments remains within a group companies and in this manner through a circular routing of funds, the capital of each of the companies is enhanced and this inflated capital is then used for providing loans etc. to de-sired entities; the bank accounts show huge sums are received from one con-cern through cheques or RTGS and immediately diverted to other companies of the group and the bank balance remains negligible before and after such transfers; each of these companies invest in each other at very high premiums even though there is no business conducted; there is no reason or logic pro-vided by any of the companies as to on what basis they arrived at the value of premium on shares to be issued as neither the assessee nor its investors had followed the guidelines of RBI or ICAI or any other guidelines for deter-mining the rate of premium on their shares. Thus, the fixing of rate for premium is arbitrary and devoid of any financial or accounting rationale; the invest....
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....g shares at high premium, they had sufficient funds in the bank accounts, the question would be as to whether this by itself will establish the creditworthiness of the investor companies. This is a fit case where the doctrine of "source of source" or "origin of origin" should be made applicable. We say so because the CIT(A) has brought the evidence and the materials on record which manifestly show the involvement of the assessee as the Directors of the five investors companies and the Director of the assessee company Mr. Gopal Kumar Agarwala are all closely related. 32. One of the directors of the Gainwell Textrade Private Limited is brother-in-law of Gopal Kumar Agarwala. One of the directors of Lucky Trading Private Limited is the wife of the brother-in-law of Mr. Agarwala and the other director is the maternal uncle. Mr. Gopal Kumar Agarwala himself is one of the director in Pavapuri Mercantile Private Limited and another director is the sister of Mr; Agarwala. One of the directors of HIL Engineering Private Limited is the brother-in-law of Mr. Agarwala and one of the Directors of Mubarak Cosmetics Private Limited is the wife of Mr. Agarwala. Thus, the facts clearly sho....
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....ich the parties approach each other, the quantum of money, the object and purpose for which payment/investment was made. As held earlier certificate of incorporation of the companies, payment by banking channel etc. cannot tantamount to satisfactory discharge of onus and the facts of the case on hand speaks for itself as it is obvious. Thus, the principle of Preponderance of Probabilities applies with full force to the case on hand which leads to the irresistible conclusion that the finding rendered by the CIT(A) is legal and valid. 35. We have noted that the tribunal has made certain observations as regards the future prospects of the assessee company as they are a steel industry and that their fixed assets and also the turnover had increased substantially. How-ever, this appears to have not been the submission when the assessee filed an appeal before the CIT(A) challenging the addition made by the assessing officer. This is evident from the grounds of appeal which have been set out in the order passed by the CIT(A) in paragraph 2.1 of the order dated 28.11.2019. The finding rendered by the tribunal is probably taken from the written sub-missions made by the assessee befo....
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....onclusion. 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 as-sessee has miserably failed to establish genuineness of the transaction by cogent and credible evidence and that the investments made in its share cap-ital were genuine. As noted above merely proving the identity of the investors does not discharge the onus on the assessee if the capacity or the credit worthiness has not been established. 38. In the light of the above discussion, we hold that the assessee has failed to discharge legal obligation to prove the genuineness of the transaction and the credit worthiness of the investor which has shown to be so by a "round tripping" of funds. For all the above reasons, the revenue succeeds. 39. In the result the appeal is allowed, the order passed by the learned Tribu-nal is set aside and the order passed by the CIT(A)....
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....nce with law and pass a reasoned order. [Para 5] 11.2 Both the decisions are squarely applicable to the facts of the case. Similar issue also came up before the ITAT Kolkata Bench for the case of Nexcare Agency Pvt. Ltd. Vs. ITO Ward 7(1), Kolkata, dated 26.07.2024. The relevant extract of the aforesaid order is as under: 5.1. The profit and loss account filed by the assessee paints a grim picture about the qualitative aspect of commercial activity which does not seem to justify a premium of Rs. 490/- on a share with face value of Rs. 10/-. Thus total revenues of Rs 1,26,350 for the year ending on 31.3.2012 and Rs. 96,020 for the year ending on 31.3.2011 are visible, which cannot be said to indicate a healthy bottom-line or even a robust business model. Considering this fact, it would be all the more prudent to examine the genuineness etc. of the 11 concerns which chose to repose considerable faith in the commercial future of the assessee to trust them with huge sums of money. It was on a somewhat similar situation when the Hon'ble Jurisdictional High Court upheld the doubtful nature of share premium monies being given to companies having doubtful commercial c....
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....reasons, the revenue succeeds. 39. In the result the appeal is allowed, the order passed by the learned Tribunal is set aside and the order passed by the CIT(A) dated 28.11.2019 is restored and the substantial questions of law are answered in favour of the revenue." 5.2. We also draw considerable strength from the case of PCIT vs. NRA Iron & Steel (P.) Ltd. reported in [2019] 412 ITR 161 (SC) in which share application money was approved for action u/s 68 of the Act even where the share applicants had filed confirmations and attempted to show that the transactions have taken place through normal banking channels, etc. In this case, the Hon'ble Apex Court has dealt with the issue from a legal perspective and some of the passages deserve to be extracted for reference: "This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 (SC) and, Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laid down 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 creditworthiness, ....
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....sessing Officer had conducted detailed enquiry which revealed that: i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal en-tities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90 lakhs to Rs. 95 lakhs in the assessment year 2009-10, for purchase of shares at such a high premium. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the assessee company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10 per share. iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file....
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.... facts of the case and the judicial pronouncement discussed above, there is no justification for the huge premium charged by the assessee nor the assessee has been able to establish the same before the Ld. AO nor even before the Ld. CIT(A). As discussed above, mere identity of the creditor is not sufficient but the genuineness of the transaction as well as the creditworthiness of the creditor has to be established which the assessee has miserably failed to do. The onus is heavy on the assessee in case of private placement of shares as the details are in the knowledge of the assessee and it ought to have established the creditworthiness of the share applicants/shareholders and the genuineness of the transactions. The directors also failed to appear before the Ld. AO. Most of the applicants are not having any regular source of income except for income under the head income from other sources nor have strong financials to justify the investment with huge premium, as would be evident from Annexure 'SP' which forms part of the order. Neither the applicants are likely to receive any dividend nor the assessee has carried out any valuation to justify the huge premium charged. Accordingly, ....
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....ted in shares at a huge premium. It appears as if the so-called investors had huge money lying with them which they could not handle and therefore dumped it anyhow upon the assessee without carrying out any due diligence. v. The above factors are compounded by the fact that when required to produce the directors, the same were not produced. Even before us, the details of the directors have not been even mentioned. vi. The assessee was not a listed company or a company belonging to any big industrial house so as to attract investment, yet shares were applied for at a huge premium, which cannot be carried out by any prudent businessman and therefore makes the whole transaction suspicious and nongenuine. vii. Entire transactions appear to be a make-believe arrangement. The assessee could not explain how in the second lot, shares were issued at a huge premium whereas in the first lot, no such premium was charged, the gap between the two events being only of 27 days. viii. Although the replies to the notices were received yet the investors were not produced, hence the transactions remained unverified as has been rightly pointed out by the Ld. CIT(A). ....