TaxTMI 
TaxTMI 
2026 (3) TMI 1259
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....of adjudicating the following : (1) Legal issue raised in the Cross Objection challenging the validity of the assessment proceedings completed u/s.143(3) r.w.s.147 of the Act on the ground that reopening has been carried out beyond four years from the end of relevant assessment year and there is no failure on the part of the assessee to disclose truly and fully all material facts in the return of income which was selected for scrutiny assessment completed u/s. 143(3) of the Act. (2) Ground raised by the Revenue in ITA No.871/PUN/2023 against the deletion of addition of Rs. 30,00,00,364/- made by the Assessing Officer invoking section 68 of the Act. 3. Brief facts of the case are that the assessee is a Private Limited company engaged in the business of Passenger mass Transit operations and offers an array of mobility solutions like city and inter city buses, car and bus rentals, employees mobility and school bus services. Regular return of income u/s.139(1) of the Act for A.Y. 2011-12 furnished on 30.09.2011 declaring loss of Rs. 10,84,40,312/-. This return revised on 22.03.2012 revising the loss at Rs. 10,99,52,953/-. Revised return selected for scrutiny and af....
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....in assessee company. It has investments of USD 85,65,084 at the end of December 2010 in the assessee company and the Capital and Reserves of USD 85,92,610 which is just slightly more than the invested amount in assessee company. Thus it is seen that the sole purpose of Rainbow Ventures is to invest in assessee company. Further in note 12 to financial statements for 2010 of Rainbow Ventures it is mentioned that the company invests in shares denominated in Indian Rupees. This also supports the finding that the company is specifically formed so as to divert the unaccounted income of the assessee by way of share premium. Further the source of investment in Rainbow Ventures is not clear. As mentioned above, there is introduction of share capital in Rainbow ventures. However neither the annual report of the company nor the assessee has given any information about the parties who have introduced this share capital in the company. It is mentioned that directors consider the APF1(Mauritius) Limited as company's holding company. However the percentage holding of this company in Rainbow ventures is nowhere mentioned. The assessee also failed to furnish the source of funds of APF-1 (Maurit....
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....ued. There are many discrepancies in these reports. Both of them have annexures 1 mentioning profitability statement and projected cash flow statement for financial year 2010-11 to 2014 15. However the figures mentioned in both the valuation reports are different. It is not clear as to why there is such wide variation in projections of profitability and cash flow of the same company between the share valuation reports having difference of time period of just 5 months. Thus there are no indicators as to the basis of which the pricing was arrived. This creates a question mark on the entire exercise of issuance of share at premium by the assessee. It may be mentioned that no valuation report is submitted for issuance of shares to Ambit Pragma Fund. Thus there is no basis for issuing shares at such high premium to Rainbow Ventures and Ambit Pragma Fund Ltd. 5.2.5 It was also clarified by the AR of the assessee company that Rainbow Ventures had not derived any benefit from the investment in assessee company. 5.2.6 In view of these facts it is seen that the assessee has failed to prove the creditworthiness of Rainbow Ventures and genuineness of the transaction of issuan....
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....ld by various judicial decisions that merely receiving funds through banking channel is not sufficient to prove the genuineness of the transactions. Due to various discrepancies pointed out above the transactions of receiving share capital from Rainbow Ventures and Ambit Pragma Fund are held to be not genuine. 5.5 As already mentioned above if we consider the assessee' reserves, profits and earnings for the said AY, even they do not justify the huge Premium. Thus the Premium received is unreasonable. In the similar case of Major Metals Ltd Hon'ble Settlement Commission come to the conclusion that the purported transactions were not genuine. The Settlement commission held that the claim of having received such high premium on shares is fictitious and an attempt by the petitioner to launder its own unaccounted funds in the guise of such receipts. The Commission has, therefore, come to the conclusion that the amount shown in the books of account of the petitioner as share capital / premium has to be brought to tax in accordance with the provision of Section 68. The Hon'ble Bombay High Court has upheld the addition of the entire amount of share capital on the groun....
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....sessee to disclose fully and truly all material facts in the return of income filed by the assessee and in the details called for during the course of assessment proceedings u/s. 143(3) of the Act. 6. Ld. Counsel for the assessee vehemently argued referring to the following written submissions : Synopsis 1. Lack of consistency in views taken by Learned. AO ('Ld. AO') 1.1. Prasanna Purple Mobility Solutions Private Limited ("PPMSPL" or "the Assessee Company") issued shares to three shareholders at same issue price pursuant to single Share Subscription and Shareholder Agreement dated September 02, 2009 over a period of 3 years - FY 2009-10, FY 2010-11, FY 2011-12 as below: Details of investments by Investors [Rainbow Ventures Limited ('Rainbow Ventures') and Ambit Pragma Fund ('Ambit Pragma')]: FY AY Rainbow Ventures Ambit Pragma Total No. of shares Amount invested (INR) No. of shares Amount invested (INR) No. of shares Amount invested (INR) FY 2009-10 94,181 15,01,24,514 31,289 4,98,74,666 125,470 19,99,99,180 FY 2010-11 1,51,480 24,14,59,120 36,726 5,85,41,244 ....
