TaxTMI 
TaxTMI 
2025 (7) TMI 971
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....g the fact that the assessee has failed to establish the identity and creditworthiness of the share applicants as well as the genuineness of transactions during the assessment proceedings." 3. The brief facts of the case are that the assessee-company is engaged in the business of various trading activities. During the year under consideration, the assessee company has shown net loss of Rs. 5,76,478/- from business as against turnover of Rs. 74,33,691/-. The assessee had filed return of income on 06.10.2014 declaring total income at Rs. 85,710/-. The case was selected for scrutiny assessment under CASS. The Assessing Officer thereafter completed the assessment u/s 143(3) of the Act vide order dated 30.12.2016, determining the total income of the assessee at Rs. 48,53,60,710/-, making addition of Rs. 48,52,75,000/- u/s. 68 of the Act on account of share application money received from nine different parties during the year under consideration. The Ld. CIT(A) deleted the entire addition of Rs. 48,52,75,000/-. 3.1 During the year under consideration, the assessee issued 40000000 convertible equity warrants on preferential basis @15 (Rs. 10 face value and Rs. 5 premium) per warran....
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....self relied on the statement of Shri Shirish C Shah who stated that the entire conduit companies were controlled by him. The Ld. CIT(A) held that the assessee-company acted as conduit and real income was earned in the hands of Shri Shirish C. Shah, the entry operator. 3.4 With regard to the assessee-company, now known as Evexia Lifecare Limited, formerly known as Kavit Industries Ltd, has received monies on account of convertible preferential shares from the following companies:- Sr. No. Name of the share applicants No. of shares applied during the year. Value of shares Receipt during the year. 1 Raghuvir International Pvt. Ltd. 9000000 13,50,00,000 13,56,00,000 2 Shree Sai baba Exim Pvt. Ltd. 7000000 10,50,00,000 7,55,75,000 3 SiIvercade Trading Pvt. Ltd. 4000000 6,00,00,000 6,48,00,000 4 Krystalklear Properties Pvt. Ltd. 3900000 5,85,00,000 3,52,00,000 5 Aprateem Trading Pvt. Ltd. 3600000 5,40,00,000 4,68,00,000 6 Ethan Construction Pvt. Ltd. 3300000 4,95,00,000 2,08,00,000 7 Saint Infrastructure Pvt. Ltd. 3200000 4,80,00,000 3,25,00,000 8 Gill Entertai....
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....ctively. The Ld. DR argued that, similarly, the company Silvercade Trading Pvt. Ltd., AAPCS3875B, which contributed Rs. 6,48,00,000/-, has not filed return of income for FYs 2008-09 and 2009-10 and for FYs 2010-11, 2011-12 & 2013-14 filed its return of income with a loss of (-)Rs.6200/-, (-) Rs. 12756 & (-) Rs. 45171 respectively. In a similar way, the company M/s. Aprateem Trading Pvt Ltd, AAKCA3649Q, which contributed Rs. 4,68,00,000/-, has not filed return of income for the AYs 2008-09 and 2009-10 and filed the return of income with a loss of Rs. (-)7425 and Rs. (-) 5784301/- for FYs 2011-12 and 2013-14 respectively. 4.2 The Ld. DR further submitted that M/s. Indivar Traders Pvt. Ltd., AACCI1585K, which invested Rs. 4.70 crores, did not file its return for FY 2008- 09 and, though returns were filed in later years, the reported income was minimal. M/s. Gill Entertainment Pvt. Ltd., AADCG6752B, which contributed Rs. 2.70 crores, did not file a return for FY 2013-14, and for other years reported either zero or negative profits. The case of M/s. Krystaiklear Properties Pvt. Ltd., PAN: AADCK1456A, which contributed Rs. 3.52 crores, but for all six years from FY 2008-09 to FY 2013-....
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....ch party, statement of transaction from their respective DPs pre and post allotment status were also submitted to enable verification of identity and genuineness of the share application money. The Ld. AR argued that the assessee has furnished the following comprehensive evidence in support of the genuineness of the receipt of application money during assessment proceedings: * List of names of applicant companies along with number of warrants and amount who have subscribed to the Convertible Equity warrants on Preferential basis. * Share application Form. * Ledger Confirmation of the parties for such investment. * Bank Statement of applicant companies. * Demat statement of applicant companies * Duly sworn Affidavit confirming the investment in preferential issue of the assessee company along with particulars of number of warrants applied for and complete details of payment made with name of the bank as well as PAN and registered address of the applicant company. * ITR Ack. Along with computation of total income of the applicant companies. * Audited Balance sheet and profit & Loss A/c of all applicant companies ....
