TaxTMI 
TaxTMI 
2025 (6) TMI 1902
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....rcumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in confirming the addition of Rs. 2,94,80,000/- made by the AO on account of share capital under section 68 of the Income Tax Act. (ii) That the learned CIT(A), ITD has erred both on facts and in law in confirming the abovesaid addition despite the fact the assessee has submitted detailed submissions and explanations along with the evidences before the AO to prove the identity and creditworthiness of the investor and without there being any adverse material on record whatsoever. (iii) That the learned CIT(A), ITD has erred both on facts and in law in confirming the abovesaid addition despite the fact that the investors have confirmed the transactions with the assessee in independent enquiry conducted by the AO. 3. On the facts and circumstances of the case, the learned CIT(A), ITD has erred both on facts and in law in confirming the addition of Rs. 5,30,640/- made by the AO holding that the assessee has paid the commission at the rate of 1.8% for arranging the accommodation entry in the grab of above alleged amount of Share capital. 3. As per grounds of appeal, the asse....
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....her accounts on same day. The AO further observed that there were material evidences available on record that the assessee is beneficiary of accommodation entries as per Income Tax Return of M/s. Kamdhenu Enterprises Ltd., Delhi & M/s. Udhyam Mercandise Pvt.Ltd. It was further observed that contradictory claims have been made by M/s. Udhyam Mercandise Pvt.Ltd. while M/s. Udhyam Mercandise Pvt.Ltd. is claiming the money trail as loan, the assessee claims it to be issue of share capital. The AO also cast aspersion on the financial statement of these companies and observed such company to be dummy/paper companies. It was also observed that investment was made by share applicant company in the assessee company that too at premium where neither return was assured nor safety of investment was guaranteed, not to speak of capital appreciation. Besides, such investment are totally illiquid. The nature of such investment defies logic or rational of conventional investment decision making process. The AO observed that such investment decision cannot be taken by any genuine company. The AO eventually concluded that these companies engaged themselves in providing bogus loans/advances/share appl....
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..... 2,94,80,000/- as unexplained credit under section 68 in the hands of the assessee, and the most critical thing to be examined in this regard is explanation of the assessee with respect to these credits. There is no, and there cannot be any dispute on the fundamental legal position that the onus is on the assessee to prove 'bonafides' or genuineness' of the share application money credited in his books of accounts This approach finds support from the scheme of Section 68, which provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of that assessee for that previous year. The burden is thus on the assessee to prove the nature and source thereof, to the satisfaction of the Assessing Officer. Everything thus hinges on the explanation given by the assessee and on how acceptable is the explanation so given by the assessee. The next question is as to what the kind of explanation that the ass....
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....o bear in mind the fact that what is genuine and what is not genuine is a matter of perception based on facts of the case vis-a-vis the ground realities. The facts of the case cannot be considered in isolation from the ground realities. 7.7 The main indication of the AO is that the assessee has received share application money through a pre-meditated plan by involving complex web of shell entities and multiple layering of the transfers from one company to another. It will, therefore, be useful to understand as to how the shell entities, which the share applicants are alleged to be, typically function, and then compare these characteristics with the facts of the case and in the light of well settled legal principles. A shell entity is generally an entity without any significant trading. manufacturing or service activity, or with high volume low margin transactions- to give it colour of a normal business entity, used as a vehicle for various financial manoeuvres. A shell entity, by itself, is not an illegal entity, but it is their act of abatement of, and being part of, financial manoeuvring to legitimise illicit monies and evade taxes, that takes it actions beyond ....
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....the amount being her winning from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amounts has been rejected unreasonably". 7.10 It would be a superficial approach to examine the claim of the assessee solely on the basis of documents filed by the assessee and overlook the clear unusual pattern in the documents filed by the assessee and pretend to be oblivious of the ground realities. As Hon'ble Supreme Court has observed, in the case of Durga Prasad More (supra), ......"it is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. T....