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....establish the creditworthiness of the Investors: SN Rainbow Ventures Ambit Pragma 1. Financial statements and Independent Auditors Report for the year ended 31 December 2010 (refer page 53 of PB 2) Audited financial statements and Independent Auditors Report of Ambit Pragma for the year ended 31 March 2011 (refer page 179 of PB 1) 2 Confirmation from Rainbow Ventures (refer page 151 of PB 1) Confirmation from Ambit Pragma (refer page 189 of PB 1) 3.2. Following details from financial statements of Rainbow Ventures proves creditworthiness of Rainbow Ventures: * The principal activity of Rainbow Ventures is to hold investment and earn revenue in the long term by investing primarily in unlisted companies (refer note 1 to financial statements on page 64 of PB 2). * Rainbow Ventures is a holder of Category-1 Global Business License under the Companies Act, 2001 and the Financial Services Act 2007 of Mauritius (refer note 1 to financial statements on page 64 of PB 2). * As on December 31, 2010, the Rainbow Venture had total share capital and reserves of USD 85,92,610 (INR 38.65 crores) from its holding Company APF- 1 (Mauriti....
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....ancial statement on page 185 of PB 1) * Ambit Pragma Fund is a contributory trust (contribution being in the nature of revocable transfer) organized under the Indian Trust Act, 1882 by way of a trust deed dated December 27, 2007. IL&FS Trust Company Limited is the Trustee of the Fund. (Refer note 5 to financial statement on page 185 of PB 1) * As on March 31, 2011, Ambit Pragma had raised Unit capital amounting to INR 30.95 crores by issuing Class A units to various investors through private placement. Out of the total funds raised on 30.95 crores, Ambit Pragma had invested ~INR 10.90 crores in shares of the Assessee Company until March 31, 2011. (Refer note 1 and 2 to financial statement on page 184 of PB 1) * This establishes that Ambit Pragma had sufficient capital to make investments which proves its creditworthiness. * Further, as on March 31, 2011, Ambit Pragma has invested in a few other unlisted entities as well such as Spear Logistics Private Limited, Beams Hospital Private Limited. (Refer note 2 to financial statement on page 184 of PB 1) 3.6. Considering the totality of the facts, the Hon'ble CIT(A) has expressly accepted ....
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....re Application Forms, Share Transfer Register etc. it would constitute acceptable proof or acceptable explanation by the assessee ... " 4.4. Further, the following observations made by Hon'ble CIT(A) based on verification of details received from FT&TR also confirms the genuineness of transaction with Rainbow Ventures: * A request for information in order to ascertain the genuineness of the money received from Rainbow Ventures was made to Tax authorities of Mauritius through FT&TR division of CBDT by the Ld. AO during assessment proceedings of AY 2012-13. The information requested by the Ld. AO was not limited to AY 2012-13 but was for the period from AY 2010-11 to AY 2012-13. (refer para 27.2 of CIT(A) order). * The Ld. AO himself has accepted the genuineness of funds received from Rainbow Ventures in AY 2012-13 as well as creditworthiness of the said company based on information received from FT&TR division of CBDT. Similar information is now available for AY 2011-12. (Refer para 35.3 of the CIT(A) order). * The Assessee Company has discharged its initial onus under section 68 by filing the requisite documents during the assessment proceedi....
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....fficer fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the assessee. 5.3. Furthermore, without prejudice to the above contentions, the Assessee Company further relies on the decision of the Apex Court in CIT v. Lovely Exports (P.) Ltd. [2008] 216 CTR 195 which holds that if the amounts have been subscribed by bogus shareholders it is for the Revenue to proceed against such shareholders. 7. So far as the alleged legal issue raised in the Cross Objection is concerned, ld. Counsel for the assessee submitted that the reopening has been carried out after four years. Assessee has furnished the audited financial statements with the income-tax return along with all the Annexures. In the regular assessment proceedings also, assessee has made the submissions to all the queries raised by the Assessing Officer. The details of share capital issued during the year are forming part of the audited balance sheet and the notes to account. He also submitted that during the year under consideration share capital has been received from Rainbow Ventures Limited and Ambit Pragma Fund Sc....
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....ulged in making long term investments and assessee is part of the other companies/projects in which the investments have been made by the alleged share applicants. He also submitted that the Assessing Officer in the subsequent assessment year 2012-13 has not invoked the provisions of section 68 of the Act for the share capital received from Rainbow Ventures Limited. 9. As regards the Ambit Pragma Fund Scheme is concerned, the trustee of the fund is Infrastructure Leasing and Financial Services (IL & FS) company and the fund is duly registered with the SEBI as Venture Capital fund and therefore since nature and source of the share applicant money received are explained, section 68 cannot be invoked. He lastly submitted that the amendments in section 68 of the Act effective from 01.04.2013 requires the assessee to explain the source f source but the year under consideration is A.Y. 2011-12 during which the assessee has explained the source of the funds received during the year with all material evidences/documents. Reliance placed on the judgment of Hon'ble Supreme Court in the case of Lovely Exports Put. Ltd. Vs. CIT reported in 217 CTR 195 wherein the Hon'ble Apex Court ....
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....bit Pragma Fund Scheme 36,726 10 1584 1594 5,85,41,244/- Rainbow Ventures Ltd. 1,51,480 10 1584 1594 24,14,59,120 /- Prasanna Patwardhan 2,383 10 1584 1594 37,98,502/- 1.3 Assessee company has been incurring losses since its inception. The Earnings Per Share (EPS) for A.Y. 2010-11 i.e previous year was (-) Rs. - 392.48/- per share and there was hardly any networth in the company. The assessee was asked to prove the identity and creditworthiness of the investors and genuineness of the transactions as there was not reasonable ground to make investment in such a loss making company with negative EPS. 1.4 The AO has relied on the decision in the case of Major Metals Ltd. vs Union of India where entire amount of share capital was added to the income on the ground that if shares are issued at unjustifiable amount of premium the entire transaction is sham. Hence, AO had 'reasons to believe' that income for A.Y. 2011-12 has escaped assessment. A questionnaire through notice u/s 142(1) of the Act dated 22/11/2018 was sent by AO to the assessee. In the said questionnaire specific question (Q.5) (Page 281) r....
