TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 2167
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....n before this tribunal pursuant to discussions with the Learned Senior Advocate during discussions for preferring a tax case appeal in the case of a group company i.e. M/s Blessing Commercial Pvt. Ltd. before the Hon'ble Calcutta High Court. In other words, this cross objection was preferred by the assessee based on the advice of ld. Senior Advocate handling the income tax appeal before the Hon'ble Calcutta High Court in the case of Group Company of the assessee. The preliminary objection raised by the assessee in its cross objection is that the assessment was framed on a non-existent person inasmuch as the assessee company stood amalgamated with M/s Subhlaxmi Compusis Pvt. Ltd. vide order of Hon'ble Calcutta High Court dated 17.05.2012 with effective date from 31.03.2010. The assessee company stated that the assessment u/s 143(3) was framed by the ld. AO on 28.03.2013 for the assessment year 2010-11, on which date, the assessee company was not in existence. 3. We have heard rival submissions. We find that the assessee company got amalgamated with M/s Subhlaxmi Comusis Pvt Ltd with appointed date from 31.03.2010. This amalgamation has been duly approved by the Hon'ble Calcutta H....
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....n made towards share capital in the sum of Rs. 190,00,00,000/-, we find that the issue has been decided by the Co-ordinate Bench of this Tribunal on the exactly similar set of facts and circumstances in the Group Company of the assessee M/s Blessing Commercial Pvt. Ltd. in I.T.A. No. 271/Kol/2014 for assessment year 2010-11 dated 28.06.2017. For the sake of convenience the said order is reproduced hereunder: "This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-VI, Kolkata, (hereinafter the "Ld. CIT(A)"), dt. 19/11/2013, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the 'Act'), relating to Assessment Year 2010-11. 2. Facts in brief:- The assessee is a company and is engaged in the business of finance and investment. It filed its return of income for the Assessment Year 2011-12 on 22/09/2010, declaring -NIL- income. It showed a loss of Rs. 668/-. The facts as recorded by the Assessing officer in the assessment order are extracted below:- "Para 1.2.1 The assessee has shown receipt of under mentioned Share Capital of Rs. 1,90,00,000/- & Share Premium of Rs. 188,10,00,000/- during the....
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.... has shown receipt of Rs. 65 Crore as share application money from M/s Sayaji Marketing Pvt. Ltd., in later stage it appears that the total receipts from M/s Sayaji Marketing Pvt. Ltd. was Rs. 130 Crore. On being asked, the A/R cum Director explained that the assessee company received share application of Rs. 130 Crore from M/s. Sayaji Marketing Pvt. Ltd. But allotment was made for Rs. 65 Crore and balance amount of Rs. 65 Crore refunded to M/s Sayaji Marketing Pvt. Ltd. 3. The submissions of the assessee before the Assessing Officer are as follows:- a) Cheques were received as "cheques" or "endorsement of cheques", as share applicants money, for allotment of shares from three companies and thereafter the very same cheque were endorsed to another company for allotment of shares or as refund of the amount received. b) All the above transactions are valid transactions under the Negotiable Instruments Act, 1881 and that there is no embargo or prohibition on such transactions. c) The transaction can be termed as criss cross holding. The Assessing Officer thereafter verified the claims of the assessee and this process is recorded at Para 1.4.....
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....hankar Cold Storage (P.) Ltd. v. Joint Commissioner of Income-tax [2005] 144 TAXMAN 889 (CAL.) observed as under: - "Whether since assessee failed to establish genuineness of transaction and creditworthiness of investors, addition made by Assessing Officer was valid - Held, yes". It is also to be mentioned in this connection that the assessee company shown the source of receipts of share capital of Rs. 190,00,00,000/- (as credited in its books) as receipts through the above four cheques, which it failed to establish. Therefore, the concerned investment through those four cheques is also not established. Without introduction of any acting money or bank transaction, the assessee has managed to introduce share capital in the books of these companies. In view of the facts & circumstances and forgoing discussions, it is held that the arguments, explanations & submissions placed by the assessee company have no legs to stand upon. The entire transactions provide no sequence or consequence and are found to be unfit for consideration to be valid. It is fact that (A) the assessee credited a sum of Rs. 190,00,00,000/- in total in its books for Asst. Year 2010-11 as ....
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....be treated as unexplained cash credit u/s 68 of the Act. (d) No money has actually been received by the assessee and it was only a case of increase in capital by way of book entries. (e). The amount of capital has been counter balanced by simultaneous investment in share capital of other companies without actual movement of funds. (f). All the parties have confirmed the transactions and the assessee has discharged the onus that lay on it and hence no addition can be made. (g) If the transactions are sham transactions, as held by the A.O., no addition can be made. (h) He concluded that Section 68 of Act, does not apply. He deleted the addition and allowed the appeal of the assessee. 6. Aggrieved the Revenue is in appeal on the following grounds:- "1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that provisions of section 68 are not attracted in the addition of Rs. 190 Cr. On account of share capital, ignoring the facts that the appellant failed to establish the genuineness of the transaction, source of capital received and creditworthiness of the investors during the co....
