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TaxTMI 
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2024 (6) TMI 1551
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....the effective issue raised in ITA No. 161/Kol/2024 is against the addition made u/s 68 of the Act for unexplained share capital confirmed by the ld. CIT(A) and in ITA No. 160/Kol/2024 is against the levy of penalty u/s 271(1)(c) of the Act on the addition made u/s 68 of the Act which is in challenge before us in ITA No. 161/Kol/2023. Since the levy of penalty u/s 271(1)(c) of the Act depends on the outcome of the appeal on quantum addition in ITA No. 161/Kol/2024, we first taken up ITA No. 161/Kol/2024 for adjudication. 3. Facts in brief are that the assessee is a private limited company engaged in business and declared income of Rs. 318/- in the original return of income furnished on 29/09/2008. The return was processed u/s 143(3) of the Act. Subsequently, notice u/s 148 of the Act was issued and reassessment proceedings u/s 147/143(3) of the Act were carried out and assessment framed on 30/04/2010 determining total income at Rs. 26,340/-. Thereafter revisionary proceedings were carried out u/s 263 of the Act and in the said order dt. 28/03/2013 it was observed that proper inquiries and examinations were not conducted by the A.O. during the course of assessment proceedings in o....
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....pportunities as narrated above in para 5 of this order to substantiate its argument raised in the appeal memo. However, appellant has failed to submit any documents/proofs/evidences in support of its arguments and preferred to remain silent, during the appellate proceedings. Further, it is seen that appellant has not submitted its reply before AO in response to the notice issued dated 13.02.2020. In view of non-submission of supporting evidences & above facts, it cannot be concluded as to how the order passed by the AO is erroneous and addition u/s 68 of the Act should not be made to the total income of the assessee. In view of this, I hereby, uphold the action of the AO and confirm the addition made in the impugned order u/s 143(3) rws 147, rws 263 rws 254 rws 144B of the I.T. Act, 1961 dated27.09.2021.Accordingly, grounds of appellant raised on the issue in contention are dismissed." 5. On going through the above finding of the ld. CIT(A), it emerges that though the assessee had filed various details and supporting documents to explain the nature and source of the alleged sum but they fall short of the details which were noted by the ld. CIT(A) and also he observed that the as....
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....s/explanations and information furnished by the appellant about the existence of the shareholders, their creditworthiness and the genuineness of the transaction relating to the share capital and treated the same as unexplained cash credit u/s 68 merely on the basis of the surmise and conjecture. The AO further doubted the valuation of the premium without appreciating the fact that the law existing in AY 2008-09 did not require any kind of valuation in such respect. The relevant law u/s 56(2)(viib) has been inserted into the Income Tax Act w. e. f 01.04.2013 only and the justification of the premium in such respect for AY 2008-09 cannot be called for by the AO. 7.2. Without prejudice, the shareholders have been assessed by the income tax department vide order u/s 143(3) or 147 and since they have been assessed by the Income Tax Department itself, the revenue cannot challenge such source in the hands of the assessee company and hence the addition made in such respect is liable to be deleted. 7.3. The Identity, creditworthiness and genuineness of the transactions as require by the law is proved beyond doubt and hence the invocation of section 68 by the AO in such respect for add....
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..... However, ld. Assessing Officer considering the fact that the company was newly incorporated and no major business activity was carried out nor any big project was under consideration and, therefore, such huge premium is not commensurate to the business activity of the assessee company and it must be in the form of accommodation entry from various anti- providers/shareholder companies. Directors of the company were asked to be produced but they did not turn up. The ld. CIT(A) has also summarily confirmed the finding of the ld. Assessing Officer. 11. We note that the issue relates to Assessment Year 2008-09 and the assessee had already passed through reassessment proceedings and revisionary proceedings. It is claimed that the assessee has filed complete details of each of the share subscribers to prove the identity and creditworthiness of the shareholders and genuineness of the transactions and to prove the same, the copies of confirmation, bank statement, audited financial statements, identity proofs, source of funds, investments by the share subscribers in the assessee company, replies to notice u/s 133(6) of the Act and also various other details have been filed to show that ....