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....ved from non- resident. AO is not legally correct in putting additional onus on the assessee. * Investment decision by Private Equity investor or Venture Capital Fund is commercial decision and AO shall not step into shoes of investor to judge commercial expediency. * There are instances where companies are incurring losses but still valuation is higher because investors invest by considering future potential. Ambit Pragma Fund - Scheme I (Venture Capital Fund) * Considering business activity of the fund, no adverse inference can be drawn from AO's observation especially when nothing adverse is on record that suggests benefit was derived by other shareholders. * The Share Subscription and Shareholders Agreement (SSHSA) dated 02/09/2009 is comprehensive agreement which mentions all the terms and conditions. The premium amount is also specified in the agreement. * NO doubt regarding identity and creditworthiness by AO also. * VCF has raised Rs. 30.95 crores during A.Y. 2011-12 and hence there is no doubt on capacity for investment. * As per first proviso to Sec 68 of the Act, no additional onus can be put on ....
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....sses, the creditworthiness also remains doubtful. Genuineness and creditworthiness which are the most basic ingredients of Sec 68 of the Act are doubtful in the present case. Reliance in this regards is placed on the decision of Hon'ble Bombay High Court in the case of Major Metals Ltd. v. Union of India (2012) where it was held that, "26. In the present case it needs to be emphasized that the Settlement Commission has considered all the material on record including the material which had a bearing on the credit worthiness and financial standing of the alleged subscribing companies to the share capital of the petitioner. None of the companies was held to have a financial standing or credit worthiness which would justify making of such a large investment of Rs. 6 crores at a premium of Rs. 990/- per share. The allotment of shares, it must be noted, has taken place in pursuance of a private placement. The principles which have been applied in relation particularly to the public subscription of shares of a public limited company can obviously have no application to the facts of a case such as the present. The view which has been taken by the Settlement Commission is conse....
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....ium. * Business profile of the assessee company i.e. operating city buses, intercity buses, car rentals, school bus service is not forming basis for such a huge investment. * There is hardly any net worth in the assessee company. * The assessee company has not declared any dividend. * Commercial decision is always for the benefit. Both the investors are not exception for investment in such company whose financials are poor and not very recommendable for investment at a high premium and the assessee has no future potential. * It is clear from the Remand Report of the AO that no reference was made to FT & TR for A.Y. 2011-12. * The assessee company has done two valuations on 24/06/2010 and 21/11/2010 with valuations of Rs. 953/- and Rs. 448/- respectively following the DCF method as per RBI and FEMA Guidelines. However, the shares are issued at a premium of Rs. 1584/-. Hence, the reason for having two valuations and basis of issuing shares at premium of Rs. 1584/- is not established. 2.11 In view of the above discussion, it is observed that the assessee has failed to establish the creditworthiness of the transaction of is....
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....Tribunal and the same decided vide order dated 05.08.2024. Thereafter, assessee filed Miscellaneous Applications No.22 and 23/PUN/2025 and the same has been decided on 20.11.2025 recalling the order of the Tribunal for the limited purpose of adjudicating the grounds of appeal raised by the Revenue in ITA No.871/PUN/2023 and to adjudicate one of the legal issue raised in Cross Objection No.03/PUN/2024 challenging the validity of reopening after four years when there is no failure on the part of the assessee to disclose truly and fully the material facts in the return of income for the issues raised in the reasons recorded. 12. We will first take up the legal issue raised by the assessee in the Cross Objection and recalled by this Tribunal vide order dated 20.11.2025. Relevant extract of the order of Miscellaneous Application dealing with the issue raised by the assessee in the M.A. reads as under : "2. First we will take up MA No. 22/PUN/2025 filed against the cross objection i.e. CO No. 03/PUN/2024, dated 05/08/2024. 3. Learned counsel for the assessee referring to the contents of this Misc. Application submitted that in the impugned order deciding the assessee....
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....d that it is a mere change of opinion. In this regard, reference can be made to the decision of Hon'ble Supreme Court in the case of ITO Vs. Tech Span India Pvt. Ltd.(2018) 92 taxmann.com 361 (SC) wherein the Hon'ble Supreme Court held as under : "12. Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-assessment proceedings." 10. Since in the present case during the course of original assess....
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....- and revised return on 22.03.2012 declaring total loss of Rs. 10,99,52,953/-. The scrutiny assessment u/s 143(3) of the income-tax Act, 1961 (the Act) was completed on 28.03.2014. It was noticed that during the year assessee company has issued 195589 shares having face value of Rs. 10 each at a premium of Rs. 1584/- per share and assessee company accordingly accounted share premium of Rs. 30,18,92,976/- as its Capital and Reserve Surplus. The assessee vide its submission dated 12.07.2017 has stated that Shares at a premium have been issued to (a) Ambit Pragma Fund Scheme-1 for Rs. 5,85,41,244/- (b) Rainbow Ventures Ltd. (Mauritius) for Rs. 24,18,57,910/- and (c) Prasanna Patwardhan (Pune) for Rs. 37,74,672/-. The Balance Sheet as on 31st March 2010 in respect of Prasanna Purple Mobility Solutions shows an increase in the shareholders funds from Rs. 19,37,96,180/- to Rs. 49,42,86,046/- as on 31st March 2011. It is to be noted here that the assessee company has been incurring losses since its inception. The earnings per share (EPS) on the assessee company's shares for AY 2010-11 (Previous year) shows a loss of Rs. 392.48/- per share. There was hardly a....
