TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 2075
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....be decided in the appeal of the revenue is as to whether the Id CITA was justified in deleting the addition made towards share application money in the sum of Rs 2,41,20,000/- u/s 68 of the Act in the facts and circumstances of the case. 4. The brief facts of this issue are that the assessee company is engaged in the business of trading in suiting and shirtings. The return of income for the Asst Year 2007-08 was electronically filed by the assessee declaring total income at Rs Nil. The case was reopened u/s 147 of the Act by issuance of notice u/s 148 of the Act dated 24.3.2014 on the basis of information received from DDIT (Inv .- Unit -III(2)), Mumbai that in the statement recorded in search and seizure action carried out in the case of Shri Praveen Kumar Jain Group on 1.10.2013, he had admitted that the only activity carried out by all the concerns controlled by him was to providing accommodation entries. 4.1. The ld AO observed that during the year the assessee received share application money with premium on account of private placement to companies totaling to Rs 2,41,20,000/- as under :- Nakshatra Business Pvt Ltd (Hema Trading Company Pvt Ltd) - Rs 25,20,000/....
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.... 107000 10 50 1070000 5350000 6420000 2 20.6.06 Reynolds Petro Chem Ltd 85000 10 50 850000 4250000 5100000 3 25.7.06 Javda India Impex Ltd 42000 10 50 420000 2100000 2520000 4 25.7.06 Lexus Infotech LTd 42000 10 50 420000 2100000 2520000 5 25.7.06 Utkantha Trading Pvt Ltd 42000 10 50 420000 2100000 2520000 6 25.7.06 Hema Trading Company Pvt Ltd 42000 10 50 420000 2100000 2520000 7 25.7.06 Real Gold Trading Co. Pvt Ltd 42000 10 50 420000 2100000 2520000 402000 4020000 20100000 24120000 4.4. The assessee also submitted the following documents in support of the aforesaid receipt of share capital and share premium a) Share application forms made by all the above companies duly signed by their respective authorized signatories. b) Confirmation from the above parties confirming that the payments have been made through regular banking channel....
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....adopted by Shri Praveen Kumar Jain with the help of certain brokers and how the unaccounted money was laundered by various concerns in the form of bogus purchases, bogus unsecured loans and bogus share capital and premium. The ld AO in para 3.19 of his order accepted the fact of retraction statement of Shri Praveen Kumar Jain submitted before the investigation wing and observed that the same cannot be accepted as retraction was done after a considerable lapse of time. Accordingly, the ld AO proceeded to treat the sum of Rs 2,41,20,000/- being share application money / share capital and share premium received from aforesaid 7 persons as income u/s 68 of the Act and added the same to the total income of the assessee. 6. The assessee before the ld CITA reiterated the contentions raised before the ld AO apart from placing reliance on various documentary evidences as listed above. The assessee also submitted that assessee had requested for a copy of the statement of Shri Praveen Kumar Jain before the ld AO which was the main basis for making the entire addition in the hands of the assessee. It was pleaded that the ld AO however, did not provide the statement copy / extract of the sta....
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....hare application money, are treated as non-genuine borrowings by the AO. 6.3.3. Certain conclusions are obvious, One, the AO himself is not so clear about facts and has referred to mostly the material facts which are not relevant to the case. Two, the AO has referred to any adverse material in the cases of share applicants that are being dubbed by him to be benamis of Shri Pravinjain. 6.3.4. Hence, it is to be inferred that the quality of evidence, specific to the appellant is but poor and not fully relief upon. This flaw' is further magnified as the adverse material if any (report of the Investigation Wing and alleged confessional statements of Shri Pravin Jain and others) have never been brought on record by making them available to the appellant. From the impugned assessment order, it is seen that though the AO appears to have taken the view that the impugned share applicants are mere entry providers and that the impugned share application money entries have been obtained by the appellant against payments made to the said entry providers in cash, who specific material has been brought on record to show that creditors, from whom the impugned share money of R....
