TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 255
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.... and in the circumstances of the case, the Commissioner of Income Tax (Appeals) is not justified in confirming the addition of agricultural income of Rs. 99,643/-made u/s. 68 of the Act. The CIT(A) is not justified in rejecting the claim of the appellant of agricultural income for the incorrect reason that the appellant was not having any agricultural land, particularly when there was no dispute as regards the possession of agricultural land by the appellant and more particularly when the appellant has furnished copies of 7/12 extracts of the agricultural lands. 2. On the basis of facts and in the circumstances of the case, the Commissioner of Income Tax (Appeals) is not justified in confirming the addition of Rs. 6,00,00,000/- made by the AO u/s. 68 of the Act. 3. On the basis of the facts and in the circumstances of the case and as per law, the Commissioner of Income Tax (Appeals) is not justified in confirming the addition of Rs. 6,00,00,000/- u/s. 68 of the Act made by A.O. without confronting the material on the basis of which, the impugned addition is confirmed by the CIT(A). 4. The appellant craves for the addition to, deletion, alteration, modific....
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....unted commission paid when in fact the appellant has provided all the basic evidences that all the transactions in relation to sale of shares of M/s. Pearl Agriculture Ltd. have been carried out through banking channels. 6. On the basis of facts and in the circumstances of the case the additions made by the AO of Rs. 5,01,27,730/- may please be deleted 7. The appellant craves for the addition to, deletion, alteration, modification of the above grounds of appeal." 4. From perusal of the above grounds, we find that apart from other issues common issue regarding addition u/s. 68 of the Act has been raised by the assessee for the amount received from M/s. Frontier Mercantile Private Limited (in short 'FMPL' at Rs.6.00 crore, Rs.82.50 lakh and Rs.3,13,50,000 for A.Y. 2013-14 to A.Y. 2015-16 respectively. For the purpose of adjudication, ITA No.1249/PUN/2024 for A.Y. 2013-14 is taken as the lead case to decide this common issue of addition u/s. 68 of the Act. 5. Brief facts of the case are that the assessee is an individual and is engaged in providing Architectural Consultancy Services under the name and style of M/s. Anant Associates and also received salary from....
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....mount received from FMPL is not in the nature of unsecured loan but is advance against sale of property and that the assessee has valid documents for entering into registered Agreement for purchasing property bearing Survey Nos. 92 and 22, Goverdhan Shivar, Nashik. It is also submitted before ld.CIT(A) that ld. Assessing Officer has not conducted any independent enquiry for verification of transaction with FMPL and has merely made addition based on the observations made in the case of another assessee namely Suyojit Infrastructure Private Limited. It was also submitted that advance has been received against the Agreement entered into between the assessee and FMPL and that FMPL has given such type of advances to other concerns also and has ventured in the course of business for making good gains from investment in immovable properties. However, ld.CIT(A) was not satisfied with such arguments and he affirmed the addition made by the Assessing Officer observing as follows : "6.4. In Ground No. 3,4 & 5, the assessee challenged the treatment of advance taken by him from one, Frontier Mercantile Pvt. Ltd. for Rs. 6,00,00,000/- as unexplained cash credit u/s. 68. I have seen that....
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....e narrated below:- 1. The advance has been forwarded only on the basis of an unregistered document. 2. The company M/s. Frontier Mercantile Private Limited is a paper company which has been established in assessment of M/s. Suyojit Infrastructure Private Ltd., for A.Y 2013-14. 3. The company Frontier Mercantile Private Limited has a share capital of only 3.26 Cr. whereas it has provided loan of Rs. 6,00,00,000/- to the assessee, which clearly casts doubt over the creditworthiness of the transaction, the onus of which lies on the assessee. 4. The present status of Land in respect of which the amount was transacted has not been submitted till date. 6.4.3. The AO further quoted from the assessment order of another assessee, M/s. Suyojit Infrastructure Pvt. Ltd. for the same AY 2013-14, where the AO of the said assessee gave his categorical findings, as to why the Frontier Mercantile Private Limited cannot to be treated as a party worthy of giving credit. Therefore, he treated the amount of advance claimed by the assessee as unexplained cash credit. 6.4.4. It is interesting to note that our assessee, Shri Anant Keshav Rajgaonkar, is....
