TaxTMI 
TaxTMI 
2024 (9) TMI 1509
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....portunity was afforded to the assessee but the assessee did not avail the same. However, it is observed that written submissions and paper book have been filed and vide letter dated 16/04/2024, the assessee has requested to treat the paper book already submitted before the Tribunal on 29/01/2024 as the representation/appearance before the Tribunal and has also requested the Tribunal to rely on the written submissions. Ld. Sr. DR has also filed the written submissions. Therefore, after hearing the Ld. DR and considering the written submissions of the assessee as well as the Ld. Sr. DR, the appeal is being decided. 3. The grounds of appeal raised by the assessee read as under : "1. For that the Ld. CIT(A)-3, Kolkata has erred in law as well as on facts of the case by not paying heed to the assessee's grounds of appeal raised before his Honour and dismissing the grounds of appeal filed by the assessee against the addition of Rs. 4,91,00,000/- u/s 68 of the I. T. Act, 1961 on the grounds which are not correct. 2. For that the observations and contentions of the Ld. CIT(A)-3/Kolkata while passing the order u/s 250 of the I. T. Act, 1961 regarding arbitrary disallowa....
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....and the assessing authority, to adopt a reasonable approach. This view was taken in the case of CIT Vs. M/s Nipun Builders & Developers Pvt. Ltd. [2013] 30 Taxmann.com 292 (Delhi). The assessing officer relied upon the following judicial pronouncements for the applicability of section 68 and for the inference that the receipts are of assessable nature: i. Govindarajulu Mudaliar Vs. CIT [1958] 34 ITR 807 ii. CIT Vs. Davi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC) iii. Commissioner of Income Tax Vs. Independent Media (P.) Ltd. [2012] 25 taxmann.com 276 (Delhi). Accordingly, in the light of the facts of the case and the exposition of the legal position with regard to the identity and creditworthiness of the subscriber companies and the genuineness of the transactions, the assessing officer was of the opinion that the credit of Rs. 4,91,00,000/- should be considered as income of the assessee, which included share premium and the sum was added as unexplained credits in the books of this is the company and as against the returned income of Rs. 3,518/-, the assessment was made at the total income of Rs. 4,91,03,50/-. Aggrieved, the assessee preferred an ....
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....any core activity or business to justify subscription of shares at a substantial premium. The company had reported nominal income and the extent of operation did not justify the capacity of the company to pay such huge share premium. 3. The company does not have fixed assets or inventories and did not display any signs of a company engaged actively in business. The Ld. CIT(A) therefore observed that the subscriber companies which had subscribed to the shares of assessee company with substantial premium did not have the capacity or the financial standing to do so. He also noted that during the course of assessment proceedings, the identity, the capacity and the genuineness of the transaction had not been established by the appellant therefore, on preponderance of probabilities the contention of the assessee company regarding share capital and premium could not be accepted. Besides noting that the subscribing companies did not have any financial credibility, he also analysed the audited profit and loss account in detail which are discussed on pages 2 to 5 of the appeal order. None of these companies has any fixed assets or infrastructure required to carry on business and ....
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....ar or personal reason was valid for the investment or whether any arrangement was made for the protection of the fund. In this case certain documents were filed before the AO however genuineness of the transaction could not be substantiated. Mere filing of documents before the AO does not absolve the assessee of its duty cast u/s 68. An assessee's duty to establish the source of the funds does not cease by merely furnishing the names, address and PAN particulars or relying on entries in the Registrar of company's website. The relationship of the assessee to the applicants should be at arm's length in such cases and this is what the appellant was required to establish. Also, the concept of "shifting onus" does not mean that once certain facts are provided, the assessee's duties are over. If on verification the information becomes false, unsatisfactory or unverifiable, the onus shifts back to the assessee. Therefore, the assessee was required to present himself before the AO for examination and verification of the documents. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. The details available reflect some paper work or document....