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....er this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: [Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of i....
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....ment by reason of the failure on the part of the assessee (a) to make a return under s. 139 or (b) in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or (c) to disclose fully and truly all material facts necessary for that assessment year. Since the first two conditions are not pleaded by the respondents, it is the submission of the petitioner that the notice is wholly unwarranted and invalid since there is no allegation whatsoever that the petitioner has failed to disclose all material facts necessary for assessment. This submission can be considered only with reference to the reasons put forth by the respondents for issuing the notice. The letter dt. 27th Jan, 2005, inter alia, states that the AO has reasons to believe that income has escaped assessment because the petitioner has wrongly claimed deduction under s. 80IA in respect of income which was not derived from the income of the petitioner's unit of Kundaim. Further, that long-term capital gains have been wrongly claimed by the assessee which have been wrongly considered for the set off of the unit of Kundaim which has resulted in escapement of income. Nowhere has the AO stated that there is any failure ....
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....tainable and is liable to be quashed and set aside. Accordingly, the writ petition is allowed in terms of prayer cls. (a) and (c)." 15.2 Hon'ble Jurisdictional High Court in the case of Crompton Greaves Ltd. Vs. ACIT (2015) 55 taxmann.com 59 (Bombay) dealing with similar issue has observed as under : "6. In order to evaluate the rival contentions, it is necessary to advert to the relevant statutory provisions contained in Section 147(1) of the Act and the first proviso there to: "147. If the [Assessing] Officer [has reason to believe) that any income may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant asse....
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....s the amount of profit of a sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the company has become a sick industrial company and ending with the assessment year during which the entire net worth of such company has become equal to or exceeds the accumulated losses can only be claimed as deduction for computing the book loss. The net profit for this purpose is to be adopted from the certified profit and loss account and then deduct the business loss or deprecation which ever is less and as such the assessee has reduced the book profit by Rs. 5,30,52,654/- instead of Rs. 1,60,00,000/-, Further it is observed that there was no book loss to be adjusted from the net profit as per the certified accounts of the assessee company. Hence the deduction of loss of the sick industrial unit from the profit of the assessee company was not in order as the assessee company was not a sick company. By doing so, the assessee has under stated its income amounting to Rs. 1,11,15,796/- under the book profit u/s. 115JA of the IT Act. Further it is seen that the assessee were debiting capital expenditure of various types su....
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....jurisdictional restraints imposed by the first proviso to Section 147 of the Act. 11. Further, as has been held by this Court in the case of Hindustan Lever Ltd. v. R. B. Wadkar, [2004] 268 ITR 332/137 Taxman 479 it is necessary whilst supplying the reasons for the issuance of notices under Sections 147 and 148 of the Act to communicate as to which fact or material was not disclosed by the Assessee fully and truly, that has resulted in the income escaping assessment. It is for the Assessing Officer to disclose and open his mind through the reasons recorded by him. The reasons so recorded must be clear and unambiguous and not suffer from any vagueness. Reasons recorded should be self explanatory and should not keep the Assessee guessing as to the facts or materials, which he may not have fully or truly disclosed for the purposes of assessment of his income. In fact the record of reasons and their disclosure is a vital safeguard against arbitrary reopening of concluded assessment. The reasons so recorded and disclosed, cannot even be supplemented by filing affidavits or making oral submissions. 12. In the context of the reasons recorded, it is to be noted that in th....
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....closed material facts were duly considered by the Assessing Officer in making the Assessment Order dated 21 March 2002 under Section 143(3) of the Act. The jurisdictional parameter imposed by the proviso to Section 147 in matter of reopening of assessment was, thus, clearly not fulfilled. The issuance of impugned notice and the consequent assessment order is therefore in excess of jurisdictional restraint imposed upon the Assessing Officer by the proviso to Section 147 of the Act. The impugned notice dated 29 March 2006 and the second reassessment order dated 26 December 2006 are therefore liable to be quashed on this ground alone." 16. Now in light of the above judicial precedents as well as the provisions of section 147 of the Act, we will now move on to examine the contents of reasons recorded and further to examine whether there has been any failure on the part of the assessee to disclose fully and truly all material facts relating to the issues raised in the reasons recorded. Admittedly, assessee has filed regular return of income on 30.09.2011 declaring loss of Rs. 10.99 crore approx. which has been further revised on 22.03.2012 declaring the same amount of loss at Rs. 10.....
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....cer is referring in the reasons recorded, has been duly disclosed by the assessee in the audited financial statements along all the relevant information required for showing such type of transaction. All these details were very much available with the Assessing Officer during the course of assessment proceedings u/s. 143(3) of the Act and the assessment has been framed u/s.143(3) of the Act without making any addition u/s.68 of the Act for the alleged share application money. We also note that ld. Assessing Officer on one hand questioning the justification in charging the huge share premium but on the other hand has made no objection for the very same share premium received from the promotor Prasanna Patwardhan, Pune and has accepted the share application money received from him. Even in the reasons recorded, ld. Assessing Officer has only drawn inference from the balance sheet of the assessee company which already stood furnished in the assessment records and apart from that there is no other new information regarding the share applicants namely Rainbow Ventures Limited and Ambit Pragma Fund Scheme-1 which could form a basis for reopening the completed assessment beyond four years....