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....nce for a property where the land was not owned by the developer, no plan for the construction of the structure was in place and there was no time limit for completion of the proposed construction. Moreover, the amount lent/advanced was free of any charge of interest. Such benevolent lender is very rare to find in the present complex standard of financial market prevailing in the country. 6.4.8. Finally, reliance is placed on the decision of the Hon'ble Supreme Court in the landmark decision of NRA Iron & Steel Pvt. Ltd., in which decision, dated 05/03/2019 of the Apex Court, has put the entire responsibility or onus to prove the genuinity of the transaction or creditworthiness of the lender, fully on the assessee. In this case, the documents presented before the AO were found to be concocted or decorated to give legitimacy to the transaction. I find the following to be particularly doubtful documents in the facts of the case:- i) The purchase agreement of such huge amount of land of 3.53 acres, was made by making payment of only Rs. 5,00,000/-, out of which Rs. 1,50,000/- were paid by cash. ii) Such agreement was never executed or registered. ....
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....hik were paid of Rs. 9,30,000/- paid to total 18 parties. 8. Total advances for purchase of land S No. 92, Govardhan, Nashik were paid of Rs. 7,25,000/- paid to total 17 parties. 9. The abovementioned advances are shown by the appellant under the Group "Advances for Land, Plots/Rights, etc. the total of which appearing in Balance Sheet as on 31/03/2013 was Rs. 1,24,38,000/- 10. However, the above transactions couldn't be completed due to disputes created by some of the members of Jadhav Family (e.g. Gitabai S Donde vs Vaman P Jadhav court case No. 652/2008, Shilabai V Bhle vs All Jadhav family case No. 92/11 with Divisional Revenue Commissioner and so on) 11. Meanwhile the appellant was supposed to construct residential and commercial project on the abovementioned land. Therefore, the appellant entered into Investment Agreement on 10/03/2013 with Frontier Mercantile Pvt. Ltd, (hereinafter referred to as 'FMPL), according to which FMPL was to invest Rs. 10 crores for flats admeasuring 35,000 Sq. Fts (ie. 3251.579 Sq. Mtrs). 12. Independent inquiries u/s. 133(6) were conducted by the AO with FMPL, in response to which FMPL has acce....
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....ired to develop the property and thereafter to sell the plots/flat/immovable property to other desired buyers. He also submitted that transactions have been entered into through banking channel and that FMPL has sufficient credit worthiness to explain the alleged advance given by them to the assessee. Ld. Counsel for the assessee referred and relied on the following decisions : 1. PCIT Vs. Bairagra Builders (P) Ltd. (2024) 164 taxmann.com 162 (Bombay) 2. H.R. Mehta Vs. ACIT (2016) 72 taxmann.com 110 (Bombay) 3. ITO Vs. Cygnus Developers India Pvt. Ltd. ITA No.282/Kol/2012 dated 02.03.2016 12. On the other hand, ld. Departmental Representative strongly supported the order of ld.CIT(A) and stated that ld. Assessing Officer has conducted a thorough enquiry in the case of SIPL which is a sister concern of the assessee and similar transactions have taken place therein and that FMPL which has subsequently changed into LLP in the name of Frontier Mercantile LLP (FM LLP) has shown the rental income during A.Y. 2012-13 and losses in other years and that FM LLP had no regular business during the year nor has any fixed assets except current assets and losses. He ....
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....based at Kolkata for getting advance against sale of property. Thereafter, an Investment Agreement entered into between FMPL and the assessee which is placed at pages 27 to 33 of the paper book duly signed by both the parties on non-judicial stamp paper of Rs.100 but admittedly this Agreement is not registered. However, the details of the property for which the advance was to be received from FMPL are mentioned in this unregistered Memorandum of Understanding/Investment Agreement. It is stated in Para A and B about the immovable property located at Survey Nos. 92 and 22, Goverdhan Shivar, Nashik and that Promoter Developer proposing to construct a new multi storied building and constructing the flats. Description of the property to be purchased by FMPL at Schedule I reads as under : "Schedule - I Description of the said property : All that piece and parcel of land admeasuring about H 03=53 Are, Assessed at Rs.09.56 paise, situated at village Govardhan, Nashik, within the limits of village panchayat Govardhan, Taluka and District Nashik and within the registration district and sub district of Nashik, being a) Land admeasuring about H 01 = 96 Are, ....
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.... loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,- (a) the person in whose name such credit is recorded in the books of such assessee 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 where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (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 also that nothing contained in the first proviso or second prov....
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....reditor as well as Genuineness of the alleged transaction, we would like to first go through the judicial precedents dealing with similar type of issues. Though ld. Counsel for the assessee has referred and relied on various decisions, we however find that all these decisions have been considered by the Coordinate Bench Kolkata in the case of ITO Vs. M/s. Express Tradelink Pvt. Ltd. - ITA No.43/Kol/2021, order dated 08.02.2024 dealing with similar issue observing as under: "8. We have heard rival contentions and perused the material placed before us and carefully gone through the decisions referred and relied by both the sides. 9. The sole effective ground raised by the revenue is against the finding of ld. CIT(A) deleting the addition u/s 68 of the Act made for alleged unexplained share application money in the form of share capital and share premium amounting to Rs. 7,26,50,000/-. During the year, the assessee company received share capital including share premium of Rs. 7,26,50,000/- from 9 share subscribers who are body corporate entities. A chart depicting the amount invested by each of the share subscribers and the reserves and surplus available with the com....