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....10 990 1900000 10. Nightangle Vintrade Pvt. Ltd. 6650 10 990 6650000 11. Pushpanjali Intrade Pvt. Ltd. 700 10 990 700000 12. Truevalley Merchants Pvt. Ltd. 1500 10 990 1500000 13. Wonderland Merchants Pvt. Ltd. 2325 10 990 2325000 He further observed that there is no justification for the high premium charged at Rs. 990/- per share from companies to whom shares have been issued. The financials do not justify the premium charged as none of the companies reported any significant income in their return of income filed and the appellant had not explained this discrepancy. He further relied on the decision of the ITAT 'C' Bench Kolkata in the case of ITO, Ward 5(3), Kolkata Vs. M/s Blessings Commercial Pvt. Ltd. in ITA No. 271/Kol/2014 for AY 2010-11 and held that the issue is squarely covered by the judgment, paras 12 to 18 from which have been extensively reproduced in the order of the Ld. CIT(A). He further held that in the case of the assessee, Rs. 10/- share has been issued at a premium of Rs. 990/- for which no valid explanation has been given nor the assessee has even attempted to justify the amount ....
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....ance Sheet as on 31.03.2012, copy of Certificate of Incorporation, copy of MoA and AoA, copy of MCA data, a copy of their bank statement highlighting the payment made, form for application of shares and copy of allotment advice. Payment was made of Rs. 14,00,000/- on 29.06.2011, Rs. 15,00,000/- on 02.08.2011 and Rs. 7,50,000/- on 09.03.2012 respectively. It is further submitted that the net worth of the company is Rs. 10,00,53,742/- which can be clearly identified as per the Balance Sheet of the company. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Similar submissions have been made in respect of other share applicants as well and the documents relating to the copies of ITR acknowledgement, the auditor's report and audited financial statements as on 31 March 2012, memorandum of association and articles of association, bank statement highlighting the transaction, form of application for equity shares and copy of allotment advice have been filed in respect of all the share applicants. Elaborate submission has been made justifying the share premi....
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....andum and articles of association, Master Data, Share Application and allotment advice were duly submitted. Therefore, identity of the shareholders has been established beyond all reasonable doubts. The genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels duly recorded in the books of account of the assessee and duly reflected in the financial statement of the share applicant which were submitted. In the bank statement furnished by the assessee, the transactions relating to the allotment of shares are duly reflected. The initial onus to prove the receipt of the share capital u/s 68 was therefore discharged. The department has not brought on record any evidence to prove to the contrary and shift back the onus on the assessee. The CIT(A) has not even made further enquiry by sending the matter to AO so that necessary enquiry can be made from the assessment records of the shareholders. Even otherwise, appearance of directors is not at all required under the law if all relevant documents to prove the capital were submitted and nothing has been brought on record to controvert the same. It is submitted that sec....
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....h companies often do not have the real profit motive. Investment in shares of non-blue-chip companies, not being secured, is always susceptible to sinking of such investment and hence no man of common prudence would invest in purchase of such shares without any non-declared securities. Still further, where there is no security against the invested share capital of the shareholder, no man of common prudence can purchase the shares of such company whose past record of monetary benefit accruing to the shareholders is negligible. In such a situation, inflow of share capital can only be achieved through paper manipulation from own group companies or through underhand dealings. He has submitted that it is against the human probability and common man's prudence to make unsecured investment in lesser-known shares from where no monetary benefit is likely to accrue. Such fact is in contrast to the fact that the shareholder can fetch the interest of around 6% on almost the secured investment in form of time deposits of banks and post offices. The share floating company and share holding company, both having weak financials, have managed to receive premium against sale of shares and have p....
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....have shown total income of lesser than Rs. 21,000. The extent of operation does not justify the capacity to pay such huge premium as the financials reflect that they do not have the financial standing or credibility to do so. Summons were issued to the directors of the assessee company but none appeared against the summons. Only some formal neutral documents were submitted. The primary onus to prove the identity creditworthiness and genuineness of the transaction of the shareholders was not established from the side of assessee and hence, after observing due formalities, addition u/s 68 was made for Rs. 4,91,00,000. The Ld. CIT(A) after thorough facts based discussion under columns III two V on pages 2 to 5 and case laws based discussion from page 15 to 17, upheld the addition. On the basis of the objective findings of the assessing officer and the Ld. CIT(A), the addition was made and upholding of addition is rationally justified. It is thus concluded in the written submissions by the Ld. Sr. DR that in the light of the contents, and the accounts of the involved companies, it is crystal clear that the involved companies have very poor fundamentals during the relevant financial yea....