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.... Ltd 304-319 - Niraj Vinimay Pvt Ltd 320-335 - Niranjan Vyapaar Pvt Ltd 336-351 - Pratham Distributors Pvt Ltd 352-367 - Richfield Goods Pvt Ltd 368-384 - Rosy Commodities Pvt Ltd 385-400 - Shakuntala Vyapaar Pvt Ltd 401-416 - Shark Vanijya Pvt Ltd 417-432 - Sigma Trade-Link Pvt Ltd 433-448 - S K Aashray Pvt Ltd 449-466 - Swarnarekha Vinimay Pvt Ltd 467-483 - Unnati Tradecom Pvt Ltd 484-499 - Victory Commotrade Pvt Ltd 500-515 - Chand Tie Up Pvt Ltd 516-529 - Indradev Vyapaar Pvt Ltd 530-541 - Kamakhya Vincom Pvt Ltd 542-558 - Sanghai Datamatics Pvt Ltd 559-572 Paper Book Volume - III 8. e-filing Acknowledgment Nos. 541760181200921; 541774501200921; 541790321200921 & 541807881200921 for the compliances done in response to the Show cause notice during t....
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....and documents were not available with the Ld. CIT(A), since the order was passed ex-parte. 12. Further list of shareholders who have replied to the notices u/s 133(6) of the Act directly to the ld. Assessing Officer and their assessment orders being framed u/s 147/143(3) o the Act have also been placed before us. We find that all these details of the alleged share subscribers have been furnished before the lower authorities on multiple occasions, however, revenue authorities except indicating a theory of routing of entries of paper companies/ shell companies / jamakharchi companies, no specific discrepancies have been observed by them in the financials of the alleged cash creditors. We note that all the share subscribers are private limited companies which are governed by the Ministry of Corporate Affairs and are duty bound to furnish the audited financial statements on the portal of Ministry of Corporate Affairs. All are required to maintain regular books of account and also to file income tax returns which they have duly complied. The funds received by the assessee company are through banking channels. It is not the case of the revenue authorities that cash has been deposited ....
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....egarding the addition at Rs. 6.52 Crore confirmed by ld. CIT(A) which has been made by the AO alleging it to be unexplained cash credit received by the assessee in the form of share capital and share premium. The Revenue authorities have alleged that the assessee has merely furnished the documentary evidences but the assessee failed to appear before the Revenue authorities for recording their statements. The AO has also alleged that the assessee has been unable to discharge its primary onus casted under the provisions of Section 68 of the Act to explain the nature and source, in other words, unable to prove the identity and creditworthiness of the share applicants and genuineness of the transaction. 8. Before us, ld. Counsel for the assessee referring to the paperbook and details has submitted that all the share applicant companies are duly registered with the Ministry of Corporate Affairs and are assessed to income tax. All the share applicants are filing income tax returns and books of accounts are duly audited. It is also claimed that all the alleged share applicants have sufficient net worth to explain the source of investment made by them in the equity of the assessee....
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....ding that of Hon'ble Jurisdictional High Court in plethora of judgments that once an assessee discharges its onus to explain the nature and source of the credit entry found in its books of accounts and places evidences on record then the onus shifts on to the Revenue authorities and they have to specifically pin point the errors, defects and inconsistency in such documents and details and if needed they need to conduct further enquiries using departmental machinery and then once they have an evidence against the assessee then the assessee needs to be confronted. But in the case before us, Revenue authorities have failed to discharge their burden of proof and have given general comments about meagre income and rotation of funds. 10. Though the assessee has referred to a plethora of judgments, we take note of the recent decision of this Tribunal in the case of M/s. Inter Securities Pvt. Ltd. vs. ITO in ITA No. 609/KOL/2018 order dated 16.10.2023 wherein this Tribunal under the similar set of facts and circumstances and placing reliance on various judgments including that of the Hon'ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 ....
