TaxTMI 
TaxTMI 
2023 (12) TMI 1438
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....nue has raised the following grounds of appeal:- "1. That on the facts and circumstances of the case the Ld. CIT(A) erred to delete the addition of Rs. 33,19,33,000/- added by the AO as undisclosed income in the form of share capital and share premium. 2. That on the facts and circumstances of the case the Ld. CIT(A) erred to delete the addition of Rs. 3,00,000/- added by the AO as unexplained cash credit. 3. That on the facts and circumstances of the case, the Ld. CIT(A) erred to delete the addition of Rs. 29,00,000/- added by the AO as bogus income of the assessee. 4. That on the facts and circumstances of the case the Ld. CIT(A) erred to delete the addition of Rs. 16,75,665/- added by the AO as an unexplained expenditure in the form of commission paid to the broker. 5. That the department craves leave to add, alter or modify any grounds of appeal in the course of appellate proceedings." 4. Facts in brief are that the assessee is a limited company and is a Nonbanking Financial Company (NBFC) engaged in the business of investment and trading in shares. Income of Rs. 7,474/- declared in the income tax return for Assessment Year 2011-1....
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....of share capital and share premium. Income assessed at Rs. 33,68,16,139/-. 5. Aggrieved the assessee preferred appeal before the ld. CIT(A) and filed complete details about the identity and creditworthiness of the share applicants and genuineness of the transactions. Various additional evidence were also filed to which remand report was called for. In the remand report, it has been categorically mentioned and observed by the ld. CIT(A) that the assessee has filed complete details including financial statements confirmation of accounts, proof of the directors. Even the directors of the share applicant companies appeared before the Assessing Officer. But since the other share applicants could not be brought by the revenue authorities for cross-objection, the ld. CIT(A) took note of the fact that the assessee has discharged the burden of proof casted on it. Creditworthiness of the share applicants were also examined. Consequently, being satisfied with the explanation of the assessee, the ld. CIT(A) deleted all the additions made u/s 68 of the Act as well as the addition for unexplained expenditure u/s 69C of the Act. 6. Aggrieved, the revenue is now in appeal before this Tribuna....
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....ficer and replied to various questions asked and also made submission about the alleged transactions. Even the ld. Assessing Officer in the first remand report confirmed that the share investment companies were very much present at the address provided and there was compliance. Reliance placed on the detailed finding of fact by the ld. CIT(A) and various decisions referred and relied by the ld. CIT(A). 9. We have heard rival contentions and perused the material placed before us and carefully gone through the decisions referred and relied by both the sides. 10. Ground No. 1, is against the finding of ld. CIT(A) deleting the addition u/s 68 of the Act made for alleged unexplained cash credit in the form of share capital and share premium amounting to Rs. 33,19,33,000/-. During the year, the assessee company received share capital including share premium of Rs. 33,19,33,000/- from 14 share subscribers who are body corporate entities:- Name of share applicant Application Money Aadish Commercial Pvt. Ltd. 2,23,00,000 Anandsagar Tradelink Pvt. Ltd. 1,14,00,000 Arpit Vanijya Pvt. Ltd. 5,29,00,000 AvanilIfrahome Pvt. Ltd. 2,67,00,000 Cooper Commercial....
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....We further observe that the ld. CIT(A) has made a thorough examination of all these facts and also referred to various judicial pronouncements adjudicating similar type of issues and we find it necessary to go through the relevant finding of the ld. CIT(A):- "Ground 3 In this ground the appellant has agitated against the action of the AO in treating the share capital raised by the assessee company including premium money from 14 investing companies, cumulatively amounting to Rs. 33,19,33,000/- on issue of equity shares to these 14 companies, as bogus and adding the same under sec. 68 of the Act. Facts are that during the year the appellant company raised share capital including share premium of Rs. 33,19,33,000/- from 14 share subscribers who are body corporate entities. Name of the share applicant Application Money Aadish Commercial Pvt. Ltd. 2,23,00,000 Anandsagar Tradelink Pvt. Ltd. 1,14,00,000 Arpit Vanijya Pvt. Ltd. 5,29,00,000 AvaniInfrahome Pvt. Ltd. 2,67,00,000 Cooper Commercial Pvt. Ltd 4,06,10,000 Jugantar Commercial P. Ltd 5,00,000 Jyotika Commercial Pvt. Ltd. 1,77,23,000 Natural Business Pvt. Ltd. 3....