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....principles that can be deduced from the above decisions are that mere production of incorporation details, PAN Numbers, etc. receipt of money through banking channel prove the Identity and creditworthiness of investors but not the genuineness of the transaction is not established by merely contending that transaction was done through banking channel or account payee instrument. The assessee company has to discharge the onus cast upon it by demonstrating as to how the two parties are known to each other, the manner and mode by which the parties approached each other, whether transaction was entered through written agreement to protect the investment, creditworthiness, objects and purpose for which the investment was made. In the present case, these facts and information are within the exclusive knowledge of the assessee company. The fact that the assessee company received huge share capital/ share premium when the Rainbow Ventures Limited is a loss making company triggered the doubts in the mind of the AO as to the genuineness of the very transaction. Further, the AO gave a finding that it is nothing but unaccounted money of the assessee company. This allegation had not been proved ....
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....correct facts and not referred and considered the similar issue dealt by Ld.AO in subsequent years. He stated that the investments made by M/s. Rainbow Ventures Ltd., Mauritius in the subsequent years has been accepted by the Ld.AO, but the investments made in the year under consideration as treated as doubtful. Similarly, it is stated that M/s. Ambit Pragma Fund Scheme-1 is a SEBI regulated Venture Capital Fund registered with SEBI and that the IL & FS is a trustee of the said fund and that the money raised from investors have been invested in assessee's-company as well as other logistic companies, and these facts were also noted by the Ld. CIT(A) but again they have not been considered by this Hon'ble Tribunal in adjudicating the issue of addition u/s. 68 of the Act. Concluding his arguments, learned counsel for the assessee submitted that all these important facts that goes to the root cause of examining the applicability of provision of section 68 of the Act on the investments received by the assessee company from two investors; namely, Rainbow Ventures Ltd., Mauritius and Ambit Pragma Fund Scheme-1 have not been considered by this Tribunal which clearly indicates that ....
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....pecific observations firstly that the assessee company is running into losses and earning per share for the immediately preceding financial year is (-) 392/- per share whereas the Equity shares face value have been issued at a premium of Rs. 1,584/- per share. Based on such vast difference between the earning per share, i.e. in negative and charge of huge premium at Rs. 1,584/-, ld. Assessing Officer has observed that there is no new justification in charging of such huge share premium and therefore genuineness of the transaction is not proved and resultantly section 68 of the Act has been invoked for making the impugned addition. 22. Before ld.CIT(A) assessee has contended that the share applicant namely Rainbow Ventures Limited (RVL) is a Non- resident Mauritius based company and Ambit Pragma Fund Scheme-1 a SEBI registered Venture Capital fund and that section 68 of the Act cannot be invoked on such type of investors. So far as the justification of share premium is concerned, it has been claimed that assessee is into business of passenger mass transit operations and offers an array of mobility solutions like city and intercity buses and based on the potential for exponential ....
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....n that the information requested by the Assessing Officer was not limited to F.Y. 2011-12 (A.Y. 2012-13) only and he requested the information and related documents for the period F.Y. 2009-10 to F.Y. 2011-12. Thus, although the information/ documents were requested from the Mauritian Tax authorities, in the context of transaction undertaken during F.Y. 2011-12, however the documents with regard to transaction undertaken in earlier years including F.Y. 2010-11 (A.Y. 2011-12) i.e. the year under appeal were also requested and received by the Assessing Officer. Therefore, the comments of the Assessing Officer in the first remand report that the information/ documents received during the re- assessment proceedings of A.Y. 2012-13 has no application for A.Y. 2011-12 is not correct because information available with the Assessing Officer for arriving at a decision regarding the genuineness of transaction undertaken with M/s Rainbow Ventures Limited during A.Y. 2012-13, is now available with the Assessing Officer for A.Y. 2011-12 as well. 27.3 The details of exact information received by the Assessing Officer are not being reproduced here due to the 'confidentiality clause&#....
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....not be accepted. It is also seen from the assessment records for A.Y. 2012-13 that one of the issues on which case was reopened u/s 147 of the Act was receipt of funds amounting to Rs. 5,87,37,306/- from M/s Rainbow Ventures Ltd., Mauritius on account of issuance of 0.1% CCPS having a par value of Rs. 10/- each at a premium of Rs. 1,584/- per share 27.5 The appellant has further claimed that the reassessment proceedings u/s 147 of the Act for A.Y. 2012-13 were completed after the completion of reassessment proceedings for A.Y. 2011-12. It has also been claimed by the appellant that while completing the assessment u/s 143(3) r.w.s. 147 of the Act for A.Y. 2012-13, the Assessing Officer was fully aware of the additions made on account of receipts from M/s Rainbow Ventures Ltd. for A.Y. 2011-12 and after examining the information received from Mauritius Tax Authorities, the Assessing Officer was fully satisfied with the creditworthiness of M/s Rainbow Ventures as well as the genuineness of the transaction. A perusal of assessment folders for A.Y. 2011-12 and 2012-13 suggests that the reassessment proceedings for A.Y. 2012-13 were completed on 22/04/2021 which is after the ass....