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....on/inquiries were undertaken by the Assessing Officer, and even at the remand proceedings, only a general list of alleged shell companies is heavily relied on by the Assessing officer. The financial statement of the shareholder companies might have given some indication about abnormalities in their working but that merely cannot be basis to doubt the genuineness and credit worthiness because in various investment companies also one can find that there are no fixed assets and investments are regularly made in other companies. The Ld. AR argued that duty is heavily casted on the Revenue in such type of cases where the burden of proving has been shifted by the assessee to the revenue by way of furnishing all requisite documents and evidences. It was also argued that it is on the revenue to further dig out some material information including the statements of persons at helm of affairs of such companies, when the Assessing Officer while confirming the addition has merely taken the information from published List and public domains but nowhere any further investigation was carried out even when necessary details were available with him. The Ld. AR relied upon the judgment of jurisdictio....
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....ated or were under direct or indirect control of Shri Shirish C Shah. During the course of search, soft copies of books of accounts of such companies were seized from computer of Shri Shirish C Shah. It is also revealed that Shri Shirish C Shah had systematically maintained User ID and password of bank accounts of various companies including that of the assessee company. Blank cheque books of various companies along with some cheques duly signed by directors of the companies were also seized during the course of search. 4. Documents evidencing transfer of funds from one company to other company and by other company to third company and so on were also seized. 5. During the course of search and from statements of Shri Shirish C Shah, it was revealed that he had been engaged in providing various sorts of accommodation entries to various parties through such entities which were directly or indirectly either associated or controlled by him. 6. Considering the fact that all the transactions were carried out at the instances of Shri. Shirish C Shah and the fact that directors of the assessee company were merely tool in the hands of Shri Shirish C Shah and Shri ....
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....y operator. The Revenue has also argued that the ITAT Bombay has already treated Shri Shirish C. Shah as Entry Operator who routed funds through a web of investor companies acted as conduit in channelizing the amounts to various entities. The assessee being the beneficiary of the accommodation entries received has been rightly taxed under Section 68 of the Act. On the other hand, the Ld. AR argued that the assessee if deemed to be the recipient of the monies on standalone basis as an entity, he has discharged all the requirements to prove the identity, genuineness and creditworthiness of the companies from which the amounts have been received. Alternatively, since the monies have been received and utilized by transfer them to different entities, the assessee be treated as not the final beneficiary but as a conduit. 6.2 We have given our thought as to whether the assessee is the final beneficiary of the accommodation entry operation or a conduit. To be a conduit, the assessee has to be a company floated, managed and operated by Shri Shirish C. Shah. We find that the assessee company is neither floated nor operated by Shri Shah who is the entry operator. The assessee is engaged in....
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....td., Krystalklear Properties Pvt. Ltd., Apratem Trading Pvt. Ltd., Ethan Construction Pvt. Ltd., Saint Infrastructure Pvt. Ltd., Gill Entertainment Pvt. Ltd. and Indivar Traders Pvt. Ltd. It is also an undisputed fact on record and proved that these entities have been part of the entry operation perpetuated by Shri Shirish C. Shah and all the evidences to prove that these are the accommodation entries given by the above 9 conduit companies for the benefit of the assessee. The assessee is the ultimate beneficiary but the Ld. CIT(A) erroneously held the assessee to be a conduit company. 6.4. Further, we have given our careful consideration to the rival contentions, the voluminous documentary evidence placed on record, and the detailed factual matrix that emerges from the assessment proceedings, appellate findings, and the additional material furnished during the course of hearing. The second core issue is whether the assessee has satisfactorily discharged the statutory burden under section 68 of Act in respect of the sum of Rs. 48,52,75,000/- received during the year on account of preferential allotment of convertible equity warrants to nine companies, which the Revenue characteri....