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....iolation of the principles of natural justice, a fundamental point to the validity of the proceedings, before the AO. 6.3.8. The facts of the appellant's case are identical to those of in the case of H.R.Mehta decided by the Bombay High Court through an order dated 30/06/2016 in ITA No.58 of 2001. In that case, the assessee had adduced evidence by way of bank record to show that loan had been received from a creditor through banking channels. The creditor was not physically traceable, as much time had elapsed and his address had changed. The assessment had been reopened on the basis of third party evidence collected in a search action in the case of a charitable trust. Despite specific request in this regard, the AO concerned did not provide to H R Mehta a copy of the appraisal report and third party statement etc. and proceeded to treat the loan as unexplained. The Hon'ble High Court struck down the order of reassessment by observing that revenue was justified in making the addition without having first given the assessee an opportunity to cross examine, the deponents on the statements relied upon by the ACIT. The relevant discussion, contained in paragraphs 16 & ....
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....demand, is a serious flaw which makes order a nullity, as it amounts to violation of principles of natural justice. 6.3.10. In the case of Kishinchand Chellaram vs. CIT, Bombay City II 11980] 125 ITR 713 (SC), it has been held by the Apex Court that in income tax proceedings when an evidence is to be used against the assessee and if it is not shown to the assessee and if no opportunity to controvert is given to the assessee, that evidence is not admissible. It further held the department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. Before, the income tax authorities could rely upon the evidence, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him. 6.3.11. On principles of Natural Justice, it has been held by the Apex Court in the case of swadesh Cotton Mills vs Union of India in 1981 AIR 818 that phrase "Natural justice" is not capable of a static and p....
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.... for the revenue to reject the appellant's -valuation is supplied to the appellants, the -Hants perhaps will have the opportunity to dispute the comparability of the import actions allegedly contained in the computer printout on various counts may not be possible to catalogue. 23. In UK absence of any material produced by the revenue in proof of the alleged comparable imports at a higher value, the impugned order which eventually confirmed the original order of assessment ..... cannot be sustained for two reasons - (1) the mere existence of an alleged computer printout is not proof of the existence of comparable imports; (2) assuming such a printout exists and the contents thereof are true, the question still remains whether the transaction of the appellant. The appellant will have to be given reasonable opportunity to establish (if he can) that the transactions are not comparable." 6.3.14 Going by the discussion contained above, it is obvious that the inference drawn by the AO against the appellant is not sustainable for the simple reason that the principles of natural justice have not been followed. First and foremost, the appellant has not been given any ac....
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....it is open to the revenue to held that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source [Roshan Di Haiti vs. CIT [1997] 107 ITR 938(SC). Thereafter the ld CITA placed reliance on various judgements in support of his findings in para 6.3.18 (i) of his order. 7.1. The ld CITA further observed with regard to the issue of share premium, share application money and share capital as under :- "6.3.18.ii. As regards issue related to additions for share premium amount included in the share application money share capital money, reference is made and reliance is placed to the various Judicial Pronouncements. These are as under: (i) In the case of M/s. Vodafone India Services Pvt Ltd vs. Addl. CIT reported in 368 ITR 001, Hon'ble Bombay High Court decided that : - "The amounts received on issue of share capital including the premium are undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 56(2)(viib) of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the Act. However, what is bought into the ambit of income ....
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....ot required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipts and is not income for its ordinary sense ......, The entire dispute revolves around the fact that the assessee has charged a premium of Rs.190/-per share. No doubt a non-est company or a zero balance sheet company asking for Rs.190/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head "Income from other sources" by inserting Clause (viib) to Sec.56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee ....
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....commercial prudence, but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a very premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land." (v) In the case of CIT vs. Goa Sponge and Power Ltd reported in Appeal No. 16 of 2012, Hon'ble Bombay High Court decided that: "Once the authorities have got all the details, including the name and 'addresses of the sltareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Telefilms Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of....