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....e for my consideration is that whether the share application monies along with premium in the aggregate of Rs. 7,26,50,000/- disclosed by the appellant invites the mischief of the provisions of s. 68 of the Act or not. The provisions of s. 68 of the Act deal with cash credit which reads as under: "68. 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 the assessee of that previous year. According to this section, if identity, creditworthiness of the creditor and genuineness of the transaction are not proved and the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as income of the assessee of that previous year. In the instant case, it is observed that the addition was made with the predetermined mindset that share application monies received by the appellant is not genuine as identity and cr....
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.... Account Numbers of the share subscribers along with the acknowledgment of submission of their return of income and audit report and financial statements which in my humble opinion proves their identities to the hilt. It is also observed that each of the share applicants maintained bank accounts; and copies of their respective bank accounts from which they made payments to the appellant for subscribing to the shares issued to them, was filed by each of them before the AO. Further, from the balance sheet of the share applicants it is seen that they had subscribed to the shares issued by the appellant; and such transactions were duly reflected therein. It is axiomatic that the criteria mandatorily required to be satisfied by the appellant were categorically fulfilled. These facts, in my opinion, clearly prove the genuineness of the transactions. Thus, the evidence adduced on record by the appellant in respect of the share applicants, in my humble opinion, clearly prove their source of funds, and their capacity for making such payments and accordingly, the criteria of their creditworthiness is proved. The AO has not found any defect and/or deficiency in the evidence adduced on record ....
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....ny matter, the burden is not a static one. The initial burden upon the appellant was duly discharged by it by providing the identity of share applicants by furnishing the copies of their returns along with audited report and financial statements, copies of bank accounts and proving the genuineness of the transactions by showing that money in the banks was debited by account payee cheques, and thereafter, the onus to disprove them shifted to the AO who grievously failed to discharge the same. It is observed that the AO had not issued summons u/s 131 of the Act or notices u/s 133(6) of the Act or made enquiries through his Inspector even after a direction issued to him. It was the bounden duty of the AO to make enquiry about a particular receipt before drawing adverse conclusions to castigate the appellant. However, in the instant case, on receipt of such evidence, the AO did not pursue the issue further. In the case of CIT vs. Orissa Corporation Ltd. (1986) 159 ITR 78 (SC) it was held as under: - "In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessee's....
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....he assessee in arriving at such conclusion. We, therefore, find no reason to interfere with the decision passed by the Commissioner of Income-tax (Appeals) and the Tribunal below and answer the questions formulated by the Division Bench in the affirmative and against the Revenue. The appeal is, thus, dismissed." 7.1. Further, the Hon'ble jurisdictional High Court in the case of CIT vs. Gayatri Portfolio Fund (P) Ltd [ITA No. 664 of 2004 dated 26.08.2014], it was observed as under: "We find that the learned Tribunal has confirmed the order passed by the CIT who had overturned the order of the Assessing Officer by making the following observation: "...We find that the identity of the 5 parties investing in the share capital is not in doubt. They are body corporates and their complete addressees are on record. This is the very first assessment in the life of the assessee company. The amounts were deposited by these 5 corporates per account payee cheques. These parties were not shareholders of the assessee company at the time when the case was reopened under section 147 or when the summons were issued to them. We find that the assessee has filed befo....
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....e available to the Assessing Officer. It was pointed out that there was no legal bar of more than one company being registered at the same address and, thus, according to the Commissioner of Income-tax (Appeals), the doubt raised by the Assessing Officer about all those companies at the same address did not hold good. Being dissatisfied, the Revenue preferred an appeal before the Tribunal below and by the order impugned herein, the said Tribunal has affirmed the order passed by the Commissioner of Income-tax (Appeals). After hearing Mr. Nizamuddin, learned advocate appearing on behalf of the appellant and after going through the aforesaid materials, we agree with the Tribunal below that the Assessing Officer failed to establish that the share applicants did not have the means to make investment and that such investment actually emanated from the coffers of the assessee company. The receipt of share capital money had been duly recorded in the books of the assessee company and the payment of share application money was also duly recorded in the audited account of each of the share applicants. We, thus, find that both the authorities below on the basis of th....
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....ts yields the following propositions of law in the context of section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber are furnished to the department along with copies of the shareholders register, share application forms, share transfer register, etc., it would constitute acceptable proof or acceptable explanation by the assessee. Further, (1) the department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (2) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more evidence against the assessee; (3) the Assessing Officer is duty-bound to investigate the creditworthiness of the creditor/subscriber, the genuineness ....
