TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1093
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....soya Group' on 29.01.2012 and the assessee being the group company was also covered. However during the assessment proceedings the AO was not satisfied with the explanation of share premium and consequently made addition of Rs. 10,81,38,000/- u/s 68 of the Act and further addition u/s 14A of the Act were also made. 4. On appeal, Ld. CIT(A) deleted the addition u/s 68 of the Act but sustained addition u/s 14A of the Act. 5. Now after having heard the counsels for both the parties at length, perusing the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. We found from the records that while making the additions AO has observed as under: 7.1.1. Observation in the assessment order- In the assessment order, the AO has observed as under - "During the course of assessment proceedings, it was found on perusal of the balance sheet that the assessee had increased its authorized share capital from Rs. 5,51,00,000/- (55,10,000 shares of Rs. 10/- each) to Rs. 6,11,00,000/- (61,10,000/- shares of Rs. 10/- each). The assessee was asked to submit the details of the shares allotted during the year along with the share premium charged. The....
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....sh Virgin Islands, the same does not even include the names of the shareholders of the company. With regard to the other company i.e. Trade Overseas Ltd., the assessee has not filed even the above said documents and as such the assessee has not been able to prove the identity of the above said companies. The assessee has not filed any evidence to prove the identity of Ms Bhavana Goel. The assessee has not furnished any evidence which goes to prove the creditworthiness of the above said parties/companies. The assessee has not been able to file the balance sheet, profit & loss account and other documents of the companies investing in the share capital of the company to prove the creditworthiness. of the companies. The bank statements filed by the assessee are only for the specific period i.e. when the payments towards the share capital had been made. The source of the credit in the bank accounts of the persons investing in the share capital of the assessee is not proved. It is seen from the bank account of Trade Overseas Ltd., that there are certain credit entries from National Steel & Agro Industries which is a related/ sister concern of the assessee company. Similarly, the bank sta....
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....o to section 68 of the I.T. Act, specifies as under: Sr. No. Name of the Party Address of the Party Amount of in equity 1 Trade Overseas Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 2,50,35,141/- 2 East West Global Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 1,20,60,051/- 3 East West Global Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 1,07,27,800/- 4 East West Global Ltd. Meadow-2, Villa 5, Street-8, Emirates Hills, Dubai (U.A.E.) 53,93,787/- 5 Mudit Goel/Or Bhavna Goel Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Virgin Inslands 2,74,02,752/- 6 East West Global Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Building, P.O. Box 659, Road Town, Tortola British Inslands Virgin 1,36,10,892/- 7 Trade Overseas Ltd. Trident Corporate Services (B.V.I) Limited of International Trust Buildin....
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....; Allegations Appellant's Rebuttals Trade Overseas Limited * No documents submitted prove creditworthiness. * Balance sheet and profit and loss and other documents of companies investing in the share capital of the Appellant. * The source of the credit in the bank accounts of investors is not proved. Refer item no. 13 and para 14 of Table 2 on page 5 and 6, para 22 on pages 9 and 10, 33 on page 14 and 15 East West Global Limited * No documents submitted prove creditworthiness. * Balance sheet and profit and loss and other documents of companies investing in the share capital of the Appellant. * The source of the credit in the bank accounts of investors is not proved Refer item no. 13 and 14 of Table 1 on page 5, para 22 on pages 9 and 10, para 34 on pages 15 and 16 Bhavna Goel * No documents submitted to prove creditworthiness. * The source of the credit in the bank and account of investor is not proved. * Bank statement is for one day i.e. 3 January 2013 Refer item no. 13 of Table 3 on pages 6 and para 23 on page 10 Genuineness of the transaction Name of the investor Ld. AO allegations Appellant rebuttal Trade overseas Ltd Certain credit entries from ....