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....of assessment order, for the issue of these notices was to examine and verify the identity of the appellant company, and its share holders, genuineness of the transaction and the creditworthiness of share holders. The AO, on account of the fact that the summons u/s 131 could not be served and the Departmental Inspector being unable to trace the said share allottee companies, placed a question mark upon the entire transaction, including the identity and creditworthiness of share applicant companies along with the genuineness of the transaction, and found that the appellant companies did not have sufficient income to make the impugned investments in share capital/premium. In addition, the AO has also relied upon some statements given by certain alleged entry operators in some separate proceedings, in March 2015, that they had been providing accommodation entries against a fee through certain Shell companies controlled by them through dummy directors. The AO, finding that some of the share capital/premium received by the appellant came after being routed through some of these shell companies or that these shell companies appeared in the fund trail of some of the share capital/premium ....
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.... Returned back 26.08.2019 Returned back 87C, Cossipore Road, Kolkata- 700002. 17.07.2019 Returned back 2 Sanjib Bhattacharjee 27, Gobra Gorasthan Road, Kolkata - 700046. 17.07.2019 Returned back 26.08.2019 Returned back 3 Ashok Jha 14/1A, Sambhu Chatterjee Street, Kolkata- 700007 17.09.2019, Returned back 26.08.2019 Returned back 9, Lal Bazar Street, Block A, Kolkata- 700001 17.07.2019 Returned back All the Summons u/s. 131 of the I.T. Act, 1961, issued to the above entry operators through registered post to the addresses available, returned un-served. Further, the said Summons u/s.131 of the Act were issued through the office notice server who also could not serve the notices on the given addresses. Finally, the Inspector attached to the office of the AO was deputed by him to serve the notices but he also failed as he also could not trace out the entry operators. The director of the assessee company, however, appeared before the AO, but as the entry operators were not available and could not be produced by the AO, the process of cross-examination could not be made. At this point, in his remand report, the....
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....hat without even going into the merits and substance of the these statements at all, it would be unlawful on the part of the AO to use these statements against the appellant, without at least providing him an opportunity for cross-examination, has merit in it. The denial of such an opportunity for cross-examination has the legal effect of diminishing any evidentiary value that may be associated with these statements. It must not be forgotten that the appellant was searched and no evidence was found that would go towards proving that the impugned transactions were bogus or that the appellant had injected his own undeclared income in the form of share capital/premium. It must be kept in mind that a Search upon the appellant was conducted on 02.11.2017. The statement of the alleged entry operators, Sri Ashok Jha, and Manoj Kumar, were recorded respectively on 02.03.2015 and 30.01.2014 respectively; while the statement of another alleged entry operator, Sanjib Bhattacharya was recorded on 01.11.2017. In the same context, it is also pertinent to note that the impugned transactions have, in almost every case, taken place in February, March 2011. Now, if the statements of the said entry o....
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....the company's office was however different in each case, with a valid identification in the form of his driving licence, voter ID card or Adhar card and stating that he was an employee of the said company. Such persons, of course, were also carrying (as admitted by the remand report) documents and requirements related to section 68 of the Act, for the impugned transactions in relation to the particular company present on those premises. These documents have already been elaborately listed earlier in this order, and included the PAN Card, IT acknowledgement, audited balance sheets and so on. It was also pointed out in the 1st remand report that the inspector did not find the Directors/Principal officers of the share applicant companies on the premises at the time of his visit. As per the 1st Remand Report, the person present on the premises also did not know of their whereabouts nor much about the operations of the company. This last assertion of the Remand Report has been vehemently contested by the appellant. The AR of the appellant company has pointed out that the inspector report annexed to the remand report clearly indicates that the inspector during his visit to the office pre....
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....e directions of the CIT(A) were to ascertain whether the share applicants existed at the new address supplied by the appellant. The appellant contends that the AO has himself admitted that the Inspector has reported that at the new address, the share applicant companies were found. Thus, the identity, as per the appellant, of the share applicant companies had been established without any doubt. The inspector's report dated 12-08-2019 which was enclosed as Annexure to the remand report, stated that all the share applicant companies were found at the new address given by the appellant and the respective employees had also submitted documentary evidences like bank statements, copy of the ITR Acknowledgement, copy of the PAN, Copy of the Annual Accounts for the AY 2011-12, etc. As per the appellant, the aforesaid documents proved the genuineness of the transaction beyond any doubt. The appellant has explained that the observations of the inspector regarding there being mostly only one employee at the premises at the new addresses supplied by the appellant,as well as the fact that there was only limited furniture and that the sign boards appeared newly paid, were observations t....