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....ir existence and also the source of share application money received. 3.4.1. We also find that the impugned issue is also covered by the decision of Hon'ble Calcutta High Court in the case of CIT v. Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the questions raised before their lordships and decision rendered thereon is as under:- "On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction. After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the cases of CIT v. M/s Lovelv Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. ....
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....A) ought to have held that the assessee had not established the genuineness of the transaction." Held After hearing the learned counsel for the appellant and after going through the decision of the Supreme Court in the cases of CIT v. M/s Lovely Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed. " 6.2. We find that the issue is also covered by the decision of Hon'ble Delhi High Court in the case of CIT v. Value Capital Services P Ltd reported in (2008) 307ITR 334 (Del), wherein it was held that: "In respect of amounts shown as received by the assessee towards share application money from 33 persons, the Assessing Officer required the assessee to produce all these persons. While accepting the explanation and the statements given by three persons the Assessing Officer found that the response from the others was either not available or was inadequate and added an amount of Rs. 46 lakhs pertaining to 30 persons to the income of ....
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....k statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s. 143(3) of the I. T Act for AY 2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY 2005-06 was completed by the ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A. Y.2005-06 and AY.2004- 05 respectively were completed by the ITO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the AO's inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s. 68 could be made in the hands of appellant company. On going t....
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....phold the order of CIT(A) and dismiss the appeal of the Revenue." (d) In the case of ITO vs. Megasun Merchants (P.) Ltd. [IT Appeal No. 1038 (Kol) of 2015, dated 29-3-2019], it was held as follows:- "44. To conclude, in this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee, cannot be brushed aside by the AO to draw adverse view, cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals).Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by....
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.... the amendment of the Act by the Finance Act of 1972, whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc., was withdrawn. Similarly, the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winnings from races is not genuine." ....
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....stent which is not the case before me. Certain investor companies did not produce their bank statements proving the source for making investments in the assessee company, which is also not the case before me. 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 subscribers before the AO and the AO did not make any investigation into the subscription received by the appellant. Hence the decision is factually distinguishable and does not advance the case of the AO. 9.2. Further during the course of assessment proceedings, the AO has conceived that the share premium received along with share capital to be unexplained without considering into the facts of the instant case. In my considered opinion, the issue of shares at premium is always a commercial decision which does not require any justification. In any case, the premium is a capital receipt which has to be dealt with in accordance with sec.78 of the Companies Act, 1956. In other words, it is a prerogative of the Board of Directors of the appellant to de....
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....uced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessin....
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....ubmissions made by the AR of appellant in this respect. In view of the above, I have no hesitation to hold that the impugned addition made by invoking the provisions of s. 68 by the AO is not justified in the circumstances and accordingly, direct him to delete such addition of Rs. 7,26,50,000/- made on this count. Thus, Ground Nos. 1, to 4 of the appeal is allowed. 11. Ground no. 5 is general in nature which requires no adjudication. 12. In the result, the appeal of the appellant is treated as allowed." 12. After going through these detailed finding and examining the same in the light of the documents filed before us, we notice that all the 9 (nine) shareholder are body corporates and annual returns have been regularly filed on the Ministry of Corporate Affairs portal. All the share applicant companies are regularly assessed to tax. From perusal of the financial statements of the share subscribing companies, we notice that they had sufficient share capital and accumulated Reserves and surplus which are sufficient enough to cover up the share application money invested by them in the equity of the assessee company. In the above given facts and circumstance....
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....nt in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 13.1. The Hon'ble Supreme Court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness of the subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same. However, as noted above, the Assessing Officer in this case has not made any independent enquiry to verify the genuineness of the transactions. The assessee having furnished all the details and documents before the Assessing Officer and the Assessing Off....
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.... the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.2004- 05 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.2005-06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue....
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....mited, 2) M/s Sharekhan Merchants Private Limited, the Assessment Orders u/s 143(3) for the AY 2012-13 were passed u/s. 143(3) without taking any adverse view. Therefore, it can be assumed that the respective Assessing Officers have all verified the accounts and therefore any amount that is credited from these two companies to the assessee company is fully explained. The assessment in the case of the other 4 share holders, namely, 1) M/s. Dhanamrit Commercial Private Limited, 2) M/s Jealous Commercial Private Limited, 3) M/s Mutual Merchants Private Limited, 4) Winsom Vanijya Private Limited were also passed u/s. 143(3) where additions u/s 68 & u/s. 14A of the Act were made. Therefore, the entire capital of all the above mentioned share holders had been added in its hands u/s 68 of the I.T. Act Thus, once an amount is already taxed, whatever investment is being made out of it in the assessee company can be treated as explained and the Same cannot be taxed again. Further, it is apparent from the records that the notices u/s. 133 (6) issued to the shareholders were served on the their respective address by the postal authorities and in response, they confirmed the transactions and al....