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....ppeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for." (ix) In the case of CIT vs. Expo Globe India Ltd reported in 361 ITR 147, Hon'ble Delhi High Court decided that: "It has been held by Hon'ble Supreme Court and various High Courts that no addition can be made on account of share application money once the names of the share applicants are given. In the instant case, identity of these persons are not or doubt and assessment particulars of all the persons are on record and then hold that credit worthiness of these persons are not established. The judgement of Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also the juedgement of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt. Ltd 307 ITR 334 are relevant of this issue. It was held by Hon'ble Madras High Court in the case of CIT vs. Electro Polychem Ltd. 294 ITR 661 and Hon'ble Allahabad High Court in the case of Securities Ltd 166 Taxman 7 that no addition can be made on account of share application money ev....
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....nnel. As stated earlier, it has been explained by the Ld.AR that the companies who has invested share application money with the appellant company are existing company and they are verifiable on the website of Registrar of Company and they are having their own CIN Number, PAN Number and regularly filing returns. As regards genuineness of transactions of share application money through banking channel and credit worthiness of the party having sufficient own funds in their books/balance sheet, this may be seen from the charts given in subsequent paragraphs. 6.3.21. In the case before me, the record also shows that to prove the genuineness of the impugned share application money from the said parties, the appellant has furnished to the AO the various details which has been also produced during the course of appellate proceedings and may be seen from the appellant's submissions reproduced above and therefore, for the sake of brevity not being repeated here. 6.3.22. The various facts and figures related to these issues can be seen from the various charts as narrated below: Siveta Synthetics Private Limited A.Y .: 2007-08 SI. No. applicant/Loan Det....
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..../c before issuing of cheque 325541 26-07-2006 20,000.00 25,20,000.00 2,41,20,000.00 2. Genuinity of persons/creditors Sl. No. Name Of Parties PAN Details CIN Whether Existing Company with ROC/ Latest Annual Return Filed 1 Reynolds Petro Chems. Limited AABCR1282P 31-03-2016 2 Rush Hindustan Entertainment Limited AACCK3597M U921HMH2003PLC143690 31-03-2016 3 Javda India Impex Limited AAACA7065L U67i2oMHi995PLCo88743 31-03-2016 4 Realgold Trading Company Private Limited AACCR4512K U51909MH2003PTC139464 31-03-2016 5 Utkanda Trading Private Limited AAACU6984E U5i909MH2004PLCi46o6i 31-03-2016 6 Hema Trading Company Private Limited AABCH4279G U5i909MH2004PTCi45254 31-03-2016 7 Lexus Infotech Limited AAACL4646G U74999MHi998PLCii6845 31-03-2014 l. Transactions through bank 3. Sources of Funds of the contributors / Share holders/applicants/loan cre....
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....i Road, TulinjNallasopara (E) Thane, Maharashtra 401209 In Rs. 1,00,000 i. Equity Shares Rs. 1,00,000 Rs. 25,20,000 2. Reserves & Surplus Rs. 14,72,665 3. Borrowed Fund Rs. 4,15,51.315 6 Nakshatra Business Private Limited formerly known as Hema Trading Company Private Limited As on 31.03.06 Own Fund Own fund of being Rs. Rs. 1,79,33,155 i. Equity Shares Rs. 1,76,00,000 Rs. 25,20,000 1,79,33,155 is higher than the amount received Address: 211, 2nd Floor, Near Sejal Glass, Balaji Arcade Premises, S.V. Road, Kandivali -W Mumbai, Maharashtra 400067 2. Reserves & Surplus Rs. 3,33,155 7 Triangular Infocom Limited As on 31. 03. 06 Own Fund Own Fund of party being Rs. 2,03,39,339 is higher than the amount received Formerly known as Lexus Infotech Limited Address: Cs-2, Silver Ankle tyari Road, Versova, Mumbai 400 061 Rs. 2,03,39,339 i. Equity Shares Rs. 2,01,32,000 Rs. 25,20,000  ....