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.... part of the AO, during remand, to expect that all the share allottees could be rounded up and produced before him within the short period of time given to the appellant. During the hearing he also submitted that the investors and directors being non-Income tax people, had mistakenly been under the belief that submission of all necessary documentary details had been sufficient compliance to notices u/s 131. The AR said that the appellant had to personally explain to each and every such Director the significance and importance of making a personal appearance before the AO and to convince them that this was a legal requirement and in any case, was essential in order to go to the root of the impugned transaction and to prove it to be bona fide. The appellant also prayed that if an opportunity was provided to the appellant it could produce the share applicants on a random basis to substantiate its claim. Considering the request of the appellant and the fact that it is important to provide substantive justice to an appellant who faces the prospect of paying a huge demand, in order to provide adequate opportunity and natural justice to the appellant to establish all the ingredients of th....
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....e the findings of this report are a pertinent and essential part of the ensuing discussions, the main ingredients and results of the remand report are being reproduced once again for ready reference. During this 2nd Remand proceedings, the appellant was asked by the AO to produce directors of most of the share applicant companies on various dates as mentioned in the notice u/s 131 dated 09/05/2022 In compliance to the summons issued to the appellant, the director of the appellant company, Shri Pawan Kumar Chandak, appeared and produced the directors of the allottee companies along with requisite documents before the AO on various dates. The details of the enquiries conducted by the AO in remand are as listed below: SL No Name of Share applicants Address PAN Remark 1 ANAND SAGAR TRADELINK PVT LTD 10, MULLICK STREET, KOLKATA- 700007 AAHCA8288N Director appeared before the under signed on 19.05.2022 along with the authorization from current director and his statements was recorded u/s 131 and submitted copy of Share Application form, Share Allotment Advice, Bank Statement is enclosed. The director also filed copy of letter dated 22.11.20....
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.... u/s 143(3) of the I.T. Act for AY 2011-12 is enclosed. The director also filed copy of letter dated 06.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate, Share Application form, Source of fund, Bank Statement etc. 6 RITESHWARI TRADING & INVESTMENT PVT LTD 7/1A, GRANT LANE, 2ND FLOOR, KOLKATA- 700012 AABCR3519H Director appeared before the under signed on 10.05.2022 along with the authorization from current director and his statements was recorded u/s 131 and submitted copy of Share Application form, Share Allotment Advice, Bank Statement is enclosed. The director also filed copy of letter dated 05.09.2019 that in compliance to summons issued u/s 131 earlier. This letter included copy of PAN Card, NBFC Certificate, Source of fund, Bank Statement, IT Acknowledgement etc. 7 RITZ AGENCIES PVT LTD 202, JESSORE ROAD, 3RD FLOOR, BLOCK-D, KOLKATA- 700089 AAECR5447F Director appeared before the under signed on 11.05.2022 and his statements u/s 131 was recorded and submitted copy of Share Application form, Share Application receipt, Bank Statement is e....
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....hare/ the companies do not have any revenue to justify payments of such huge share premium. . An analysis of few companies have been made to conclude that the profits of the share applicant companies did not justify payments of such huge share premium. Sl. No. Name of share applicants Capital Reserve Gross Expenditure Gross Revenue Net Profit/Loss 1 JUGANTAR MERCANTILES PVT LTD 87,54,170.00 16,67,68,664.00 1,06,25,808.64 94,86,765.57 11,39, 04,307 2 JYOTIKA COMMERCIAL PVT LTD 11,36,500.00 20,62,63,873.00 13,140.00 13,680.00 540.00 3 SHREYAS DISTRIBUTORS PVT LTD 11,16,500.00 20,22,83,861.00 13,118.00 13,640.00 522.00 4 YUGVERI MARKETING PVT LTD 1,58,84,500.00 12,60,26,097.00 4,98,058.00 4,99,218.00 1,160.00 From the above chart it is depicted that the share premium paid by all the share applicants companies are not justified and therefore although the share capital may be treated as explained but the share premium charged by the assessee seems to be unjustified." It is of particular note, as emerging from the findings of the above report as well as the previous ....
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....nt companies, the old directors (whose statements would be relevant for explaining the impugned transactions), who were there at the time of the impugned transactions, appeared before the AO, carrying letters of authorisations from the current directors. The third significant fact that emerges from the remand report is that not only did the AO conduct his enquiries through the issue of notices u/s 131 of the Act, but in the first remand stage, he went a step further and also deputed the departmental inspector to conduct field enquiries to ascertain and verify the physical presence of share allottee companies. As per the report of the Departmental inspector all the premises of the share applicant companies turned out to be physically present at the said premises. Though, as already stated earlier, the AO has expressed certain suspicions regarding the nature of the premises where the offices of the share applicant companies were situated. Coming to the findings of the remand report, it is found that the directors of the majority the share applicant companies appeared before the AO u/s 131 and submitted their replies. In the case of all the share applicants, replies ....