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....ompany as it would amount to double additions of the same amount. Even if the said addition stand confirmed in the appeal or stand deleted, in both the instances, the investment in the hands of the assessee company will stand proved. Reliance has been placed in this respect on the decision of the Coordinate Kolkata bench of the Tribunal in the case in the case of DCIT vs. M/s Maa Amba Towers Ltd. in ITA No.1381/Kol/2015 vide order dated 12.10.2018. The aforesaid decision has been further relied upon by the coordinate Kolkata bench of the Tribunal in the case of "Steelex India (P) Ltd vs. ITO, Ward-3(2), Kolkata" I.T.A. No.2666/Kol/2019 decided vide order dated 09.09. 2022. 7. Further, a perusal of the Assessment order would reveal that the AO has duly acknowledged the receipt of the relevant documents/evidences not only from the assessee, but also from the subscriber companies. However, he insisted for personal appearance of the directors of the subscriber companies without even going through and discussing about the discrepancies, if any, in the documents furnished by the assessee as well as by the share subscriber companies to prove the identity and creditworthi....
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....her materials and documents viz., confirmatory statements, invoices, challans and vouchers showing supply of bidi as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued in our view is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the produce of the assessee or not. When it was found by the CIT(Appeal) on fact having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding." 8. As the ld. CIT(A), in this case, has not only duly examined the facts and explanation as furnished by the assessee but also has given a categorical finding that the identity and creditworthiness of the share subscribers and genuineness of the transaction stood established. 9. The ld. DR could not point out any distinct facts warranting our interference in the order of the CIT(A). 10. In view of the above, we accordingly upheld the order of the CIT(A). The appeal of the revenue is, therefore, dismissed." 14(b). Our views are further fortified by the judgment of the Jurisdictional....
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....ents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burden shifted onto the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression "money laundering". Such usage was uncalled for as the allegation of money laundering is a very serious allegation and the effect of a case of money laundering under the relevant Act is markedly different. The order passed by the Assessing Officer was utterly perverse and had been rightly set aside by the Commissioner (Appeals). The Tribunal had rightly deleted the additions under section 68." 15. Respectfully following the above decisions, which in our view are squarely applicable on the facts of the instant case, we find that the assessee has successfully discharge....
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....ransaction is genuine, or these are bogus entries of name lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack creditworthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act." 19. The Hon'ble Supreme Court, thus, has held that once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness of the subscribers, then the AO is duty bound conduct to conduct an independent enquiry to verify the same. However, as noted above, the Assessing Officer in this case has not made any independent enquiry to verify the genuineness of the transactions. The assessee having furnished all the details and documents before the Assessing Officer and the Assessing Officer has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the assessee before him. As observed above, the assessee having discharged initial burden upon him to furnish the evidences to prove the identity and creditworthiness o....
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....ving the alleged sum to the assessee through proper banking channel. We are therefore satisfied that creditworthiness of FMPL has been proved by the assessee with support of financial statements and various documents placed in the paper book therein. 22. Now coming to the point of genuineness of the transaction, we note that assessee is into regular business as Developer and Builder. It has entered into valid registered agreements for purchase of immovable property located at Survey Nos. 92 and 22, Goverdhan Shivar, Nashik from Jadhav family. Admittedly the ownership of this property in question lies with many individuals. However, valid agreements have been entered with each of the owner in Jadhav family and are duly registered. It is only after entering into registered agreements for purchase of the above said land, the assessee's plan of constructing multi storied building/flats on the said land has been decided and thereafter for the purpose of arranging the funds for doing the construction activity, assessee has approached FMPL. We note that FMPL is in the regular course of making such investments/giving loans for the purpose of purchasing properties. In the current scenari....
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....find that genuineness of the transaction between the assessee and FMPL has been carried out. 25. To sum up since the assessee has proved the nature and source of the alleged sum and also proved the Identity and creditworthiness of FMPL and genuineness of the transaction and there being no contrary material been placed by the Revenue authorities before us except the observation of the Assessing Officer that too carried out during the course of assessment proceedings of some other assessee, and therefore the facts placed before us about the transaction entered into between the assessee and cash creditor and assessee having explained the nature and source of alleged sum remains uncontroverted. We therefore find that ld. Assessing Officer erred in invoking section 68 of the Act for the amount received from FMPL at Rs.6.00 crore for A.Y. 2013- 14, Rs.82.50 lakh for A.Y. 2014-15 and Rs.3,13,50,000 for A.Y. 2015-16 respectively. Thus, finding of ld.CIT(A) is set aside and respective common grounds raised for A.Y. 2013-14 (Ground Nos. 2 and 3), A.Y.2014-15 (Ground Nos. 1 and 2) and A.Y. 2015-16 (Ground Nos. 1 and 2) are allowed. 26. Next issue for our consideration is Ground No.1 rai....