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....ing Officer for which the amount of Rs. 24,14,59,120/- received from M/s Rainbow Ventures Limited, Mauritius was held as unexplained credit, it is important to discuss the legal position regarding the section 68 of the Act as held by various courts from time to time including the amended provisions of the Act. 29.1 As per settled law, for the purposes of section 68, the initial onus is on the assessee to establish by cogent evidence the identity of investor, the genuineness of the transaction, and creditworthiness of the investors. Once the assessee has submitted the documents relating t identity, genuineness of the transaction, and creditworthiness, the initial onus of the assessee stands discharged. The said explanation of the assessee is then required to be examined by the Assessing Officer and in case of doubts, the Assessing Officer should conduct an inquiry in order to verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transacti....
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....mited does not have any business other than holding investment in the appellant company. Further, the company invests in shares denominated in Indian Rupees and the said company was in loss since inception. In this connection, it is seen from the information received through FT & TR Division that the Rainbow Ventures Limited is incorporated as a Category-1 Global Business License Company. The company is 100% owned by M/s APF-1 (Mauritius) Limited which is a closed end fund licensed by the Financial Service Commission, Mauritius. It has also been informed that the Rainbow Ventures Limited has been set-up as an investment holding company and will invest in sectors as per the Private Placement Memorandum of APF. M/s Rainbow Venture plans to hold investments for long term and strategy of the company is to generate revenue by way of capital appreciation. This information received through the tax authorities of Mauritius adequately clarify as to why M/s Rainbow Ventures Limited is in loss as per the balance sheet ended on 31/ 12/2010 and as to why the said company is not undertaking any activity other than holding investments. It is also noted from the balance sheet as on 31/12/2010 that....
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....- assessment proceedings for A.Y. 2012-13 did not take any adverse view regarding the funds received from M/s Rainbow Ventures Limited, Mauritius even though this reassessment for A.Y. 2012-13 was completed after the completion of reassessment for A.Y. 2011-12. 32. The next observation of the Assessing Officer is that as per the balance sheet of M/s Rainbow Ventures Limited for the period ending on 31/ 12/2011, there was an increase of USD 940662 in the fair value of the investment in the appellant company. In this connection, it may be mentioned that this re-statement of investment made in the appellant company by M/s Rainbow Venture Limited in its financial statements should not be considered adversely as done by the Assessing Officer because this is not an important factor for the purpose of invocation of sec. 68 of the Act. The Assessing Officer has further mentioned that the said company i.e. M/s Rainbow Ventures Limited received investments in the subsequent year as well which was invested in the appellant company. In this connection, it may be stated that the investment made by M/s Rainbow Ventures Limited in subsequent assessment year i.e. A.Y. 2012-13 has been exa....
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....CF) Method after considering the projected revenue and profits. The appellant has further contended that there are several instances in public domain itself where the companies are incurring substantial losses over the past few years but still the valuation of these companies is substantially higher. The appellant has further contended that it is a well settled legal position that the Assessing Officer cannot step into the shoes of investors to determine the commercial expediency of the investment and also that no addition u/s 68 of the Act can be made slowly for the reason that the shares were issued at a higher premium. 33.3 I have considered this issue. I find merit in the contentions of the appellant that making investment by a Private Equity (PE) investor or Venture Capital Fund (VCF) in the shares of an unlisted company, is a commercial decision and the Assessing Officer should not step into the shoes of the investor to judge the commercial expediency. I also find merit in the contention of the appellant that there are several instances in the public domain, where companies are incurring substantial losses but still the valuation of these companies is substantially h....
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.... v) Copy of Audited Financial Statement and Independent Auditor Report of Rainbow for the year ended on 31/ 12/2011 and 31/12/2012. vi) Copies of Foreign Inward Remittance Certificate (FIRC) vii) Copy of bank statement of the appellant company reflecting the money received. 35.2 As discussed earlier in this order, the initial onus of proving the identity, genuineness of transaction and the creditworthiness is required to be discharged by the assessee and once the assessee files documents supporting these three ingredients, initial onus is considered to be discharged. A perusal of assessment order suggests that the Assessing Officer has put an additional onus on the appellant to prove the source of source which is not mandated in the case of a non-resident share holder. Thus, by filing the above documents, the appellant has discharged the initial onus. 35.3 Even otherwise, all the required documents are subsequently received from the tax authorities of Mauritius during the re- assessment proceedings for A.Y. 2012-13. As discussed earlier, the Assessing Officer while making reference to FT & TR Division requested the information for the period....
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....passed by the Settlement Commission is different from normal appeal jurisdiction. In the said decision, the Hon. High Court relied on the factual finding of the Settlement Commission that the said transaction was not genuine. Moreover, in the said case, the shares were issued to two resident companies wherein in the present case the main investor is a non-resident. In this connection, it is mentioned that the said issue regarding the binding precedence of the decision of Hon. Bombay High Court in the case of Major Metals Limited (supra) has been discussed by Hon. ITAT, Mumbai bench in the case of DCIT us Varsity Education Management (P.) Ltd. (2019) 105 taxmann.com 291 (Mumbai Tribunal) wherein following has been observed: 30. The Ld D.R contended that the decision rendered by the Hon'ble Bombay High Court in the case of Major Metals Ltd (supra) supports the view taken by the assessing officer and further the above said decision was not considered in the case of Green Infra Ltd (supra) and Gagandeep Infrastructure (P.) Ltd. (supra). On the contrary, the Ld A.R submitted that the decision has been rendered in the case of Major Metals Ltd. (supra) against the orders pass....