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....nd it extremely unlikely that independent investors, acting in their own commercial interest, would invest such substantial amounts in the assessee, a company without any demonstrated growth trajectory or profitability, without conducting any due diligence, seeking any valuation, or documenting any commercial rationale. There is no material to suggest that the investors even engaged in correspondence with the assessee prior to investment, or that their boards recorded such decisions. What we see is a uniform pattern of mechanical documentation and immediate fund transfer, without any behavioral indication of independent investment intent. 6.8 Compounding the problem is the assessee's own handling of the funds. The entire amount received as share application money was not retained or applied in the assessee's business. Instead, it was immediately routed out as unsecured, interest-free advances to 34 entities, most of which are unconnected to the assessee's business. No loan agreements, repayment terms, or security instruments were produced. The parties to whom advances were given are themselves entities with low financial profiles, and several bear signs of being under the same g....
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....factors into account namely, the absence of financial capacity in the investors, the contrived pattern of fund inflow and immediate diversion, the lack of business rationale in the application of funds, and the failure to disclose any ultimate beneficiary, we hold that the assessee has not discharged its burden under section 68. The explanation furnished is neither satisfactory nor credible. The legal presumption that unexplained credits are income of the assessee, unless otherwise explained, therefore operates fully in this case. With regard to the case-laws relied on by the Ld. AR before us, we find that the decision in the case of Pr. CIT Vs. Vijay Conductors India Pvt Ltd (supra) is not applicable in the present facts of the case as the same are different to the present case. In case of Omni Farms (P.) Ltd., the assessee was also part of the same group entities but in the present case the assessee herein is saying that he is not part of the same group. It has been already proved and held by us that the assessee is not a conduit. The decision of the Ahmedabad Tribunal in the cases of KFC Industries Pvt Ltd (supra) & Chintan Niketan Bhandari (supra), the facts are distinguishable....
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....erial cannot lead to a conclusion that the AO has to discredit the same or call for further details in the event of non-satisfaction. The burden of the assessee is to offer satisfactory-explanation and if the materials and documents produced by the assessee does not lead to a proper, reasonable or acceptable explanation as regards the receipts in the books, the Assessing Officer is perfectly entitled to record his nonsatisfaction. 6.13 In light of the above, we find that the Assessing Officer was fully justified in treating the amount of Rs. 48,52,75,000/- as unexplained income of the assessee. The deletion of the addition by the CIT(A), based on an untenable conduit theory and on estimation of notional commission, is not sustainable. The Assessing Officer's order is restored, and the appeal of the Revenue is accordingly allowed in its entirety. 7. In the result, the appeal of the Revenue is allowed. The order is pronounced in the open Court on 10.07.2025 ============= Document 1 St. Name of Allottees PAN No Shares Applied Total Consideration (in Rs.) Date of Receipt Application Amount Received Date of Receipt Amount Received Name of Party PAN No. Silvercade Trad....
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....NATIONAL (ASIA) LTD AADCA4412E 27,000,000 27,000,000 Krystalklear Properties Pvt Lid AADCK1456A . : 3.900,000 . 58,500,000 22-Jan-14 2,500,000 22-Jan-14 2,500,000 GCV SERVICES LIMITED AABCG1251H 22:Jan-14 20,000,000 22-Jan-14 20,000,000 SUHASIT STAR TRADING PVT LTD AAPCS3728K 25-Atar-14 12,700,000 25-Mtn-14 12,700,000 ALLIED COMPL TERS INTERNATIONAL (ASIA) LT') AADCA4412E 35,200,000 35,200,000 Saint Infrastructi : Pvt Ltd AARCS18ION · 3,200,000 48,000,000 22 an-14 22,500,000 22-J :. - 14 22,500,000 SUHASIT STAR 'RADING PVT LTD AAPCS3728K 6- - ar-14 5,000,000 6-M -14 5,000,000 ALLIED COMPI FERS INTERNATIONAL (ASIA) L › AADCA4412E 10-iar-14 5,000,000 8-M .14 5,000,000 PRABHAV IND STRIES LIMITED AAACE4247Q 32,500,000 32,500,000 Details of source of funds 3 Dela Is of Receipt of Funds from Preferential Allottees F Y 2013-2014 Atreya Petrochem Ltd ST. No Name of Allouees PAN No Shares Appilied Total Consideration (in R.s.) Date of Receipt Application Amount Received Date of Receipt Amount Received Name of Party PAN No. Ethan Construction Pvt Ltd AACCE2711P 3,300,000 49,500,000 7-Feb-14 6,300,000 7.Fe....