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....23), Copy of confirmation of Investment (124) 3. Barbarik Estates Private Limited. AADCB5626K 105 Lacs 324 Lacs (Page no. 128 of the paper book) Copy of audited balance Sheet (128), Bank statement (134). Incorporation certificate (136). Income Tax Return (137), Master data as appearing on MCA (138), details of directors as appearing on MCA (139), Memorandum and Articles of Association (140), Copy of PAN Card (158) copy of share application (159), Copy of confirmation of Investment (160) 4. Dolphin Commerce Private Limited. AACCD9870A 30 Lacs 1188 Lacs (Page no. 165 of the paper book) Copy of audited balance Sheet (165), Bank statement (171), Incorporation certificate (173). Income Tax Return (174), Master data as appearing on MCA (175), details of directors as appearing on MCA (176), Memorandum and Articles of Association (177), Copy of PAN Card (195) copy of share application (196), Copy of confirmation of Investment (197) 5. Fountain Suppliers Private Limited. AABCF5766A 10 Lacs 279 Lacs (Page no. 204 of the paper book) Copy of audited balance Sheet (204), Bank statement (211), Incorporation certificate (212). Income Tax Return (213). ....
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....ltants Pvt Ltd AAACT9862G 40 Lacs 1051 Lacs (Page no. 416 of the paper book) Copy of audited balance Sheet (416), Bank statement (423), Incorporation certificate (429), Income Tax Return (430), Master data as appearing on MCA (431), details of directors as appearing on MCA (432), Memorandum and Articles of Association (433), Copy of PAN Card (453) copy of share application (454), Copy of confirmation of Investments (455) 13. Venky Agencies Pvt Ltd AADCV4942J 29 Lacs 1297 Lacs (Page no. 463 of the paper book) Copy of audited balance Sheet (463), Bank statement (470). Incorporation certificate (471), Income Tax Return (472), Master data as appearing on MCA (473), details of directors as appearing on MCA (474), Memorandum and Articles of Association (475), Copy of PAN Card (493) copy of share application (494), Copy of confirmation of Investments (495) 14. Winsome Sales Pvt Ltd AAACW9316N 9 Lacs 1418 Lacs (Page no. 502 of the paper book) Copy of audited balance Sheet (502), Bank statement (510), Incorporation certificate (511), Income Tax Return (512), Master data as appearing on MCA (513), details of directors as appearing on MCA (514), Memorand....
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....hare applicants and the share premium charged is not highly excessive in comparison to the book value. Therefore, on one hand, the share applicants have sufficient funds to explain the investment, so as to prove the identity and creditworthiness and on the other hand, the genuineness of the transaction is also proved as a fair investment has been made in the assessee company. Therefore, since the criteria to prove all the three ingredients i.e., the identity and creditworthiness of the share applicants and genuineness of the transactions have been fulfilled by the assessee so as to prove the nature and source of alleged sum, no addition is called for u/s 68 of the Act. 9. We find support from the various decisions as referred by the ld. Counsel for the assessee in the list of case-law (supra). We, find that this Tribunal in the case of DCIT, vs. Narsingh Ispat Limited; ITA No. 225/Kol/2023 order dt. 26/07/2023, under identical facts and issue held as under :- "7. We have heard rival contentions and perused the material available on record. The revenue is aggrieved with the deletion of addition of Rs.19,14,50,000/- made by the assessing officer u/s 68 of the Act. W....
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....ended during assessment proceedings and as per AO's directions, details were filed in DAK. In any case, AO has not raised issue relating to non attendance of the Directors in the note sheet. Another crucial observation of the Assessing Officer that share capital has been received from outsiders is contrary to the facts. M/s. Honesty Dealers Pot. Ltd., and M/s. Seaview Agencies Pvt. Ltd. are Group companies and the sister concerns of the assessee company. While questioning the motive of investments made by the said two companies, AO has observed that investment made by them were not justified on the basis of the performance of the assessee company. However, AO has overlooked the fact that assessee company had a genuine running business of manufacturing and trading of iron and steel and for the current year it had filed return showing total income of Rs. 1,74,09,340/ -. Thus, the assessee company appears to have good performance record. In any case, investment decisions within the group concerns are not purely guided by the performance of the investee company. Rather, these are based on holistic and strategic view for the betterment of all the group concerns. Now coming to the id....
