TaxTMI 
TaxTMI 
2025 (5) TMI 3
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.... learned PCIT u/s. 263 of the Act, the jurisdiction of AO was circumscribed by the jurisdiction vested in him in the 263 order. 2. That on the facts and in the circumstances of the case, in the original assessment, the learned AO having conducted enquiries from the subscribers to the share capital and was satisfied with the identity, creditworthiness and genuineness of the transactions, further enquiries in that regard was only subject of order u/s. 263 of the Act which AO failed to do. 3. That on the facts and in the circumstances of the case, mere statement of the learned AO that notices were unserved on the parties is contrary to the material on record and therefore cannot be held against the assessee. 4. That on the facts and in the circumstances of the case, the learned AO having collected no negative material in the course of assessment, erred in treating the amount of share capital received during the year amounting to Rs. 7,97,00,000/- as unexplained cash credit under section 68 of the Act and the Ld. CIT(A) erred in upholding the same. 5. That on the facts and in law, the reopening u/s 147 of the Act having being done for escapement of i....
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.... assessee was dismissed by this Tribunal vide a common order dated 10.08.2015. Order of this Tribunal dated 10.08.2015 was ex parte qua the assessee and the same was part of the batch of appeals relating to 23 assessees. The assessee failed to challenge the order of this Tribunal dated 10.08.2015 before the Hon'ble jurisdictional High Court and, therefore, the order of this Tribunal dated 10.08.2015 attained finality so far as the case of assessee is concerned. 5. Subsequently, in direction to the revisionary order passed u/s. 263 of the Act, ld. AO carried out the second round of assessment proceedings so as to examine the genuineness and source of share capital, conducting independent enquiry, examine the directors and examine the source of realisation from the liquidation of assets. The assessee could not comply to the notice of hearing and reassessment proceedings were completed by way of a best judgment assessment u/s. 144 r.w.s. 263 of the Act on 19.03.2014 making addition of Rs. 7.97 Cr. on account of unexplained share capital and share premium u/s. 68 of the Act. 6. Aggrieved, assessee preferred appeal before the Ld. CIT(A) and furnished detailed submission along with....
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....te that out of 18 share applicants 13 have duly replied the AO. He also submitted that merely for non-appearance to the issue of notice cannot be fatal for the assessee considering the ratio laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Orissa Corporation Pvt. Ltd. (1986) 159 ITR 78 (Del). He further submitted that all the share applicants are duly assessed to tax, regularly filing the income tax returns, have also passed through the scrutiny proceedings, duly filing annual returns with the Registrar of Companies and having sufficient net worth to explain the source of investment in equity of the assessee company. 8. On the other hand, ld. DR vehemently argued supporting the orders of the lower authorities and stated that when the assessee has not challenged the order of this Tribunal confirming the revisionary orders, then at this stage Ld. Counsel for the assessee cannot take the plea that revisionary proceedings were bad in law. As far as the merits of the case are concerned, it is submitted that the alleged share applicant companies are of the nature of paper/shell companies which are used for the purpose of taking accommodation entry in the form of bogus ....
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....see has not challenged the order before the Tribunal. We are therefore of the considered view that the assessee has not challenged the revisionary order passed under section 263 by the Ld. Pr. CIT dated 07.03.2013 before the Tribunal and therefore it has attained finality, nonetheless we have observed that in the original assessment proceedings under section 147 of the Act, the ld. Assessing Officer has carried out the investigations into the share subscription/investments into the share capital and premium to the extent of Rs. 7,86,50,000/- by issuing notices under section 133(6) of the Act to five share applicants, which were duly complied with by the share applicants by filing the necessary details as called for by the Ld. Assessing Officer and the ld. Assessing Officer has accepted the genuineness of the investments after examining all these details/evidences. Besides the Ld. Assessing Officer has called for the details from the company in respect of all the eight investors which were duly filed and furnished by the company. But despite at this stage, the assessee cannot be allowed to raise the issue of validity of jurisdiction of Ld. Pr. CIT under section 263 of the Act in rev....