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....tly positive in the case of valuation of the shares of the involved companies, and still the shareholders have made investment at a huge premium in the company and such investment in shares is against human rationality, financial probability and rational legal sense. Further, it is submitted that in the light of the above facts, objective determinants as discussed above and the case laws cited, the receipt of huge premium for the purpose of sale of unsecured and unquoted shares of the involved companies, which is reflecting negligible or meagre income for the relevant assessment year and preceding assessment years; the claimed share premium is equally not justified. Still further, where there is no security against the invested share capital of the shareholder, no man of common prudence can purchase the shares of such company whose past record of monetary benefit accruing to the shareholders is negligible. In such a situation, inflow of share capital can only be achieved through paper manipulation from own group companies or through underhand dealings. Here it is worth mention that it is against the human probability and common man's prudence to make unsecured investment in les....
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....nsaction is to be demonstrated by showing that the assessee had, in fact, received money from the creditor and it came from the coffers from that very person. The test of human probabilities could be applied to assess the genuineness of the transaction. Merely because the transactions are through bank channels, the assessee would not be entitled to the benefit. It is true that when a cheque is issued, it has to be encashed through bank only. There is no presumption that merely because the payment is made by cheque, it is a genuine transaction. First, it has to be found whether the transaction in question is genuine and only thereafter, the assessee would be entitled to the benefit of (deletion of) disallowance [CIT v. Saravana Constructions (Lid, (2012) 22 taxmann.com 259 (Karn)=(2012) 208 Taxman 188 (Mag)).The Ld. Sr. DR has relied upon various citations and has also submitted that the case laws quoted by the A.R. of the assessee are having different facts in comparison to the facts of this particular case and therefore, the case laws being distinguishable, are not applicable to this case and hence, there is no need to take into consideration the claimed case laws. The mechanical ....
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....ration is whether the tri-bunal 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 re-sponse. A universal procedure or method which should be adopted by the assessing officer when verification of facts is required canno....
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....ors or normal 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, statu-tory 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 con-trary 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 f....
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....ts of the present case noticed 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 v. 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 facade 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 appli-cants 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 sh....
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....stor, the quantum of money invested, the credit-worthiness 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/sub-scriber, 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 estab-lished. In such a case, the assessee would not h....
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....ct with effect from the assessment year 20132014 wherein under the heading "Measures to Prevent Generation and Circulation of Unaccounted Money" it was pointed out that the onus of satisfactory explaining such credit remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is found to be satisfactory then the sum is added to the total income of the person. That certain judicial pronouncements have created doubts about the onus of proof and the requirements of Section 68, particularly in cases where sum is credited as share capital, share premium etc. That courts have drawn a distinction and emphasised that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held com-panies, investments are made by a known person; therefore, a higher onus is required to be placed on such companies besides the general onus to establish, identity and creditworthiness of the cred-itors and genuineness of the transaction. This additional onus needs to be placed on such companies to also prove the ....
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.... identity, creditworthiness and genuineness of the transaction. It is not in dispute that the investors whose details we have referred in the earlier part of this judgment are all either group companies or having a common set of directors. Further the assessee has not been able to dislodge the factual findings recorded by the CIT(A) that the share application money was received from independent legal entities. By way of illustration if we take the case of Gainwell Textrade Private Limited, they have invested Rs. 8,10,00,000/- in the assessee company. The said company receives a total of Rs. 1,65,00,000/- on 01.06.2011 and 02.06.2011 from eight private limited companies/entities. Out of the said amount, Rs. 1,50,00,000/- was remitted to the assessee's bank account on 02.06.2011 by three cheques of Rs. 50,00,000/- each. The balance remained at Rs. 15,09,039/-. On 02.06.2011, an amount of Rs. 38,00,000/-was remitted to the account by a private limited company and the balance rose to Rs. 53,09,039/- out of this an amount of Rs. 50,00,000/- was remitted to the assessee account on the same day. On 04.06.2011, Divine Suppliers Private Limited deposited another sum of Rs. 60,00,000/- o....