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....uring F.Y. 2013-14 on 06.05.2013 at Rs.37,69,781 is mentioned. Shares were sold through LKP securities Ltd. which is a registered broker and after due payment of STT equity shares have been sold. During the course of assessment proceedings, ld. Assessing Officer has examined this transaction. Assessee submitted that the shares in question were received by the assessee on account of preferential allotment which is in accordance with SEBI and ICDR regulations 2009 and subsequent amendments thereto. However, ld. Assessing Officer observed that prices of the equity shares of PAL have increased to 3.6 times of initial investments and thereafter gave general observation that such type of transactions are carried out through entry providers and have been dealt with by the AO in many cases relating to penny stock companies. Ld. AO has accepted the fact that assessee has received the equity shares as part of the preferential allotment but subsequently dealt with the financials of the company namely PAO from A.Y. 2011-12 to A.Y. 2015-16 and also dealt with the increase and steep decrease in the prices, i.e. increase from April 2013 till September 2014 but then steep decrease from October 201....
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....h the assessee claimed in its return as exempt, u/s. 10(38) in the ROI, for a sum of Rs. 1,80,45,262/- 4.2.1. On the facts of the case, it is seen that the assessee applied for preferential allotment of shares of M/s Pearl Agriculture Ltd. on 08/05/2013. The assessee invested a sum of Rs. 50,00,000/- for the allotment of 2,50,000 shares of the company, being Rs. 10/- towards the Face Value and a further Rs. 10/- towards premium for such allotment. He made a declaration and undertook to pay any amount payable, as computed, in compliance with the provisions of Regulation 76(3) and 78(5) of SEBI (Issue of Capital and Disclosure Requirement), Regulations, 2009. Thereafter, through a letter dated 18/04/2014, the company informed the assessee that as per the said Regulations, the recomputed price per share has been worked out at Rs. 82.70 and the assessee was required to pay a further sum of Rs. 1,56,75,000/- towards allotment of the preferential issue of shares of the said company. Thereafter, in July, 2014, the shares of the same Pearl Agriculture Ltd. were split in a ratio of 1:10. The no. of shares allotted to the assessee automatically increased to 25,00,000 of rupee 1/-, e....
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....d the same Long Term Capital Gain as business profit, as adventure, in the nature of trade. 4.2.6. The AO has pain-stakingly demonstrated how the price of the shares had been manipulated and rigged and thus, was of the opinion, that the prices of the shares have been manipulated in a concerted way and the gain received by the assessee which was claimed as exempt income, was not a regular or normal transaction. The AO also relied on the report of the Investigation Wing of the Income Tax Department, where the trading in the scrip of Pearl Agriculture Ltd. had been pointed out along with many other similar penny-stock shares to be nothing but arrangement of accommodation entries by dubious means using the platform of regular share transaction. 4.2.7. The landmark decision of the Calcutta High Court in the case of Swati Bajaj and Ors. in ITA No. 6 of 2022, dated 14/06/2022, had an occasion of analyzing the similar claim of exemption made by numerous assessee's through trading in penny-stock shares. The relevant decision of the said judgment is narrated as below:- i. At Para 48, the Court held that "We have no hesitation to hold that the plea raised on behalf ....
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.... 4.2.11. Relying on the above decisions and the clear-cut directions of the Court, I hold the addition made by the AO to be correct on principle. However, as per the decision of the High Court, I hold that the addition should be made as unexplained cash credit u/s. 68 instead of adventure in the nature of trade, as mentioned by the AO in the assessment order. The addition of Rs. 1,83,58,484/- is confirmed u/s. 68 of the Act and the Grounds of Appeal of the assessee fails." 33. We have heard the rival contentions and perused the record placed before us. The issue for our consideration raised by the assessee in Ground Nos. 3 and 4 of the appeal for A.Y. 2015-16 is against the denial of exemption u/s. 10(38) of the Act for the long term capital gain earned by the assessee from sale of equity shares of M/s. Pearl Agriculture Limited (in short 'PAL') at Rs.1,83,58,183. At the cost of repetition, as discussed above, we note that the assessee purchased the equity shares of PAL during F.Y. 2013-14 under the preferential allotment given by promoters of PAL in accordance with SEBI ICDR regulations 2009 and subsequent amendments thereto. Assessee was allotted 2,50,000 equity shares and....