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....d to the AO in remand). The table below summarizes the documents submitted by the appellant and the share applicants before the AO for proving the identity and creditworthiness of the share appellants as well as for proving the genuine of the impugned transactions. Needless to mention that these documents that have been produced by the appellant by way of the discharging of his onus u/s 68 in respect of the impugned transactions, have also been produced in the form of a comprehensive paper book running into over 500 pages. As per record, in order to establish the identity, creditworthiness and genuineness of share application received from the above parties, the appellant has furnished various documents, as listed below. Sl No. Name of Shareholders Documents submitted Paper Book Page Nos. 1 M/s. Aadish Commercial Pvt. Ltd. Order u/s 143(3) for AY 2011-12 1-5 Share Application Form 6-8 PAN Card 9 Confirmation & source of funds 10 ITR Acknowledgement 11 Audited Financial Statement 12-24 List of Investments 25 Bank statement 26-27 Reply to summons u/s 131 28-29 2 M/s. Anandsagar Tradelink Pvt. Ltd. ....
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....PAN Card 261, 300 Relevant Bank Statement 262-267, 299, 301 ITR Acknowledgements 268 Audited Financial Statement 269-282 Assessment Order for AY 2011-12 283-298 10 M/s. Riteshwari Trading & Investment Pvt. Ltd. Share Application Form 302-303 Confirmation & source of funds 304 ITR Acknowledgements 305 PAN Card 306 Audited Financial Statement 307-322, 326-339, 343-355 List of Investments 323-324, 340 Relevant Bank Statement 325, 341-342 11 Ritz Agencies Pvt. Ltd. ITR Acknowledgements 356, 375. 441 Audited Financial Statement 357-367 Share Application Form 368 Confirmation & source of funds 369 Relevant Bank Statement 370-372, 374 Reply to summons u/s 131 373 12 Shreyas Distributors Pvt. Ltd. Assessment Order for AY 2011-12 376-380 Relevant Bank Statement 381 397-398 Share Application Form 382 Confirmation & source of funds 383 ITR Acknowledgements 384 Audited Financial Statement 385-394, 401-411 List of Investments 395 PAN Card 396 Reply to summons u/s 131 399-400 13 Uphar Trade Enterprises Pvt. Ltd P....
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.... their return of income and furnished audited financial statements. The confirmations and source of funds have been submitted and been examined by the AO in remand. The necessary board resolutions, as well as other material necessary for establishing the identities, creditworthiness and genuineness have also been submitted. In fact it has been pointed out that in as many as in 10 cases of share applicant companies, scrutiny assessments u/s 143(3) or 147 had also been concluded without any adverse inferences, most in the impugned AY and some in the immediately preceding AY. It is also observed that each of the share applicants maintained bank accounts and copies of their respective bank accounts from which they had made payments to the appellant for subscribing to the share issued to them, was filed by each of them before the AO as well as in the Paper Book filed before me. Further each of the share applicants accepted the fact that they had subscribed to the shares issued by the appellant at a premium and that such transactions were duly reflected in their respective books of accounts, as well as in their audited Balance Sheets. The AO has accepted all the aspects of the t....
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....t, 2015 (Del.), has observed in this connection that, "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court." In the case of Carissa Investment (P) Ltd. Vs ACIT (ITAT Delhi) in ITA. No. 6448/Del./2016 dated 22.01.2021 the Hon'ble Tribunal found that the assessee submitted the audited financial statements, bank statements and assessment orders u/s 143(3) of the creditors. It held that, "Thus, the assessee-company has been able to prove that both the creditors have availability of sufficient funds to give loan to the assessee-company in assessment year under appeal. Merely because income was low declared by both the creditors, is no ground to make the impugned addition against the assessee-company." I find that in ACIT Vs. Brindavan Agencies Pvt. Ltd. (ITAT Delhi) in ITA no. 5272/Del/2016 dated 23.12.2020 for the same AY as the instant one, that is, AY 2012-13, it was held that, ....
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.... was held that: "6.16. The A.O. merely doubted the financial capacity of the Investors because they have reported low income in their return of income. This cannot be the sole basis to doubt the explanation of assessee. It may be suspicion of the A.O. only without bringing any evidence on record. Rather the documentary evidences produced on record clearly support the explanation of assessee. The Hon'ble Bombay High Court in the case of Ami Industries (India) Pvt. Ltd., (supra) has distinguished the Judgment of NRA Iron & Steel (P.) Ltd., (supra) as reproduced above. It may also be noted here that the case of M/s. Adamine Construction Pvt., Ltd., (supra) is connected with the case of Bhushan Steel Group of cases as is also attributed in the case of assessee and on identical facts the Tribunal has dismissed the appeal of Revenue and the Order of the Tribunal has been confirmed by the Hon'ble Delhi High Court by dismissing the appeal of the Revenue and the Judgment of the Hon'ble Delhi High Court have been confirmed by the Hon'ble Supreme Court by dismissing the SLP of the Revenue. Therefore, the issue is covered in favour of the assessee by the Judgment of Hon'ble Delhi High....