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....unts have been used is to receive money from one account and transfer it to another. With regard to the investor Pavapuri Mercantile Private Limited the bank statements revealed that the entire sums are remitted by Pawapuri Mercantile Private Limited to the assessee had come from Gainwell Textrade Private Limited. The analysis done by the CIT(A) would reveal the nature and character of the transaction and the CIT(A) cannot be faulted to have held that the transactions are well planned and stage managed to show genuineness behind which a clean and simple "round tripping" of funds is taking place. The CIT(A) on examination of the facts found that the bank accounts act as "highway" in the "journey of money" on a rotation and laundry trial from one entity to another and by this way these bank accounts create a facade of documentary evidence for clean money in the form of account payee cheques for any kind of accom-modation entries. 30. The CIT(A) did not stop with the above findings but proceeded to analyse the data which was made available in the form of return of income, bank statements etc. and found that the investors have purchased the shares of the assessee at a premium ....
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....plain why the investors companies had applied for shares in the assessee's company at a high premium even though the face value of the share was Rs. 10/- per share. The pattern of transaction clearly shows that these investors companies had raised capital by issue of shares at a very high premium and the transaction is repetitive. Therefore, the mere fact that the transactions were though banking channels or that the companies where income tax assessees or registered with Registrar of Companies can in no manner be sufficient to discharge the onus under Section 68 of the Act. The learned tribunal did not examine the factual matrix in the depth and in the manner it ought to have done. Therefore, we would be well justified to hold that the findings rendered by the tribunal are perverse. It was argued by the learned Senior Advocate appearing for the respondent assessee that there is no material to show "round tripping" of funds; there is no finding that the money which has come to the assessee is ill gotten money and that the CIT(A) did not examine how the money came to the investors and failed to note that the company had requisite share capital resource. Various documents which w....
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....the investors. The learned tribunal has posed a wrong question which has led to a wrong answer. The question is not whether the identity of the investor has to be estab-lished but the question was whether the investor had requisite creditworthiness and whether such creditworthiness was a make belief situation by means of a circular transaction and if the same had been established. The learned tribunal has held that the findings rendered by the CIT(A) that the assets in the form of investments have been created through rotating of money in between the group companies and the assets mainly consists of cash and cash equivalents are not enough to prove that any unaccounted money of the assessee has been introduced in the assessee company warranting addition under Section 68 of the Act. This finding in our opinion upon consideration of the facts is perverse. 34. The CIT(A) has made an elaborate exercise to assess the creditworthiness of the investor com-panies as well as the genuineness. All the investor companies are group companies and the directors are closely related to the director of the assessee company and the director Mr. Agarwala himself is one of the directors in one....
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....mpany had contributed to the other companies and the funds transferred to those companies were transferred to the assessee company invariably on the same day leaving a bank balance which was almost negligible and the bank state-ments reveal that the prior to the inflow of the funds into those investing companies, the bank bal-ance was negligible and after the transfer it was also negligible. The assessee had contended before the tribunal that the amount was credited through proper banking channels and the investing com-panies are body corporate registered with the Registrar of Companies and individually assessed to income tax and therefore the genuineness of the parties is beyond doubt. However, this is not the litmus test to discharge the burden on the assessee to establish creditworthiness of the investing companies as well as the genuineness of the transaction. Thus, we have no hesitation to hold that the explanation offered by the assessee is neither proper, reasonable or acceptable. 36. In Swati Bajaj, the court held that based on the foundational facts the department has adopted the concept of "working backward" leading to the assessee. The department would be well j....
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....n response to the notice under section 133(6), share application money was made by account payee cheques, details of the bank accounts belonging to the share applicants and their bank statements have been furnished and all the share applicants are having substantial creditworthiness represented by their capital and reserves. Though such is the findings recorded by the Tribunal, it is not supported by facts. The Assessing Officer has held that the assessee was a private limited company which cannot issue shares in the same manner in which public limited company does and in so far as creditworthiness of the share subscribers is concerned, there must be positive evidence to show the nature and source of resources of the share subscribers and if the assessee was serious enough to establish his case, it ought to have complied with the notices/letters issued by the Assessing Officer and ought to have produced the directors of the subscribing companies before the Assessing Officer so that they could explain the sources from which the share subscription was made. It is stated that there is no complaint either from the end of the assessee-company or from the end of the alleged subscriber co....
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....based on the foundational facts the department has adopted the concept of "working backward" leading to the assessee. The department would be well justified in considering the surrounding circumstances, 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 esta....
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.... the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness 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 Assess....
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....e income of the assessee. [Para 14] On the facts of the present case, clearly the assessee company - respondent failed to discharge 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] 162 taxmann.com 465 (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 genuinenes....