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....he Act, the learned AO apart from issues covered in reasons recorded, also noted that the assessee has raised share capital of Rs. 40,27,500/- and share premium of Rs. 7,46,22,500/- during the year and invoked Explanation 3 to section 148 of the Act and raised queries in this regard. (Page 2-3 of the order) In the present case also, the learned AO invoked Explanation 3 to section 148 of the Act and examined the issue of share capital 3 The learned AO conducted his own independent enquiries with the share applicants and issued notices u/s 133(6) of the Act to them. Replies were filed by the share applicants to whom notice u/s 133(6) of the Act was issued and the same was kept in records. (Page 3 of the order) In the present case also, the learned AO conducted his own independent enquiries with the share applicants and issued notices u/s 133(6) of the Act to all the share applicants. Replies were filed by all the share applicants and the same was kept on record. 4 On examination of the documents produced by the assessee and the share applicants, the learned AO was satisfied with the identity, creditworthiness of the parties and the genuineness of the transactions....
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....t to observe that both the sides have made reference to a large number of decisions. We do not deem it necessary to recite and recapitulate them because that would make this order repetitive and bulky. We take cognizance of some of them. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limi....
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....40 (SC). According to the Hon'ble Delhi High Court basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish identity of the share-holder and bank account from which payment was made. The fact that payment was received through bank channels, filed necessary affidavit of the shareholders or confirmations of the directors of the shareholder company. But thereafter no further inquiry was made by the AO. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. 10. Let us take into consideration observations made by the Hon'ble Delhi High Court in the case of Softline Creations P. Ltd. (supra) while taking note of judgment of Hon'ble Delhi High court in the case of CIT Vs. Fair Finvest Ltd., 357 ITR 146 (Delhi). Hon'ble Delhi High Court made following observations: ....
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....on 68. Having regard to the entirety of facts and circumstances, the court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra) " 11. We also deem it appropriate to take note of some of observations of the Hon'ble Delhi High Court from the decision of Fair Finvest Ltd. (supra). The Hon'ble Court has noticed proposition laid down by the Hon'ble Delhi High Court in the case of CIT Vs. Victor Electrodes Ltd., 329 ITR 271 (Delhi) regarding non-production of share applicants before the AO. The following observations are worth to note "...In this connection the observation of the jurisdictional High Court in case of Dwarkadhish Investment (Supra) are quite relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person. Further in the case of CIT vs. Victor Electrodes Ltd. 329 ITR 271 it has been held that there is no legal obligation on the assessee to produce some Director or other representative of the Director or other representative of the applicant companies before the A.O. Therefore failure on part of the as....
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....lso former and present Directors of the assessee company did not comply with summons issued u/s 131 of the Act except one Shri Rakesh Kumar Choubey. In our view, the action of the ld. Assessing Officer in making addition without complying the direction issued by the ld. Pr. CIT specifically in paragraph 19 of the order as reproduced hereinabove cannot be sustained. The addition was made simply for the reason that ld. Pr. CIT has exercised his jurisdiction under section 263 of the Act setting aside the original assessment. We also note that the ld. Assessing Officer has ignored the facts, documents, confirmations and evidences, which were available on record on the assessment folder. In our opinion, there is no bar in the Act to issue of shares at a premium as it is the prerogative of the Board of Directors to decide the premium amount and the assessee was not required to prove the purpose or justification for charging premium on shares. The ld. Counsel for the assessee to buttress the contentions in favour of the assessee placed reliance is placed on the judgment of the Hon'ble Mumbai Tribunal in the case of ACIT -vs.- Gagandeep Infrastructure Pvt. Limited (2014) 40 CCH 0128. The o....
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....re is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos, the bank details and the confirmatory letters." 20. The above decision of the Tribunal has been affirmed by the Hon'ble Bombay High Court by dismissing the appeal of the Revenue reported in (2017) 394 ITR 680 (Bombay.). The case of the assessee also finds support from the another decision of the Hon'ble Madhya Pradesh High Court in the case of CIT -vs.- Chain House International (P) Ltd. reported in 98 taxmann.com 47, wherein the Hon'ble Court has held as under:- "Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates if fixed by any Govt. Authority or unless there is any i restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned." 21. Therefore, the issue of s....