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.... 4.57 Shreyas Distributors Pvt. Ltd. 20,34,00,361 89,00,000 4.38 Uphar Trade Enterprises Pvt. Ltd 59,94,26,763 3,46,50,000 5.78 Yugveri Marketing Pvt. Ltd. 14,19,10,596 2,24,00,000 15.78 Total 33,19,33,000 An analysis of the above table shows that all the investing companies had sufficient net worth of their own to make the investments. In most cases the percentage of net worth soinvested is at a very reasonable level, hovering at a very low percentage of their net worth. Even in the three cases where this percentage is slightly higher, it has gone up to a slightly high, but reasonable level of around 16% of the net worth of the share applicant company - which is not unreasonable and not enough to cause destabilisation of the fund position of the investors. In any case, once it is accepted by the AO that these were investment companies, then their basic objective would be to invest their available corpus into various investment avenues. Therefore, they would be expected to invest sizeable portions of their liquid net worth into various avenues. The important factual issue to examine is whether the said company ....
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....at can be and has to be examined by the AO, is the plausibility of a rational prudent person making the said strategic decision for making an investment. In this case, I find that the investment levels, as compared to the net worths of the investing companies are quite low and acceptable and would not pose a risk to the investing company on account of a significant depletion of its net worth. It is quite clear that the investing companies had sufficient funds of their own to make the impugned investments. The AO has also not made any comment upon this aspect or raised any doubts. Besides demonstrating their net worths and that they had invested only a very small proportion of their net worths in the appellant company, all the share applicants have also demonstrated their respective sources and their means for arranging funds from genuine sources for making investment in the appellant company. Therefore, in this case the share application money or premium paid by such share applicant companies cannot be treated as unexplained u/s 68 of the Act by holding that the share applicants were not credit worthy since nowhere has it been shown that the share applicants did not have t....
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.... documents produced before him. This is despite the fact that most of the concerned directors of the share applicant companies as well as the director of the appellant company had been physically present before him and had indeed been examined by him. The AO has also not been able to draw any form of correlation between his suspicions - expressed in the form of observations, during the first remand report, related to the amount of furniture present on the companies' business premises or the presence of mostly one employee (though a different employee for each such company) at the premises of the share applicant companies, with his contention that these were sham transactions, especially in view of the fact that the Directors of the share applicant companies were found to be genuine. These Directors were admittedly found to be genuine by virtue of the fact that not only did they make personal appearances and depositions before the AO, but that they were carrying copies of the earlier notices issued u/s 131 of the Act, to which they had earlier sent only documentary responses. It must, in this context, be borne in mind that the time gap between the first and second remand reports is ....
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....an in-depth discussion of the matter. In CIT vs Gagandeep infrastructure (p.) ltd in Income Tax appeal number 1613 OF 2014, in a decision delivered on 20.03.2017, the Hon'ble Court has examined the issue of retrospectively or otherwise of the amendment to section 68 of the Act via which the proviso to the said section was inserted from 01.04.2013. The facts in this decided case were that during the previous relevant to the subject Assessment Year the assessee had increased its share capital from Rs. 2,50,000/to Rs. 83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs. 6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at Rs. 190/per share. The respondent furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the ....
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....holders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit." The above is then the settled position of law for cases pertaining to AY 2012-13 and earlier assessment years. I find that in the instant case before me, the AO, in his remand report, has not expressed any dissatisfaction with the explanation offered by the appellant, when the latter was explaining the source of source. On the other hand, it is uncontroverted that the investors did produce the sources of their funds even though there was no legal requirement cast upon them to do so. The appellant has provided the AO with the source of source without eliciting any adverse comment from him. A word about the fund trail that supposedly existed in the case of these transactions. It is noted that despite my predecessor asking the AO in remand, to produce a cash trail through which unaccounted cash of the appellant would have been introduced, the remand report has merely reproduced the fund trail that he obtained from the Inve....
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....tance, 11th instance etc almost same amount of money traded within a very short period such as on the same date or within a period of one day earlier or one day later - which leads to idea of "jamakharchi" companies. This can at best be termed as suspicion, because all the parties are separate and all of them are genuine and they transact through separate cheques and all the transactions are through banking channel. The aforesaid suspicion would have to be corroborated by the AO through some means. I find that the AO has not been able to corroborate or even develop upon these suspicions. There is nothing to refute the AR's assertion that all the transactions are genuine and the same amount is nothing but accidental. The AO, as already discussed, also has not raised any doubts with regard to these in his follow up inquiries and examinations at any point in assessment or remand. This, as already discussed, is despite the fact that the directors of the appellant company and the share applicant companies had been duly examined during remand. 3.) In all the 14 fund flows referred to, the assessee having transaction with its share applicants has furnished complete evidences and ....