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....nd; and (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D): Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures; (b) "International Financial Services Centre" shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); (c) "recognised stock exchange" shall have the meaning assigned to it in clause (ii) of the Explanation 1 to sub-section (5) of section 43;" 34. Now examining the facts in light of the provisions of section 10(38) of the Act, we find that assessee has furnished the proof of purchase of equity shares, sale of equity shares through registered broker and the transaction effected on recognised stock exchange and payments have been received from stock exchange itself through the banking channel in the bank account registered by the assessee on the said stock exchange. The allegation of the Assessing Officer manly centres around the steep increase and decrease of the equity share prices along with reference o....
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....ccount of astronomical price rise of the shares. It appears that Assessing Officer has merely gone by the fact that during the investigation carried out by the Department in Kolkata, one of these scrips were found to be used by brokers for providing accommodation entries, but that material fact alone without any other further inquiry or any other material to link that assessee to be involved in any sham transaction or beneficiary of any accommodation entry. Theoretical discussion made by the Assessing Officer cannot nail the assessee. The sales turnover of PSIT Infrastructure goes to show that it had the sale turnover at Rs. 328.38 crore in March, 2016 and similarly in case of Pearl Agriculture also sales turnover was Rs. 23.89 crore in March, 2014. Thus, to hold that these companies were purely a paper company without any business credential cannot be accepted. As discussed above, the assessee had dealt in several scrips over the period of time and has been regular investor in shares and has been showing gain and loss in the shares on year to year basis. No other transaction has been doubted except for two small scrips for over all transaction of 1.23 lacs. This goes to show that ....
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....d out on a mere change of opinion, which is not permissible in the eyes of law as per the ratio laid down by the Hon'ble Apex Court in the case of Kelvinator of India Ltd. (supra). We note that Ld.CIT(A) has dealt with this legal issue placing reliance on plethora of decisions and his finding reads as under:- "6.1 I have gone through the order of AO and submission made by the appellant. The Ld. AO has treated share dealing made by the appellant as bogus and thereby added back exempted capital gain to taxable income. The Ld. AO also added back the commission as well. Aggrieved by the order of Ld. AO, the appellant has raised multiple grounds of appeal and the same are disposed off collectively as under. 6.2 The appellant had purchased shares of Mishkafin Finance Ltd and subsequently these shares were sold for sum of Rs. 1,00,23,500/- The resultant capital gains of Rs. 1,00,08,355/-was claimed exempted u/s 10(38). The Ld. AO treated entire capital gain as bogus and add to total income as unexplained money u/s 69A of the Income Tax Act. 6.3 The Ld. AO alleged it to be penny stock and he claimed that the trading in such stock was controlled by few operato....
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....erein the trader does not have visibility on counter party buying/selling. 6.9 The above issue has been dealt and adjudicated by many courts as under: In the case of PCIT Vs. Parasbenkasturchand Kochar, [2021] 130 taxmann.com 177 (SC) AUGUST 2, 2021, SLP dismissed against impugned order of High Court holding that where assessee-individual engaged in trading of shares had discharged his onus of establishing long term capital gains arising out of sale of different shares as fair and transparent by submitting records of purchase bills, sale bills, demat statement etc., same not being earned from bogus companies was eligible for exemption under section 10(38). PCIT Vs Indravadan Jain, HUF Income tax ax Appeal No. 454 of 2018 (Bombay HC) -date of order - 12-07-2023 In the aforesaid case, the Hon'ble Bombay High Court upheld the decision of Hon'ble Mumbai Tribunal, wherein the Tribunal had held that since the shares were purchased on the floor of stock exchange and not from broker, payment was made through banking channel, deliverables were taken in DEMAT account where the shares remained for more than one year, contract notes were issued and t....
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....low was not justified in rejecting the claim of the assessee exempted u/s 10(38) of the Act on the basis of suspicion, surmises and conjectures. It is to be kept in mind that suspicion how so ever strong, cannot partake the character of legal evidence" M/s. ANDAMAN TIMBER INDUSTRIES V/s CCE CIVIL APPEAL NO. 4228 OF 2006 Not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected CIT vs. Mukesh Ratilal Marolia (Bombay High Court) INCOME TAX APPEAL NO. 456 OF 200 7 7th September 2011 Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity Kamla Devi S. Doshi V/s. The Income Tax Officer Ward 16(3) (1), Ι.Τ.Α. No.195....