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....investor reflecting payment made to the appellant 80-81 14. Audited Financial Statements for the year ended June 2013 63-79 Table 2 - In relation to shares issued to M/s Trade Overseas Limited Sr. No. Particulars Page number of the Factual Paper Book Establishing the identity of the shareholder 1. Details of name and address of the investors 82-83 2. Certificate of incorporation 84 3. Memorandum of Association and Articles of Association 85-99 Establishing the genuineness of the transaction 4. Form of application for equity shares 100-102 5. Allotment advice issued to the investors 103 6 Form FIRC 104-116 7. Form FC-GPR 117-128 8. Confirmation of investment by the investor 100-102 9. Share Certificate issued by Appellant 212-214 10 Board resolution for allotment of shares to the investors 208 11. Form 2 - Return of Allotment filed with ROC 193-196 12. Extract of Bank statement of the Appellant 197-207 Establishing the creditworthiness of the Shareholder 13. Extract of Bank statement of the investor reflecting payment made to the Appellant 145-146 14. Audited Financial Statements for the year ended June 2013 129-144 Sr.....
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....n of Section 68 in the Act is to assess such income when it surfaces and assess it in the hand soft he person in whose book it surfaces. The above section, as applicable for the year under appeal, casts an onus upon an Assessee, the duty to adequately, satisfactorily, and substantively explain the source of any cash credit in his books of accounts and no further. 7. As laid down by various Courts the three important ingredients of section 68 of the Act are proof of identity and creditworthiness of the investor and genuineness of the transaction. The various ingredients of Section 68 of the Act and the manner in which they need to be satisfied, in the light of various judicial decisions are discussed below: - A. IDENTITY In order to prove the identity of the Investor an Assessee is required to prove, based on concrete documentary evidence, that the Investor exists and is uniquely identif iable based on certain characteristics/distinct features. B. CREDITWORTHINESS In common as well as financial parlance, the creditworthiness of an Investor refers to an assessment of his ability to lend money based on an analysis of his/their financial and other parameters. The said me....
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....10. Learned AO's allegations that MOA and AOA do not contain the name and address of the shareholder are merely a conjecture. Certificate of Incorporation is a statutory document issued by the Authorities of BVI in accordance with their legal requirements. As per the domestic law of the investor's country there are formats / templates for MOA and AOA and FICs have complied to such formats and templates in which there is no requirement for the inclusion of name of the shareholder/member in the MOA and AOA. Accordingly, merely because the name of the shareholder is not mentioned in the MOA / AOA does not render the document invalid especially when such document is duly and validly issued by the Regulatory Authority of a third country in compliance with their own laws. 11. Further, since none of these companies are assessed to tax in India, documents like PAN and income tax returns are not available. Additionally, audited financial statements of both companies have been submitted with Your Honors as part of the Factual Paper book. Financial statements, on pages 72 and 137 of FPB, clearly depict the name of the shareholder of the FICs. This should fully meet learned AO's requirement....
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.... material on record to prove or even remotely suggest that the amounts received have emanated from the coffers of the Appellant Company. In fact, it may be reiterated that the share application money was received through normal and regular banking channels, which fact stands duly corroborated and confirmed by the documents duly placed on record. Allegations by learned AO 17. The Learned Ld.AO has alleged the following: * No documents submitted to prove creditworthiness. * Balance sheet, profit and loss and other documents of companies investing in the share capital of the Appellant are not submitted. 18. Without prejudice to the above that the Appellant is not required to prove the source of source of funds, the Appellant submits the financial statements of FIC to prove their creditworthiness (refer to pages 63 to 79 and pages 129 to 144 of the FPB). A snapshot of the net worth of FIC and investment made in the Appellant is provided as below: Table 4:Networth of FIC and investment made. Sr. No. Name of the Investor Total Amount invested Net worth of the investor companies (Investment/net worth)(%) 1 Tade Overseas Ltd 3,86,46,000 28,75,95,826 13.44 2 ....
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....- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.". (Emphasis supplied) 21. The Finance Act, 2012 has amended section 68 by insertion of the above-mentioned proviso (w.e.f. 1 April 2013) so as to make it applicable to receipt of share application money, share premium, share capital, or any such amount by a closely held company from a resident in the absence of satisfactory explanation. 22. It is submitted that the provision of section 68 cast primary onus on the assessee to explain the sum credited in its books of account. Hitherto, the assessee was under no obligation to explain the source of the source. The Explanatory Memorandum to the Finance Bill, 2012 states that it is "an addition....