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....een that at layer 16 name of assessee appears hence it is beyond comprehension that assessee used his own disclosed funds to bring it back as share capital through layering of funds through the help of jamakharchi companies. 8.) Similar observation is made on the 12th instance of layering mentioned at page 175 wherein it can be seen that at layer 16 name of assessee appears hence it is beyond comprehension that assessee used his own disclosed funds to bring it back as share capital through layering of funds through the help of jamakharchi companies. 9.) In the 13th instance, it can be seen that the entities are mostly active companies even today making complete statutory compliances with Government authorities thus the allegation is not sustainable in law. 10.) In 14th instance also the share applicant is assessed to tax and the investments has been accepted as genuine in its hand. Therefore, it cannot be alleged that share capital is raised through accommodation entries. On examining this matter, I find that in the entire fund trail there has been no introduction of cash at any point that has been brought on record that could have been said to b....
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....he directors were examined. Without bringing on record anything adverse, it would not be lawful to cast aside all the other evidence admittedly before the AO and to make large additions. This, in my opinion, is not a valid and lawful procedure for assessment. In these circumstances it cannot be held that the appellant did not discharge the onus cast upon him u/s 68 of the Act. Per contra, I find that there is no evidence on record to show that the identities of the share applicants are doubted by the AO and / or that anything has been brought on record by him to show that the introduction of share capital by them was not genuine and / or the source of investment was not fully explained by the appellant to the satisfaction of the AO. Once the appellant has duly discharged the onus cast upon him in this context, it was incumbent upon the AO to bring evidence and/or reasoning on record to show that the explanations offered by the appellant were not satisfactory and could not be accepted by a prudent reasonable person. A close perusal of observations and findings recorded in the assessment order as well as in the remand report does not reveal that documents filed by the appell....
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....o the question whether, since the said amount of share premium could not be added u/s 68, it could have been added u/s 56(2) of the Act; since section 56(2) (viib) envisages a situation where a company receives consideration for issue of shares which is in excess of the fair market value of the shares, then such consideration can be added to his income under this clause as income from other sources. The appellant, in this connection, has explained that although the justification for premium was not a requirement of law during the relevant assessment year but even then the share premium has been justified by the appellant with reference to the explanation filed by it with reference to relevant facts and figures. It has been explained that this premium was paid on account of the anticipated future prospects of the appellant company and the fact that it was felt by the investing companies' Boards that it would be prudent to invest in the appellant company. It has been explained that the appellant company was incorporated on 22.03.1995 with the paid up capital of Rs. 76,25,000/-. This amount of Rs. 76,25,000/- was subscribed by the directors of the company as promoters. In the impugned....
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....nd persuasions then he should have tried to analyse the implications of these observations by applying them to the existing facts and circumstances. This is singularly absent at any of the stages at which the appellant was being examined by the AO. The remand report, even after examination of directors, has not objected to the above reasoning, which, as discussed above, is based upon the anticipated prospects of the appellant company. Notwithstanding the above discussion, I find that this case relates to assessment year 2012-13 and clause 56(2) (viib) of the Act was introduced in the statute only from AY 2013-14 onwards. Thus, this matter relates to periods before the introduction of section 56(2)(viib) of the Act. I find that the cases of Green Infra Ltd (supra); CIT-v.- Gagandeep Infrastructure (P.) Ltd.(Bom) (supra) and in the case of TrendInfra Developers Pvt Ltd, ITA-2270/KOL/2016 - which is the jurisdictional Tribunal, along with several other decisions also cited supra, the issue of retrospective application of amendments, both, in section 68 - the insertion of the Proviso to that section, as well as in section 56(2) - the insertion of clause viib, have been discussed and ad....
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....gh the addition made towards cash credit was rendered in favour of the revenue in that case, it is noted that the said decision is factually distinguishable as in the appellant's case a majority of the share applicants appeared personally u/s 131 and filed documentary evidences and the AO after conducting independent enquiries has accepted the share capital from the same set of share applicants. The AO has nowhere expressed any dissatisfaction in this procedure. In the instant case, all the share applicants had confirmed their investment with the appellant and as such, there was no basis for the AO to come to any adverse conclusion and accordingly, the entire amount received by the appellant on account of share application as well as share premium monies could not have been regarded as undisclosed income u/s 68 of the Act. The only question that could have been raised and indeed the remand report had raised this solitary issue, that whether the investors had the financial capacity to pay the premiums that had been claimed to have been paid. This question has already been discussed at length in this order and answered in the affirmative - that is, the investors had indeed demonstrat....