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....r, there is no evidence on record to establish any cash trail or otherwise which can lead to a conclusion that the appellant colluded with its brokers, companies, its promoters, exit providers to arrange bogus LTCG Further, the Ld. AO has not carried out investigation of the fact of the case which are specific to the appellant and has also not provided opportunity for cross examination which is against principle of natural justice. The AO has relied on the information given by the Directorate of Income-tax (Investigation) without appreciating that the same cannot be used against the appellant without providing statements and investigation reports and therefore such documents cannot be used against the appellant. In the present case, the Ld. AO has failed to provide the appellant with the materials and statements allegedly used by him to hold the transactions as sham. Thus, the AO has failed to comply with section 142(3) of the Act as well as the principles of audi alteram partem thereby resulting in gross violation of principles of natural justice. I also find that the AO in this case has not conducted any independent inquiry to establish the veracity of informati....
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.... documents which includes the broker note for sale and purchase of shares, bank statement depicting the payments made for purchase of shares Demat statement showing holding of equity shares in question, statements issued by CDSL confirming the sale of shares and final bank statement depicting the receipt of money. The Investigating Wing called for these informations based on the information received from SEBI about certain companies where the transactions were found to be doubtful on account of price rigging. 10. Further, we observe that after a span of four years, the assessee had again been served notice u/s. 148 of the Act, dated 31/03/2019 regarding the very same reason about the alleged bogus claim of LTCG from sale of equity shares of MFTL. The assessee again furnished all the informations, based on which the Ld.AO found that the claim of the assessee for LTCG is genuine and he dropped the proceedings vide order dated 28/11/2019 u/s. 143(3) r.w.s. 147 of the Act. 11. Surprisingly, on the very same information again a fresh notice u/s. 148 of the Act has been issued on 20/03/2020, the validity of which has been challenged before the Ld.CIT(A). After examining....
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....however, take note of the recent judgment of Hon'ble Gujarat High Court in the case of M.S. Gokuldham Enterprise LLP (supra) where substantial question of law before the Hon'ble Court was "Whether on the fact and circumstances of the case and in law, the Hon'ble ITAT has erred in deleting the addition made by the Ld.AO on account of disallowance of exemption of Rs. 8,90,28,838/- claimed by the assessee u/s. 10(38) of the IT Act?". We note that the said claim of LTCG was from sale of 1805700 equity shares of MFTL (the same scrip is in question in the instant appeal before us). 14. We further observe that the Hon'ble High Court has adjudicated the issue of bogus LTCG and observed as follows:- "3.1 The assessee had filed return of income for the assessment year 2014-15 by declaring income of Rs. NIL. An assessment order was passed making addition on account of long term capital gain. The appeal was partly allowed deleting the addition made by the Assessing Officer. The Tribunal dismissed the appeal of the department. 3.2 The facts relating to the long term capital gain of Rs. 8,90,25,838/- earned by the assessee are that they related to 18057....
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....m Order dated April 17, 2015 was passed and subsequently confirmed in the scrip of Mishka warranting continuation of action under section 11B and 11(4) of the SEBI Act, I am of the considered view that the directions issued against them vide interim order dated April 17, 2015 which were confirmed vide Orders dated October 12, 2015, October 21, 2015, April 13, 2016, July 05, 2016 and August 26, 2016, are liable to be revoked." The perusal of list of entities mentioned therein indicates appellant's name at Sr.No.20, hence the appellant has been absolved of any wrong doing. Consequently, the argument of the AO has fallen flat and there is no other independent finding to fasten the tax liability on the appellant." 5. Confirming this view of the CIT(A), the Tribunal observed that having gone through the assessment order it was evident that it was based on the interim report. The final report of SEBI had absolved the scrip of all charges. Moreover, there was no independent finding on any other aspect casting doubts to show that share prices were manipulated at an unreasonable price when sold. 6. In view of the concurrent findings of the fact recorded by the Pri....
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.... gain. Finding of ld.CIT(A) is set aside. Ground Nos. 3 and 4 raised by the assessee for A.Y. 2015-16 are allowed 38. Since the addition made by the Assessing Officer denying the claim of long term capital u/s. 10(38) has been deleted by us, therefore, the addition made for the alleged unaccounted commission paid by the assessee for procuring the alleged long term capital gain from sale of equity shares of PAL also stands deleted. Thus Ground No. 5 raised by the assessee for A.Y. 2015-16 is also allowed. 39. Now we take up ITA No.1250/PUN/2024 which is filed by the assessee against the levy of penalty u/s. 271(1)(c) of the Act for the addition made by the Assessing Officer u/s. 68 of the Act for the A.Y. 2014-15. 40. We find that the impugned addition on which the penalty has been levied has already been deleted by us while adjudicating the assessee's appeal ITA No.1251/PUN/2024 for A.Y. 2014-15 and therefore since the quantum addition stands deleted there remains no ground for penalty to survive. Impugned penalty at Rs.25,49,250 is deleted. Grounds raised by the assessee are allowed. 41. In the result, all the four appeals of the assessee are allowed as per the terms i....