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....e appellant for any rebuttal. The unequivocal conclusion is that all the 3 ingredients having been satisfied, the impugned share application money have to be treated as explained satisfactorily and the AO was not justified in having disregarded overwhelmingly supportive evidence. No cogent material was adduced by him to show that loans were unexplained. Therefore, the impugned addition of under the heading share application money as made in the assessment order, fails on several counts - (1) reliance on evidence that is totally inadequate (2) failure to make available incriminating material (reports, statements etc.) forming basis for action by the AO (3) failure to give due opportunity to the appellant to cross examine witnesses, whose statement might have been relief upon; and (4) failure to recognize the satisfactory nature of explanation / evidence tendered by the appellant to explain identity of creditors, creditworthiness of the creditors and the genuineness of the loan transactions. Hence, the impugned addition cannot be sustained. 6.3.24. In view of the facts and circumstances of the case as well as judicial pronouncements referred and relied above by me and also c....
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....with the said investor companies on the said evidences furnished by the assessee. 9.2. We find that all the investor companies are having sufficient creditworthiness to make investment in the assessee company which would be evident from the table hereinbelow :- Details & capacity of share Holders Name of Applicant Share Capital Reserve Secured Loans Total Income Invested 1) Hema Trading Company Pvt Ltd 17,600,000.00 159891.00 0 17759891.00 2,52,451.00 25,20,000 2) Javda India Impex Ltd 36,790,000.00 776703.00 9966942.00 47533645.00 904728.00 25,20,000 3) Kush Hindusthan Entertainment Lt 25,290,000.00 186178.00 0.00 25476178.00 293230.00 6420000 4) Real Gold Trading Co. Pvt Ltd 17,592,000.00 119971.00 17711971.00 189356.00 25,20,000 5) Lexus Infotech Ltd. 20,132,000.00 127509.00 20259509.00 102211.00 25,20,000 Share Application Money 6). Reynolds Petro chem. Ltd 8,000,000.00 4424932.00 5725000.00 18149932.00 72201.00 5100000 7) Utkantha Trading Pvt Ltd 100,000.00 190438.00 50765315.00 51055753.00 3014....
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.... supported by any evidence of identification, cheque numbers, sources of income or sources of loan. The person was not produced. (vii) Smt. Sunita - Only a confirmation letter was filed. However, the AO observed that the same was not supported by any evidence of identification, cheque numbers, sources of income or sources of loan and even she was not produced. (viii) Shri Virender Yadav - A confirmation letter was produced but no PAN number was mentioned. The AO observed that the bank statements reveal the deposit of cash of Rs.13,00,000/- and Rs.7,00,000/- immediately before the issuance of the cheque in favour of the Assessee. He was also not produced. 15. The ITAT by order dated 19th July, 2016 partly allowed the Assessee's appeal and deleted the additions in respect of four of the creditors. The summary of the conclusions of the ITAT in respect of the eight creditors and the transactions is set out below: (i) In respect of Smt. Sunita, the ITAT held that additional evidence was submitted by the Assessee and the same was taken on record. The ITAT observed that Smt. Sunita, being the wife of the Assessee and her financial affairs having been handled....