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....ncome Tax (1991) 187 ITR 308 (SC) * D.C.I.T. vs. Bhartiya Hotels Ltd. Kolkata 'A' Bench of the Kolkata Tribunal ITA No. 941/Kol/2011 * Jatia Investment Co. vs. Commissioner of Income Tax (1994) 206 ITR 0718 * ACIT vs. Mahendra Kumar Agarwal (2011) 142 TTJ 0035 (UO) * ACIT vs. Kerala Transport Co. (1994) 50 TTj 0189 8.1. Alternatively and without prejudice to his argument that Section 68 of the Act is not attracted to the facts and circumstances of the case, he submitted that the assessee had produced confirmation letter, copy of Form-2, evidences allotment of shares as filed with the register of companies, all records declaring ROC filings etc. to prove the identity of the persons, genuineness of the transactions and creditworthiness of the party. He submitted that the cheque that has been received from the creditor is the source of the funds and the source of source is another cheque received by the creditor from another company and which in turn had received similar cheque from yet another company by way of circular transactions. Thus he submits that the identity as well as the creditworthiness is proved. He vehemently contended that t....
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....sessee maintained for any previous year....". 9.3. The contention of the assessee that receiving a cheque and not encashing the same but endorsing the same to a third party does not tantamount to "sum found credited in the books" is devoid of merit. In the case on hand, the sum was credited in the books as application money for allotments of share capital. Cheque validly received under the Negotiable Instrument Act 1881 is "any sum" and this sum was found credited in the books of account. 9.4. Reliance place by the assessee in the case of H.H. Sri Rama Verma vs. Commissioner of Income Tax (supra) is misplaced as in that case, the Hon'ble Court was interpreting the term "any sums paid". The Hon'ble Court held that any sum paid contemplates payment of amount of money and not a donation in kind, though convertible into money at a later stage. It was not a case where payment was made by way of cheque. Equity shares were donated. In the case on hand, a cheque was received by the assessee and a cheque comes within the definition of the term "any sum" as it is a payment of amount of money. 9.4.1. The decision of the Cochin Tribunal in the case of Kerala Transpor....
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....h the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed. There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case. The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved. 12. These being companies, which are registered with ROC,are artificial individual persons and hence, their identity has been proved. Coming to the creditworthiness of the creditor, the examination of the Balance sheet, Profit & Loss Account as well as....
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.... of allotment of shares at a huge premium by the fourth company. The fourth company in turn endorses this cheque to the first company as consideration for the allotment of shares at a huge premium by the first company to the fourth company. By this process the circuitous route of round tripping is completed. Through this process all the four companies have huge share capital and reserves and corresponding asset by way of investments in shares of the other group companies. We come to understand the modus operandi is to sell these companies having huge share capital and investments, to persons who have unaccounted money, by transfer of the shares at a nominal amount. The shares in these companies are sold at a ridiculously low value and consequently the management and control of this company is transferred. The purchasers of shares of the companies thereafter, show bogus sale of the investments held by such company to third parties through a chain of transactions, by way of layering and bring in their unaccounted money into that company. 14.1. Such practices have to be depreciated. In such cases the assessees cannot claim that the entire transactions are bogus transactions a....
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....pital. Certain other methods have also been prescribed. Premium cannot be charged as per the whims and fancies of the company. In cases where explanation or justification of the valuation of shares is given, to explain the basis on which share premium has been fixed, then no addition can be made, as the genuineness of the transaction can be held as explained. In this case no explanation whatsoever has been given. Under these circumstances we are of the considered opinion that the assessee has not discharged the burden that lay on it in proving the genuineness of the cash credits. We also find that the AO was right in holding that the assessee has not proved the creditworthiness of the share holder companies. The balance sheets, income tax assessments etc. show that the resources of these companies are limited. We now discuss the case law on the subject. 28. In the case of Nova Promotors and Finlease (P) Ltd. the Hon'ble Delhi High Court at para 18 and 19 held as follows: "18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz. (i) identity of the creditor....
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....cted without any evidence or upon a view of the facts which could not reasonably be " In the same case Lord Radcliffe expressed himself in the following words: "If the case contains anything exfacie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene." Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181(SC), which are as under:- "It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the factfinding authority has acted without any evidence or upon a view of the facts,....
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....re its own unaccounted monies. 29. At para 41 he further held as follows :- "41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of Mukesh Gupta and Rajan Jassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so- called ""share subscription monies" to the assessee. There was thus specific involvement of the assessee company in the modus operandi followed by Mukesh Gupta and Rajan Jassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P) Ltd. (supra)." 30. The case on hand the assessee company has links with the entry operator of Shri S.K. Jain. This is evident from the details filed by the assessee company in the form of assessment orders of the companies which have made share applications. Independent of this link we hold that the assessee has not proved the gen....
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....rough written documents to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient. the object and purpose for which payment was made etc. These fact are primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Thus, mere reliance on neutral documentary evidence cannot always be regarded a satisfactory discharge of onus. 12. Investment decisions, that too of investing in share capital at a premium in a private limited company, in the normal circumstances, unless there are other peculiar or personal reasons, entails due diligence by both the share applicant and the recipient company. This implies inquiry and verification by the persons behind the artificial entity. There have been a spate of cases where private limited companies have purportedly received share application money from unconcerned, unrelated parties without securing adequate protection of their investment and with other surrounding circumstances clearly indicative of racket or a seam. We reproduce a portion the ruling in Onkar Nath v. Delhi Administration AIR 1977 SC 1108, wherei....