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....he case in Mumbai Kamgar Sabha v. Abdul bahi Faizulla bhai AIR 1976 SC 1455 "It is trite, going by Anglophonic principles that a ruling of a superior court is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark". Genuineness of transactions thus cannot be decided on the basis of inferences drawn from the judicial precedents in the cases in which genuineness did come up for examination in a very limited perspective and in the times when shell entities were virtually non-existent. 7.14 The above approach has met the judicial approval as recently as 2018 when one of the decision of the Tribunal, in the case of Pawan kumar M Singhvi came up for consideration before Hon'ble Gujarat High Court,....
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.... of the assessee". Taking note of these words of guidance of Their Lordships, it is clear that a superficial and pedantic approach would not suffice, and it is essential to examine the facts of the case in order to take a call on the genuineness of these transactions. 8. With these observations as made above, the actual facts of these cases are to be examined. The assessee has received share application monies from one Pvt. Ltd. Company namely M/s. Udhyam Merchandise Pvt. Ltd. The Share having a face value of Rs. 10 were issued at huge Premium of Rs. 258/- 8.1 Undoubtedly, the legal existence of the share applicant is not in doubt. The assessee has produced sufficient evidences about its existence. The next question is whether this entity namely M/s Udhyam Merchandise Pvt. Ltd. (UMPL) had the means to enter in to this transaction and whether 'the transaction as a whole', could be said to be genuine, When we look at the financial statements of UMPL, the company has disclosed a meagre profit of Rs 41,679/- on the overall revenue receipts of merely Rs. 3,95,425/-, Further. er as per the balance sheet of UMPL as on 31.03.2016, the c company is having ....
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....vestments are in private companies, these investments are substantial vis-à-vis the size of the companies, are at huge premiums and without any management participation in the entities in which investments are made. These features are, by any standard, most unusual in real life business situations- and more so, when justifications for share premium are absolutely untenable. 8.5 Buying shares at a huge premium of the equity capital in nondescript small private limited companies, without a share in management and control, is something extremely unusual unless the investor is very well known or close associate of the company in which investment is being made. However, in this case, the assessee has no clue about the actual beneficial investor in his company. Here are tiers after tiers of the companies and there is nothing to show light on the actual owners. The share capital of the UMPL seems to be issued at huge premium, once again to shell entities which are similarly funded by other shell entities constituting a different layer of this multi-layer transaction, and, as evident from share premium reserve of Rs 281 crores- as against share capital of Rs 2.54 crores. On....
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.... 8.9 All these factors regarding analysis of financial statements, analysis of bank account transactions and analysis of the nature and price of investment, the investments made by all the investing companies in the shares of the appellant company, at 25.8 times of face value and by entering into circular transactions, does not seem to bonafide transaction. In view of the detailed analysis above, it is difficult to accept that it is a genuine transaction. 8.10 Buying shares at a huge premium (2580% of the face value) in a nondescript small private limited company, without a share in management and control, is something extremely unusual unless the investor is very well known or close associate of the company in which investment is being made. 8.11 It is again reiterated that during the course of appellate proceedings, the appellant has not produced any cogent evidence in support of the Grounds of appeal raised by him. Having considered entire facts of the case and evidences brought on record I find no infirmity in the order of AO, hence, addition made of Rs. 2,94,80,000/- is confirmed. As a result, Ground No.1 of the appeal is dismissed. 9. Ground No.2 o....
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....er for AY 2013-14 & AY 2017-18. 6. As per the Audited Financial Statement of Udyam Merchandise Pvt. Ltd as on 31.03.2012, it has earned the profit of Rs. 4,75,08,653/-. Further for the year ended 31.03.2013, it has earned a profit of Rs. 6,32,29,789/- Further for the year ended 31.03.2014, it has earned a profit of Rs. 3,80,73,467/-. For the year ended 31.03.2015, it has earned profit of Rs. 2,40,66,027/-. 7. Out of the above stated profits, Udyam Merchandise Pvt. Ltd. has advanced money from time to time to another associated concern i.e. Kamdhenu Enterprises Ltd. as is evident from the copy of Ledger Account. 8. The Kamdhenu Enterprises Ltd. in turn has advanced money to the assessee company i.e. Mili Marketing (P) Ltd. as is evident from Ledger Account. 9. Thus, at the beginning of this year in the books of the Udyam Merchandise Pvt. Ltd. there was a debit balance of Rs. 6,90,00,000/- in the name of Kamdhenu Enterprises Ltd. and in the books of Kamdhenu Enterprises Ltd. there was debit balance of Rs. 2,86,75,000/- in the name of the assessee company. 10. Now, in order to square up these transactions, the Kamdhenu Enterprises Ltd. repa....