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....uch arises. It cannot, therefore, be said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions sought for". 22. The above decision of the Hon'ble Delhi High Court has been affirmed by the Hon'ble Apex Court in (1986) 159 ITR 78. Therefore, we observe that non- compliance of notice by the share applicants in the second round of assessment proceedings cannot be used to draw adverse inference against the assessee as the Revenue was having all the necessary evidences/documents which were filed by the share applicants in the first round of assessment in response to the notices issued under section 133(6) of the Act. 23. On the issue of share applicants, they are not having any business activity and their net worth was also very meagre. We note that the share application was received through Banking channel out of own funds of investing companies as is clear from the audited annual accounts and that it is not necessary that source of investment is to be out of taxable income. The assessee's case finds support from the decision of Ami Industries (India) Pvt. Limited (ITA 1231 of 2017) passed by the Hon'ble....
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....nnexed to notice u/s. 142(1) of the Act dated 19.09.2010 at point no. 4 the assessee was asked to provide the details of name, current address, PAN of share applicants, including number of shares applied, amounts involved, inward cheque details including cheque no., bank's name and branch address. The assessee duly replied to these queries and furnished all the details before the AO in the form of audited financial statement, ITR confirmation, bank statement etc. in order to explain the nature and source of the alleged sum. During the course of first round of reassessment proceedings on 23.04.2010 when the Ld. AR of the assessee appeared and filed details the same were examined, books of accounts along with the confirmations were received and the same was followed by issuing of notice u/s. 133(6) of the Act which were duly replied by the share applicants. We thus, find that the adequate and independent enquiry was made by the Ld. AO during the course of the reassessment proceedings with respect to the issue of share capital and share premium of Rs. 7.97 Cr. raised during the year. The documents submitted by the assessee and the share applicants were carefully looked into and proper....
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....been changed. All these 5 share applicants were regular income tax assessees. The second learned AO could have himself traced their new address, in case the address were changed, since an AO has been vested with all the powers to trace an income tax assessee. Reliance is placed on the judgment of the Hon'ble Delhi High Court in the case of CIT vs Orissa Corporation Pvt Ltd (1986) 159 ITR 0078 (Del) wherein it was held that, "The assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further." Here, reliance is also placed on the judgment of the Delhi High Court in the case of CIT us. Dwarkadhish Investm....
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.... a logical conclusion regarding the controlling interest. Summon dated 26-02- 2014 was issued to the assessee company in its PAN and address u/s 131 of the Act as *PAN:AADCG0582H To, The Director, M/s Goodview Marketing Pvt Limited. 28. Armenian Street, 1" Floor, Kolkata 700001' Refer page 4 of the assessment order Here, please note that the PCIT directed the learned AO to summon and examine the Directors. Only one summon was issued to the 'Director, M/s Goodview Marketing Pvt Limited' on 26- 02-2014 in the PAN of the assessee company. The said summon was not issued in the name of the Directors of the assessee company. The name and address of the Directors of the company in the relevant year was in the assessment file. However, he failed to summon the individual Directors. Vide letter filed on 05-03-2014, the assessee specifically submitted the names and addresses of the present Directors. Copy of the reply is enclosed at page 19-20 of the paper book. However, no summons were issued by the learned AO to the individual directors of the assessee company at their given addresses. There were two directors in the relevant year and four directors during the ....
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....n to the individual directors. This act of Ld. AO proves that he has not conducted any enquiry/investigation in the manner Ld. Pr. CIT has directed. 16. One more fact came to our notice while going through the assessment order dated 19.03.2014 wherein the addition u/s. 68 of the Act has been made and the said observation has been noticed from page 6 of the assessment order. First we will reproduce page 6 of the assessment order dated 19.03.2014 as under: "During assessment proceeding nobody on behalf of the assessee appears before the undersigned till the date of passing this order. This non-appearance strategy of the assessee is wilful and can be regarded as a plea to consume further time and prevent further enquiry to reach up to the root of the sources. Therefore, prima facie the assessee failed to discharge its onus by not providing (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber and all other relevant material evidence so as to conduct further enquiry, as a part of the ....