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.... was no scrutiny in its case for AY: 2009-10 but in the subsequent years, i.e., AY: 2011-12 and AY: 2012-13, assessment proceedings were reopened on the basis of information received from the Investigation Wing and orders w/s. 147 read with section 143(3) have been passed on 21.12.2018 and 11.12.2018 respectively for assessment year 2011-12 and assessment year 2012-13. In the assessment year 2011-12 information was received from the Investigation Wing regarding unaccounted income of Rs. 3,00,000/- received by M/s. Seaview Agencies Put. Ltd. and accordingly addition of this amount was made by treating the same as unexplained cash credit u/s 68 of the Act. Similarly, for assessment year 2012-13, there was information from Investigation Wing regarding unaccounted income of Rs 20,00,000/- and accordingly this amount was added to the total income. Perusal of the assessment orders for these two years shows that AO has not made any adverse comments on the entries in the Balance- sheet. It also appears that even the Investigation Wing has not found any adverse evidence against share capital raised by M/s. Seaview Agencies Pvt. Ltd. in assessment year 2009-10. Otherwise, it would have infor....
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....is not warranted and the ld. CIT(A) has rightly deleted the same. 9. We find support from the decisions of the ITAT, Kolkata in the case of M/s Happy Structure Pvt Ltd (ITA 1977/Kol/2016) wherein on similar facts it was held that :- "Applying the proposition of law laid down in the above referred cases to the facts of this case and keeping in view the fact for the share applicant company have been assessed to tax u/s 143 (3) of the Act and the source of money in question was brought to tax in their hands, we uphold the order of the ld. CIT(A) that no additions can be made in the case of the assessee company" 10. The ld. CIT(A) duly perused the submissions of the assessee and noted that source of share application money received by the assessee from M/s Honesty Dealers Put Ltd has already been added in the hands of the share applicant. Hence, in view of the settled legal position, as the source has already been added, we uphold the action of the ld. CIT(A) in deleting the addition. 11. So far as the remaining addition towards alleged share capital of Rs.8.62 cr received from M/s Seaview Agencies Pvt Ltd, is concerned, we find that this company als....
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.... the Act on similar grounds observing as follows :- "9. We have heard rival contentions and perused the records placed before us. Addition u/s 68 of the Act for unexplained share capital and share premium of Rs. 1.40 Cr is in challenge before us. We notice that the assessee company issued fresh share capital during the year of face value of Rs. 10/- and premium of Rs. 240/- per share and received 1.40 Cr from following three companies: Sr No. Name of the Share Applicant Amount Received 1 Everlike Projects Pvt Ltd 50,00,000/- 2 Mahashakti Vintrade Pvt Ltd 50,00,000/- 3 Satyam Plywood Merchandise Pvt Ltd 40,00,000/- TOTAL 1,40,00,000/- 10. After the case being selected for scrutiny, ld. AO asked the assessee to explain the source of above referred sum of share capital and share application money. In response, the assessee submitted the following documents: i. Party Wise details of share capital raised during the year, ii. Form 2, Form 5 filed with ROC, iii. Memorandum and Article of Association, iv. Bank Statement for the year, v. Share Application Form, vi. ....