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....subscription amounting to Rs. 1,47,00,000/- and has established the identity and creditworthiness of the share subscribers and the genuineness of the transactions?" The revenue contends that the Tribunal failed to appreciate that the assessee could not establish satisfactorily the nature and source of the monies received as share capital nor could it discharge the onus of proving the identity and creditworthiness of the share subscribers and the genuineness of the transactions which are the fundamental requirements of section 68. The Hon'ble Court made the following observations in this regard: "....7. We are in agreement with the contention of the revenue. Under Section 68the onus is upon the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuineness of the transaction. As to how the onus can be discharged would depend on the facts and circumstances of each case. It is expected of both the sides - the assessee and the Assessing authority - to adopt a reasonable approach. The assessee here is a private limited company. It cannot issue shares in the same manner in which a p....
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.... alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the AO to go to the website of the company law department/ROC and search for the addresses of the share- subscribers and then communicate with them for proof of the genuineness of the share subscription. That is the onus of the assessee, not of the AO." It is clear from the above pronouncement that an appellant is duty bound to explain the identity, creditworthiness of the share applicants and the genuineness of the transaction. In the circumstances of investments in private limited companies made through private endeavours and personal basis, if any doubt is raised during investigation (as in the decided case, where notices could not even be served), then it is obligatory for the appearance of the share investors to the satisfaction of the AO. In the instant case, there was admittedly satisfactory compliance by the directors of the appellant as well as directors of investor companies to notices u/s 131 of the Act. In addition, the AO himself found positive results to his field enquiries conducted through the departmental inspector....
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....ement that these companies are paper/shell companies but no concrete evidence is filed on record which could prove the substance in such submissions failing which the issue in hand can be decided only on the basis of documentary evidence available on record and which clearly states that the assessee has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions. So far as the reliance of the Ld. DR on the decision of the Hon'ble Supreme Court in the case of "PCIT v/s NRA Iron & Steel (P) Ltd." (supra) is concerned, we note that the Hon'ble Supreme Court in the 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 credit-worthiness, then the AO must conduct an inquiry, and call for more d....
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....vidences furnished and even made independent inquiries and thereafter to state that on what account he was not satisfied with the details and evidences furnished by the assessee and confronting with the same to the assessee. In view of this, even applying the ratio laid down by the Hon'ble Supreme Court in the case of PCIT vs. NRA Iron and Steel Pvt. Ltd. (supra), impugned additions are not warranted in this case. 14(a). Our view is further supported by the following judicial pronouncements:- a) The Hon'ble Apex Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (supra), under identical circumstances, has held as follows:- "In this case 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 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 ....
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....hat the assessee during the year had raised share capital including share premium amounting to Rs. 7,60,00,000/- from six share subscribers. The Assessing Officer had issued notices u/s 133(6) of the Act to the share applicants and in response, they all confirmed the transactions and furnished details/documents as called for including source of fund in their hands. The ld. CIT(A) has considered the evidences and details on record and found that the assessee has been able to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction. The relevant part of the order, for the purpose of ready reference, is reproduced as under: "5. Conclusion: Ground No. 1 & 2 I have considered the order of the A.O as well as the submission of the appellant. I have also considered the judicial decisions relied upon by the appellant. The facts of the case have already been discussed as above. It is observed that in the year under consideration the appellant company had raised share capital of Rs. 7,60,00,000/-from 6 parties. In the course of the assessment proceedings, to verify the receipt of share capital, the AO issued notices u/s.133....
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....68 of the I.T Act or not. When the identity & creditworthiness of the shareholders have been clearly established because all of them were scrutinized u/s 143(3) and thus the source of the share capital and the share premium are clearly established and the transactions have all taken place through banking channels, merely for failure of the directors of the assessee and the shareholders to appear before AO in person in response to the summons issued to them u/s.131 of the Act, the addition cannot be in my considered opinion, unjustified. Where the corpus becomes technically explained in the eyes of law, how can, the credits arising out of the same corpus can be viewed as unexplained u/s 68 of the IT Act. In view of the facts & circumstances of the case it is held that the addition of Rs. 7,60,00,000/- for the share capital raised by the appellant from 6 share applicants as unexplained cash credit u/s 68 of the Act was not justified and the same is directed to be deleted. The appeal of the assessee company on Grounds No.1 & 2 are treated as allowed. Ground no. 3 is general in nature, which does not require adjudication. 6. In the result, the appeal of the a....