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....ssion. Sabyasachi Mukharji, J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is "concerned with the legality of procedure followed and not with the validity of the order. The learned Judge added "judicial review is concerned not with the decision but with the decision-making process." Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans [1982] 1 WLR 1155. Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which this Court can interfere in these appeals is that order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant ... " 20. The same principle has since been reiterated in a more recent judgment rendered in relation to the powers of the Settlement Commission constituted under the Central Excise Act in Union of India v. Ind-Swift Laboratories Ltd. (2011) 4 SCC 635 by the Supreme Court: "22. An order passed b....
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....ak Infotech (supra) as under :- "(d) We may also point out that decision of this Court in Major Metals Ltd v. Union of India (2013)(359 ITR 450) (Bom) proceeded on its own facts to uphold invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the assessee-company were not creditworthy inasmuch as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000 at premium of Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by this Court in its writ-jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the authorities that shareholder/ share applicants were unidentifiable or bogus." In the above said case also, the AO assessed the amount received by the assessee as share capital/ share premium as income of the assessee under sec.28(iv) of the Act, which was inserted....
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....eness of transaction are established, no addition u/s 68 can be made merely for the reason that shares were issued at high premium. 38. A perusal of the assessment order suggest that the Assessing Officer has mentioned that M/s Rainbow Ventures Limited was specifically formed so as to divert the unaccounted income of the assessee by way of share premium. However, no material evidence or reasons for reaching to this conclusion have been mentioned in the assessment order. A bare reading of the assessment order suggests that the addition was made by the Assessing Officer on suspicion without bringing any material evidence on record. It is a well settled legal position that no addition can be made merely on the basis of suspicion of the Assessing Officer, however, strong it may be. Moreover, the information received subsequently from Mauritius Tax Authorities during the reassessment proceedings of A.Y. 2012-13 suggests that the suspicion of the Assessing Officer was unfounded and after receiving the information, no addition was made during A.Y. 2012-13 by the Assessing Officer himself for the similar transaction. 39. Considering the above discussion and totality of fa....
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....the appellant has submitted that it is a well settled law that when a question arises as to whether cash credits appearing in the books of accounts of an assessee have to be accepted or rejected for the purpose of sec. 68 of the Act, the assessee is required to establish the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. It has been submitted that during the assessment proceedings, following documents were filed in order to discharge its onus as required u/s 68 of the Act: i) Copy of Confirmation from Ambit Pragma. ii) Copy of Registration Certificate issued by SEBI as a venture capital fund. iii) Copy of audited financial statements and independent auditors report of Ambit Pragma for the year ended on 31/03/2011. iv) Copy of bank statement of the company. v) Copy of Income Tax Return of Ambit Pragma for A.Y. 2011- 12. 42. The appellant has further submitted that the identity of the investor namely Ambit Pragma Fund Scheme-1 is established as it is a SEBI Regulated Venture Capital Fund registered on 10/07/2008 with SEBI. The appellant has further submitted that the funds were recei....
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....balance sheet. As per the balance sheet, the source of investment, is from contributions made by the investors in the fund. The complete background of the VCF has been given in the audited financial statement of Ambit Pragma Fund Scheme-1 which reads as under: Ambit Pragma Fund ("the Fund") is a contributory trust (contribution being in the nature of revocable transfer) organized under the Indian Trust Act, 1882 by way of a trust deed dated December 27, 2007. The Fund has been registered with the Securities and Exchange Board of India ("SEBI") as a venture capital fund under the SEBI (Venture capital fund) regulations, 1996 vide approval dated July 7, 2008. IL&FS Trust Company Limited ("Trustee") is the Trustee of the Fund. Ambit Pragma Fund Scheme I (the Scheme') has been floated by the Fund, the initial closing of which was announced on June 16, 2008 and final closing announced on September 15, 2009. The Scheme has issued Class A units of face value of Rs. 1000 each to the contributors of the Scheme. The aggregate commitment from Class A unit holders is Rs. 570 million. Besides above, Contribution agreement with Class B holders has been signed on 30 March 20....
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....he Share Subscription and Shareholders Agreement dated 02/09/2009 vide which the investment was made in the appellant company. The Clause 38.1 of the said agreement reads as under :- 38.1 The Promoter and the Company each agree and acknowledge that Investor 2 is executing this agreement for and on behalf of Ambit Pragma Fund Scheme-1 ("Fund") and is the sole trustee of the fund. Parties acknowledge that the amounts paid by the Investor 2 to subscribe to the shares or other instruments by Investor 2 or any further amounts payable by the Investor 2 will be paid from the Fund, and any amount payable under or pursuant to or in relation to the shares held by the Investor 2 for and on behalf of the fund shall be paid in the name of fund only. Any shares or other security or instrument that shall be issued by the company under or pursuant to this agreement shall be issued in the name of "IL&FS" Trust Company Limited, Account. Ambit Pragma Fund Scheme-1, as the sole trustee and representative of the fund. Further, any amounts payable to the Investor 2 under or pursuant to this agreement shall be in the name of the fund only. The above clause clearly suggests that M/s IL &....
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....od and to earn revenue by way of capital appreciation. A perusal of the balance sheet of Ambit Pragma Fund Scheme-1 suggests that the investment made by the said VCF in the appellant company is a long-term investment. Considering the business activity and business model of M/s Ambit Pragma Fund Scheme-1, no adverse inference can be drawn from the observations of the Assessing Officer especially when nothing adverse is on record which could suggest that benefit was derived by other shareholders and such benefit was denied to M/s Rainbow Ventures Limited. 47. Another observation of the Assessing Officer is that the fund has invested in a loss-making company at a high premium without proper valuation. I have considered this observation of the Assessing Officer. It is seen that in the present case, the investment in the appellant company has been made by the fund in pursuance to the Share Subscription and Shareholders Agreement dated 02/09/2009. It is seen that stamp duty amounting to Rs. 12,43,100/- has also been paid on this SSHSA dated 02/09/2009. The said agreement is between promoters and Rainbow Ventures Limited and the Ambit Pragma Fund Scheme-1 through its trustee. Thi....