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....fore, the decision of Bisakha Sales Pvt. Ltd. (supra) is not applicable on the present case. 14. So far as merits of the case are concerned, we find that the assessee has successfully discharged its onus by filing complete details of the share subscriber companies including their bank statement, audited financial statements, Form no. 18 in support of registered office address, source and utilization of funds, copies of ITRs, copies of all relevant company returns. Even the photo identity, address proof of the Directors of the assessee company and the subscriber companies have been filed directly by these Directors to ld. AO. On the basis of these facts undoubtedly the assessee has successfully discharged the onus which lay upon it by producing all the evidences for proving the identity and creditworthiness of the investors and the genuineness of the transaction. Merely non-appearance of the Directors cannot be a basis for treating the share application money as unexplained or non-genuine. We find support from the judgment of Hon'ble Gujarat High Court in the case of Rohini Builders (supra) relying on the judgment of Hon'ble Apex Court in the case of Orissa Corporat....
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....n 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 the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore we delete the addition of Rs 5,60,000/- and consequently the appeal of assessee is allowed. 36. In the result, the appeal of the assessee is allowed." 16. Similar view also taken in the case of Satyam Sme....
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.... evident fact that the only basis for making the alleged addition by ld. AO was non-appearance of the Directors of the share allotted company but as claimed by ld. Counsel for the assessee, the time allowed for compliance was too short and the assessee filed all the confirmations in respect of such share subscribers which were not doubted by ld. AO. Facts are brought to our notice out of the eight shareholders five have been assessed for the same assessment year u/s 143(3) of the Act and complete details of their financials and bank transactions have been examined by ld. AO in the scrutiny proceedings. This is also an admitted fact that each of the shareholders were duly served notice u/s 133(6) of the Act which is sufficient to prove the identity of such shareholders. As far as the genuineness of the transaction is concerned, the same have taken place through banking channel which is traceable from the origin to the destination of such payments and further confirmed from the documents furnished before us. All these transactions are duly recorded in the respective balance sheets of the shareholder companies. Creditworthiness of the transaction is also proved from the fact that all ....
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....eholder whether they want to subscribe to shares at such a premium or not and moreover the section 68 does not envisages any law on share premium it only requirement is to identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants which same has been discharged by the respondent authority and the HIGH COURT OF M.P. BENCH AT INDORE Pg. No. 58 - (ITA No.112/2018 & Other connected matters) same has been accepted by the appellate authorities thus, the same cannot be reconsidered in these appeals as it is a pure question of fact." SLP preferred by revenue was dismissed by Hon'ble Supreme Court and the same is reported in 103 taxmann.com 435(SC). iii) CIT vs. Kamdhenu Steel & Alloys Limited [ITA No.972 of 2009] dated 23.12.2011 wherein the Delhi High Court in a batch of 11 appeals was required to adjudicate on the very issue of addition made by the A.O u/s 68 in respect of share application monies received by the assessees as alleged unexplained cash credit. In all these cases, the Department had alleged that the share application monies were received from persons who were 'entry operators' and the monies received b....
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....n'ble Court held as follows: "Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that 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. The crucial words in the provision are "the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their confirmations, the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. Aft....
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....ingredients i.e., identity and creditworthiness of the share applicants and genuineness of the transactions as provided u/s 68 of the Act, are of the view that no interference is called for in the order of the ld. CIT(A) deleting the addition made by the Assessing Officer u/s 68 of the Act and the same is upheld. 15. In the result, appeal of the revenue is dismissed." 10. Considering the ratio laid down by the Co-ordinate Bench of this Tribunal in the case of Narsingh Ispat Limited (supra), we are satisfied that the same is squarely applicable on the facts of the instant case as before us, assessee has filed complete documentary evidence to explain the identity and creditworthiness of the share applicants and genuineness of the share transactions. We thus set aside the findings of the ld. CIT(A) and delete the impugned addition of Rs.3,59,00,000/- made u/s 68 of the Act and allow the effective grounds of appeal raised by the assessee. 11. In the result, appeal of the assessee is allowed." 11. Similar view was also taken by this Tribunal in the case of (a) Orthy Impex Pvt. Ltd. Vs. ITO, in ITA No. 855/KOL/2023 dated on 06.11.2023 and (b) Ivy Build....