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....he transactions along with supporting as mentioned herein above. The Appellant is not under obligation to explain the source of source that to when the investor is a foreign company. It is a settled question of law that the assessee ought to explain the source of credit and not source of source of such credit. Thus, the statement by the learned AO that the source of credit in the bank accounts of the person investing in the share capital not proved is of no relevance and out of place since there is no onus on the Appellant to prove the source of source as discussed above. 26. In this regard, Your Honors attention is invited to the decision of the Hon'ble Delhi High Court in the case of CIT vs Kamdhenu Steel & Alloys Limited and Others (2012) 206 Taxman 254 (Delhi) wherein the following has been held: - "38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection ....
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....t has been subsequently dismissed by their Lordships of the Hon'ble Supreme Court and as such the decision of the Hon'ble Delhi High Court in the case of CIT vs Kamdhenu Steel & Alloys Limited and Others (supra) has attained conclusive judicial finality. 27. Reliance is further placed on the following judgments wherein it has clearly been held that no addition under section 68 based on an attempt to look into the source of the source of deposit can be sustained: * Commissioner of Income-Tax vs Orissa Corporation (P) Ltd [(1986)159ITR78(SC)]; * Deputy Commissioner of Income Tax vs Rohini Builders[(2002)256ITR360 (Guj)]; * Nemi Chand Kothari vs Commissioner of Income tax and Another [( 2003)264ITR254 (Gauhati)]; * CIT vs Shiv Dhooti Pearls & Investments Ltd [(2016) 237 Taxman104 (Delhi)]; * Zafar Ahmad & Cov CIT, Varanasi [(2013) 30 taxman. Com 267(Allahabad). Further, section 68 only sets up a presumption against the assessee whenever unexplained credits are found in the books of account of the Assessee. It cannot but be said again that the presumption is rebuttable. In refuting the presumption raised, the initial burden is on the assessee. This burden, which is....
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....rtment upheld the ITAT order reported in [2013] 37 taxmann.com 400 (Delhi - Trib.) that if the identity of non-resident remitter is established and money has come in through banking channel, it cannot be treated as deemed income under section 68 or 69 of the Act. In the decision, while granting relief, the ITAT had relied on the aforesaid CBDT Circular No.5 dated 20 February 1969. The relevant extract of the same is reproduced here in under for Your Honor's ready reference. "On the issue CBDT Circular and Finlay Corporation judgment (supra) also we are in agreement with the ld. Counsel for the assessee that in these circumstances of the case moneys remitted by non-residents through banking channel outside India has to be held as capital receipts, not exigible to tax and cannot be treated as deemed Income on the fictions created by sections 68 and 69 of the Act. In consideration of all these observations, we are inclined to hold that the share application money as raised in the ground so appeal cannot be held as non-genuine and added as income of the assessee u/s 68 of the Act. Consequently, additions made on this count, as raised in grounds of appeal, are deleted. Assessee's....
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....he said credit entry in the bank account of Trade Overseas Limited is on account of the dividend on preference shares declared and paid by the said Company. The same can also be verified from Schedule 12 of the audited financial statements of Trade Overseas Limited on page 144 of the FPB. Merely because there is a dividend earned from an Indian company does not render the monies any dubious character. East West Global Limited (pages 80-81 of FPB) Sr. No. Date Name of the Party Amount credited (in USD) Amount debited (in USD Nature of transaction 1. 16-Oct-12 Universal Infrastructure Middle East FZE 4,95,000 - Export Revenue 2. 21-Oct-12 Benco Finance and investment - 2,25,000 Investment in shares of the Appellant - Rs. 1,20,60,052 3. 24-Oct-12 Benco Finance and investment - 2,00,000 Investment in shares of the Appellant - Rs. 107,27,800 4. 24-Oct-12 Sfuma Global AGS 2,60,444 - Export Revenue 5. 24-Oct-12 Sfuma Global AGS 2,39,123 - Export Revenue 6. 24-Oct-12 Sfuma Global AGS 2,32,972 - Export Revenue 7. 24-Oct-12 Sfuma Global AGS 1,60,650 - Export Revenue 8. 29-10-12 Benco Finance and investment - 1,00,000 Investment in shar....