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....assessment order that the AO has not even mentioned the names of the share subscriber companies and even has not mentioned a word as to which of the share subscriber company or the corresponding transaction thereof was not genuine and on what grounds. The AO, in our view, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO. The Ld. Counsel for the assessee has rightly placed reliance upon the decision of the Hon'ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon'ble High Court has held that once the asses....
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....he Assessing Officer, satisfactory, the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The crucial words in the provision are "the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding 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 assessee 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 loc....
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....e with the findings of the ld. CIT(A) deleting the addition of Rs. 33,19,33,000/- made u/s 68 of the Act. 16. Ground No. 2 & 3, are against the deletion of addition of Rs. 32,00,000/- (Rs. 29,00,000/- (being bogus income of the assessee + 3,00,000/- being unexplained cash credit) by the ld. CIT(A). 17. The ld. CIT(A) while adjudicating the issue and granting relief to the assessee, has held as under:- "Ground 4 This ground reads, "4. That on the facts and in the circumstances of the case, the action of Ld. A.O. to treat the receipt of Rs. 32,00,000/- (3,00,000 + 29,00,000) through banking channel as undisclosed income is arbitrary and bad in law." Facts in relation to these grounds are: 1. The AO noted that the appellant had, during the year, received Rs 3,00,000/- from one Tuhin Bannerjee, whose details have been mentioned by then AO in his order. This Tuhin Bannerjee is the sole proprietor of Shyam Udyog whose account. Number, PAN has also been mentioned by the AO in his order. The AO has further noted certain interesting and suspicious aspects of these transactions, viz., 1. That the bank accounts of the concern from wh....
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....ed by the Inspector made the impugned addition. The appellant stated that although the AO has admitted that Surya Commotrade Pvt. Ltd. has filed return of income for the relevant assessment year but he still did not conduct independent enquiries within the Income Tax Department and concluded that sum of Rs. 3,00,000/- received by the appellant from Surya Commotrade Pvt. Ltd. is unexplained in nature. ii. As regards the impugned addition of Rs 29 lakh, once more, the AO noted that the appellant had received the said amounts from an entity that was part of a bunch of entities that had merely been rotating moneys around, with there being cash deposits in such a fashion that it was the appellant's own money that had come back to him as a beneficiary of this rotation of funds. The AO has noted that the entire operation of this rotation of funds was under very suspicious circumstances, with the bank account where these transactions were reflected being opened and closed within a very short time period. The entire set of transactions discussed by the AO has been held to be a sham set of transactions. The AO has therefore held that there was no doubt that the appellant had used pa....
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....ith Registrar of Companies, Form 20B with copy of Annual Return 20B, Annual Return of Torrent Commercial Private Limited to establish that assessee was allotted these shares. On going through these evidences, it is observed that these were not filed in course of original 147 proceedings. Hence, these are not accepted at this stage." I find that the AO has duly confirmed the receipt of all the evidence in support of the above two credit entries in the books of the appellant, viz., that of Rs 3,00,000/- and of Rs 29,00,000/-. I find that the appellant has submitted copies of share invoices containing details of Surya Commotrade Pvt Ltd, with details of 1500 shares and details of Eureka Suppliers Pvt Ltd with details of 14500 shares sold. The AO, in his remand report, has also acknowledged that ledger copies, allotment advice, share certificates, Form-2 Return of Allotment filed with the registrar of companies, Form 20B with copy of annual return 20B, Annual return of Torrent Commercial Pvt Ltd before the AO been submitted before him. These are being admitted as additional evidence that is necessary for a proper adjudication in view of the fact that while the assessm....
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....sale of share is bogus, then the purchase of the same shares is also bogus. If the case of the Revenue is that assessee's own money has come back to the assessee in shape of accommodation entry, then, the money of the assessee had gone in the preceding year in shape of purchase of the shares which were sold during the year. No action appears to have been taken in the preceding assessment year treating the purchase of the shares as bogus. Therefore, once such bogus purchase is sold then the entire amount, in my opinion, cannot be added u/s 68 of the IT Act, 1961. I, therefore, set aside the order of the CIT(A) on this issue and direct the AO to delete the addition. " [Emphasis supplied] A similar view was taken by the Hon'ble Gujarat High Court in PCIT Vs Ramniwas Ramjivan Kasat (2017) 410 ITR 540 (Guj), wherein it was held by the Hon'ble Court as under, "....4. Having heard learned counsel for the Revenue on this issue, we are in agreement with the Tribunal. As facts recorded by the Tribunal would suggest, the shares were purchased by the assessee during the period relevant to the Assessment Year 2005-2006. The return for the said year was scrutinized....