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....and available and have duly responded to all the notices and provided all the information. There is no allegation by the assessing officer that any particular information required by him has not been given. The Audited Balance Sheet of each of the companies are part of the paper book which are filed before the assessing officer. The allegation that there is no business does not mean that addition under section 68 can be made. The assessee has duly explained not only source, but also source of source of income. 16. It may also be relevant to point out that during the course of the assessment, the assessing officer has raised the issue of value of share in response thereto. The assessee has duly filed the computation and justified the value in terms of Rules 11UA read with section 56(2)(vii) (b) (PB Pg.51-54) and no adverse view has been taken by the assessing officer. Thus, the share capital and the share premium received by the assessee company is as per the Rules and it is not a case where the shares have been taken at higher premium without being any justification for the same. There is no an iota of evidence against the assessee. It is a case where the assessee has full....
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....ight few important facts- ➤ Share capital received from group companies/director. ➤ There is no allegation of any accommodation entry against the assessee. ➤ There is no adverse statement made against the assessee by any person. ➤ There is no investigation report. ➤ Present case is the case of regular scrutiny assessment u/s 143(3) of the Act. ➤ There is no allegation of any income escaping assessment against the assessee. ➤ Assessee has provided details in respect of source of the source of investment. 26. The above-mentioned facts, highlight the important point that Ld.AO has made addition of Rs. 2,94,80,000/- by engaging in surmises and conjectures and without bringing any corroborative evidence on record to support his allegations. 27. It is also relevant to mention that assessee has received share capital from a group concern and assessee has duly explained the source and source of the source of investment. It is also relevant to mention that funds have followed from one group concern to another and there is no adverse material or statement by any p....
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.... the Share Capital of the assessee company. 20. In view of the above facts, we hold that the AO was not justified in making sweeping observations such as fabricated and prepared documents as a made-up affair and AO was not justified in drawing adverse inference against the assessee when the assessee company has led all the evidences including bank statement etc. The learned AO has further gone wrong in drawing adverse inference on the basis of excel sheet which in fact support the case of the assessee. The AO was not justified in drawing adverse inference in respect of amount received from its director. The Director having appeared himself and having confirmed the amount being paid to the company and the assessment of the Director being made under Section 143(3), there was no reason for AO to make addition in the hands of the appellant company. The AO went wrong in drawing adverse inference on account of rotation of money from one Group Company to another Group Company. The AO cannot sit into the judgment of the assessee Group Company about rotation of the funds so long the sources of the funds are explained. The various case laws cited by the AO in the assessment order on....
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....e an addition of the aforesaid amount by alleging it to be an accommodation entry. It is the case of the assessee however, that the source of credits is fully explained. As contended, the amount were received by way of subscription from group companies namely M/s. Udhyam Mercandise Pvt.Ltd. The amount received by the assessee from M/s. Udhyam Mercandise Pvt.Ltd. was utilized to pay the loans received from M/s. Kamdhenu Enterprises Ltd. earlier. The aforesaid amount were utilized by M/s. Kamdhenu Enterprises Ltd. towards repayment of advance of M/s. Udhyam Mercandise Pvt.Ltd. It is the contention of the assessee that it is a case of inter-transfer of funds from one company to another which are part of the same group and thus no adverse inference can be withdrawn on the source of deposits with the assessee company. The assessee contends that the rotation of funds cannot be seen with suspicion so long as the source of funds are explainable as in the present case. 11. On perusal of the first appellate order and the assessment order, it is observed that the source of funds arising to the group companies to establish the bonafides of receipts by the assessee has not been examined. The....