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....41,200 34 As stated above, the Appellant raised funds from its promoter's relatives, friends and other known investors at a fair value of Rs. 100 per share through private placement of shares. It may be noted that the ordinary book value of the shares computed as per the latest available balance sheet at the time of making investment i.e. 31st March 2012, was around Rs. 141 per share determined as follows: Particulars Amount (in Rs.) Share Capital 5,01,12,670 Reserves and Surplus 65,80,99,459 Total Net worth / Shareholder's funds 70,82,12,129 Number of shares outstanding as on 31 March 2012 50,11,267 Book value per share as on 31 March 2012 141 35 Keeping the above in mind, based on mutual negotiation and prevailing circumstances then Rs. 100 per share was agreed between the parties as the fair price of the shares for the purpose of issuance of shares. Accordingly, the Appellant had issued shares at fair value of Rs. 100 per share to the aforesaid 3 investors. 1. The Appellant would like to rely on the ruling of the Hon'ble Bombay High Court in the case of PCIT v. Ami Industries (India) (P.) Ltd .[2020] 116 taxmann. Com 34 (Bombay) wherein a copy of PAN, inc....
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....business transactions they carried on in the immediate past and as to how much they made from their respective business enterprises. The assessee cannot also call upon its investors to prove their good business sense in investing in the assessee- company, as such investors cannot gain any controlling stake." 38 respect of the shares issued at a high premium, the Appellant would like to rely on the Hon'ble Mumbai Tribunal ruling in the case of ITO v. Chiripal Poly Films Ltd [2019] 104 taxmann.com 172 (Mumbai - Trib.) which is reproduced as under: "21. Even amendment to section 68 brought by Finance Act, 2012 does not refer to valuation. The insertion of the proviso to section 68 of the Act by Finance Act, 2012 casts an additional onus on the closely held companies to prove source in the shareholders subscribing to the shares of companies. During the course of the hearing, the Ld Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation o....
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....ts, the learned AO has merely proceeded to question, without any basis, a legally compliant and correctly executed business transaction. 43 It may again be emphasized that the entire amount has been received by the Appellant Company through normal banking channels by account payee cheques/demand drafts/electronic transfer. The evidence furnished clearly reveals the source of funds, in fact the source of source of funds, particulars of the bank account through which payments had been received, and the Income-tax particulars whereby the identity and creditworthiness of the lender are established conclusively. The Appellant Company has comprehensively discharged the onus cast upon it by Section 68 of the Income-tax Act, 1961 requiring it to prove the identity and creditworthiness of the parties and the genuineness of the transactions. It has furnished all requisite documentary evidence(s) as envisaged by the statute in this regard. There is no direct or indirect or even conjectural evidence to disprove the transactions in any manner. 44. Further, additional case laws in support of the claim that no addition ought to be made in the instant case are discussed in detail in Annexure....
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.... AO has relied upon the two decisions i.e M/s. Navodaya Castle Pvt Ltd Vs. CIT and M/s Global Metal & Energy Pvt Ltd but in our view the parametria contained in those decisions are different from the facts of the present case. Therefore the same are found not applicable. Even the conclusion of the AO with regard to branding the transaction of the assessee has "accommodation entries" does not have any foundation at all. No new facts or circumstances or documents have been placed before us to rebut or confront the orders passed by Ld. CIT(A). therefore we have no reason to interfere into the well reasoned order passed by the Ld. CIT(A). Therefore we dismiss this ground raised by the revenue and uphold the order of the CIT(A). CO No. 65/Mum/2025, A.Y 2013-14 8. As far as the addition u/s 14A of the Act are concern, in this regard, we noticed that assessee has taken specific ground that he had not received any exempt income during the year under consideration, therefore disallowance u/s 14A is uncalled for, but stand of the revenue is that CBDT Circular No. 5/2024 makes it clear that expenses which are relatable to earning of such exempt income, have to be considered for disallowanc....