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...." 17. From a perusal of the above observation of Ld. AO where it is mentioned that excessive share premium being 99 times of its face value has been charged. This observation is factually incorrect because the assessee has issued equity shares for face value of Rs. 10/- and has charged premium of 19 times i.e. Rs. 190/- per share and this shows that finding of Ld. AO is based on wrong facts. In the second para of the page 6 of the assessment order referred above Ld. AO observes that the entire share capital received by the assessee to the tune of Rs. 15,61,00,000/- during the year under consideration is treated as unexplained cash credit and added back to the income of the assessee applying sec. 68 of the Act. This observation of Ld. AO is also factually incorrect because the addition in dispute is of Rs. 7.97 Cr. but the Ld. AO has mentioned at Rs. 15.61 Cr. which shows that Ld. AO has not made any application of mind and rather applied some cut and paste formula without putting his genuine efforts to examine the share capital and share premium received by the assessee during the year. It thus, brings us to a conclusion that Ld. AO has made the impugned addition wit....
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....lts of the inquiries conducted and material gathered during the course of such enquiries were never shared with the assessee. Thus, the mandate of section 142(2) and 142(3) of the Act was clearly not followed by the learned AO in utilizing such information against the assessee without proving an opportunity to controvert the findings of the learned AO. Here, reliance is placed on the judgment of the Hon'ble ITAT, Kolkata in the case of M/s SPML Infra Ltd vs DCIT (ITA No. 1228/K01/2018) pronounced on 17/01/2020 wherein on identical facts it was held that, "14. To conclude: We note that none of the statements were recorded by the assessing officer of the assessee company, and no opportunity for cross examination has been provided to the assessee company. The mandate of law to conduct enquiry by the Assessing Officer on due information coming to him to verify authenticity of information was not done as per section 142 of the Act. Therefore, mere receipt of unsubstantiated statement recorded by some other officer in some other proceedings more particularly having no bearing on the transaction with the assessee does not create any material evidence against the assessee. Thi....
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.... 20. Moving further, reliance is also placed on the judgment of the Hon'ble jurisdictional ITAT, Kolkata in the case of ACIT vs Gold Rush Sales and Service Ltd pronounced on 21-08-2023 [2023] 156 taxmann.com 514 (Kolkata - Trib.) wherein it was held that non- compliance of summon cannot be a ground to make addition u/s. 68 of the Act when all the supporting documents are being submitted to evidence the identity, creditworthiness and genuineness of the transactions. "It is found that undisputedly the assessee has filed the evidences/details as called for by the Assessing Officer in respect of the share subscribers of Rs. 2.34 crores which has not been commented by the Assessing Officer in the assessment proceedings nor any defect has been pointed out meaning thereby that no further verification of these evidences was carried out by the Assessing Officer. Though there was a non-compliance to the summon issued under section 131 by the directors of the assessee-company, but the just mere non-compliance to the summon issued under section 131 cannot be a ground for adding the share capital/share premium raised by the assessee during the year as unexplained cash credit u/s.....
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....e said case has taken note of the observations made by the Supreme Court in the "the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laying down the proposition 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, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source." 19. Thereafter the Hon'ble Supreme court summed up the principles, which emerged after deliberating upon various case laws, as under: "11. 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 transact....
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....ad given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such could arise." {emphasis ours} b) The ITAT Kolkata Bench in ITO vs Cygnus Developers (I) P Ltd in ITA No. 282/Kol/2012 dated 2.3.2016, held as follows: "9. We have considered the rival submissions. We are of the vi....
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....g the identity of the investor or lender along with their confirmations, the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and the assesse submits the explanation concerning the cash credit, the Assessing Officer should consider it objectively before he decides to accept or reject it. Where the assessee furnishes full details regarding the creditors, it is up to the Department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee's transaction. Held, dismissing the appeal, that the allegations against the assessee were in respect of thirteen transactions. The Assessing Officer issued a show-cause notice only in respect of one of the lenders. The assessee responded to the show-cause notice and submitted the reply. The documents annexed to the reply were classified under three categories namely: to establi....