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....en by his son Mr. Dakshdeep Singh vide cheque no. 58913 dated 18th June, 2010 drawn on HDFC Bank. He also referred to the confirmation letter given by Mr. Dakshdeep Singh. The ITAT noted that the creditworthiness of Mr. Dakshdeep Singh was not established and hence the matter was restored to the file of the AO to examine the identity, genuineness and creditworthiness. However, for statistical purpose, addition of Rs.3,50,000/- in respect of Shri Harpreet Singh was allowed. 16. Thus, the ITAT * deleted the following additions qua Shri. Amar Singh, Shri. Chandan Singh, Shri. Ram Chander, and Smt. Sunita. * restored the additions with respect to Shri. Virender Yadav, Shri. Om Prakash, Shri. Shiv Tej Singh, and Shri. Harpreet Singh, to the AO for reconsideration. It was held by Hon'ble Delhi High Court as under :- 41. An analysis of the above facts shows that none of these four individuals have the financial strength to lend such huge sums of money to the Assessee, that too without any collateral security, without interest and without a loan agreement. The mere establishing of their identity and the fact that the amounts have been transferred throug....
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....estor companies were non-existent which is not the case before us. Certain investor companies did not produce their bank statements proving the source for making investments in assessee company, which is not the case before us. Source of funds were never established by the investor companies in the case before the Hon'ble Apex Court, whereas in the instant case, the entire details of source of source were duly furnished by all the respective share subscribing companies before the ld AO in response to summons u/s 131 of the Act by complying with the personal appearance of directors. In the instant case before us, after the relevant details were furnished by the assessee before the ld AO, no enquiries were further made by the ld AO with the share subscribers. The ld AO merely relied on the statement of Shri Praveen Kumar Jain and proceeded to make the addition. Hence the decision relied upon by the ld DR is factually distinguishable and does not advance the case of the revenue. 9.5. We find that as per the mandate of section 68 of the Act, the nature and source of credit in the books of the assessee company has been duly explained by the assessee. The credit is in the form of ....
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....s Book Evidence Act 1891 which reads as under :- "4. Mode of proof of entries in bankers' books: Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise." 9.6.1. Following the said provisions, the co-ordinate bench of Allahabad Tribunal in the case of Anand Prakash Agarwal reported in 6 DTR (All- Trib) 191 held as under :- "The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank' accounts was generated from the appellant and/or from i....
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....lectricals P Ltd vs CIT & Anr. reported in 2010 (7) TMI 1137 in Civil Appeal No. 21073 / 2009 dated 30.7.2010 arising from the order of Hon'ble Bombay High Court had held as under :- ORDER Delay condoned. Leave granted. Heard learned counsel on both sides. We have examined the position. We find that the shareholders are genuine parties. They are not bogus and fictitious. Therefore, the impugned order is set aside. The appeal is allowed accordingly. No order as to costs. In the instant case before us, the share subscribing companies are duly assessed to income tax. It is not in dispute that the share subscribing companies are in existence. It is not in dispute that the share subscribing companies are duly assessed to income tax and their income tax particulars together with the copies of respective income tax returns with their balance sheets are already on record . Hence it could be safely concluded that they are genuine shareholders and not bogus and fictitious. Accordingly, the ratio laid down by the Hon'ble Apex Court in the case of M/s Earthmetal Electricals P Ltd supra would be squarely applicable to the....
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....ssee clearly demonstrate that the identity, creditworthiness and genuineness of the transaction is proved. The assessee has prima facie discharged its onus and AO has not carried out any inquiry. In view of the above, we confirm the order of CIT(A) and this issue of Revenue's appeal is dismissed." The facts of the instant case before us squarely fit in into the facts before the co-ordinate bench of this tribunal in the aforesaid case. Though this decision was rendered in the context of transactions with 5 parties mentioned supra, the same documents that were filed for these 5 parties were filed by the assessee herein for the other two parties also viz Reynolds Petro Chem Ltd and Utkantha Trading Pvt Ltd. Hence the decision rendered thereon would apply with equal force for these two companies also. 9.11. We find that the Hon'ble Apex Court recently in the case of Principal CIT vs Vaishnodevi Refoils & Solvex reported in (2018) 96 taxmann.com 469 (SC) had dismissed the SLP of the Revenue. The brief facts were that the addition u/s 68 of the Act was made by the Assessing Officer in respect of capital contributed by the partner of the firm. The Hon'ble High Court note....