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....se, I am of the opinion that in the present case the assessee has proved the identity and creditworthiness of M/s Ambit Pragma Fund Scheme-1 as well as genuineness of transactions in terms of sec. 68 of the Act. Accordingly, the addition of Rs. 5,85,41,244/- made by the Assessing Officer is directed to be deleted. 49. In view of above discussion, the addition of Rs. 30,00,00,364/- made by the Assessing Officer is directed to be deleted. The ground no. 3 raised by the appellant is ALLOWED. UME TAX DEPARTME 50. The ground no. 4 and 5 are regarding the charging of interest u/s 234B and 234D of the Act and issuing of demand notice u/s 156 of the Act. These grounds are consequential to ground no. 2 and the Assessing Officer is directed to re-compute the tax payable by the appellant. The ground no. 4 and 5 are PARTLY ALLOWED." 23. Now on going through the above detailed finding of ld.CIT(A) and before moving on to examine the facts narrated by both the sides before this Tribunal, we would first like to go through the provisions of section 68 of the Act, section 56(2)(viib) of the Act and the judicial precedents relating to section 68 of the Act pertaining to the asse....
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....r Guide to Income-tax Act. 41. For relevant case laws, see Taxmann's Master Guide to Income-tax Act. 42. For the meaning of the terms/expressions "any sum is found credited in the books", "books", "assessee offers no explanation" and "may", see Taxmann's Direct Taxes Manual, Vol. 3. 43. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988. 44. Inserted by the Finance Act, 2012, w.e.f. 1-4-2013. 45. Substituted for "Provided that" by the Finance Act, 2022, w.e.f. 1-4-2023. Section 56(2)(viib) : (viib) where a company, not being a company in which the public are substantially interested, receives", in any previous year, from any person [ *** ], any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (1) by a venture capital undertaking from a venture capital company or a venture capital fund "for a specified fund]; or (ii) by a ....
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....al fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of "[Explanation] to clause (23FB) of section 10;] Note : 33. Inserted by the Finance Act, 2012, w.e.f. 1-4-2013. 34. For the meaning of the term "receives", see Taxmann's Direct Taxes Manual, Vol. 3. 35. Words "being a resident omitted by the Finance Act, 2023, w.e.f. 1-4-2024, 36. Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-4-2020, 37. For notified classes of persons, see Taxmann's Master Guide to Income-tax Act. See also Letter [F.No. 173/14/2018-ITA.I], dated 6-2-2018 [Determination of fair market value of unquoted equity shares of 'start up' companies under section 56(2) (viib) read with rule 11UA(2)) and Circular No. 16/2019, dated 7-8-2019/Letter F. No. 173/354/2019-ITA-I, dated 9-8-2019/Circular No. 22/2019, dated 30-8-2019 and Letter F.No. 173/149/2019/ITA-I, dated 10-10-2023 (Assessment of start-ups). For details, see Taxmann's Master Guide to Income-tax Act. 38. Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-4-2020, 39. Inserted by ....
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....under: "A distillation of the precedents 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 creditwor....
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.... 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 assessee 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. In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra), we find no infirmity in the order of the Learned CIT(A) and accor....
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....hat the no addition u/s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of Rs. 54,00,000/-. The ground Nos. 2 and 3 are allowed. 7. Aggrieved by the order of CIT{A) the Revenue is in appeal before the Tribunal. 8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon'ble Allahabad High Court in the case of CIT v. RajKumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009 wherein the Hon'ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO v. Devinder Singh Shant in ITA No.20BIKo112009 vide order dated 17.04.2009. 9. We have c....
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....se, 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 confirm the order of ld CIT(A) in deleting the addition of Rs. 1,60,00,000/-. 45. In the result, the appeal of the Revenue is dismissed." 25(e). Hon'ble Calcutta High Court in the case of Principal CIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Cal) has held as follows: "Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that whe....
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....ere 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." 25(f). In the case of Gaurav Triyugi Singh Vs. ITO (2020) 121 taxmann.com 86 (Bombay), the Hon'ble Bombay High Court held as under : "11. Regarding Smt. Savitri Thakur, it is seen that she had issued cheque payment of Rs. 14 lakhs dated 21-7-2009 to the Appellant. Prior to the issuance of the cheques, this amount was credited into the bank account of Smt. Savitri Thakur maintained in th....
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....e 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 the relevant previous year. 13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely: (1) identity of the creditor, (ii) genuineness of the transaction; and (iii) credit- worthiness of the creditor. 14. In Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is ....
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....st conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. We note that ld. Assessing Officer has not filed any concrete evidence on record which could prove the substance in discharging Revenue's onus, failing which the issue in hand can be decided only on the basis of documentary evidence available on record. Assessee is claiming that it has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions. 27. In light of the above judicial precedents and on examining the facts of the instant case and relevant finding of ld.CIT(A), we find that Rainbow Ventures Limited is a non-resident, Mauritius based company and it has furnished its Certificate of Incorporation, Tax Residency Certificate, Income Tax Return, Audited financial statements, Share Certificates, Board Res....
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....te of ratio laid down by Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd.Vs. CIT reported in 217 CTR 195 where it has been held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company. 29. The requirement of proving the source of source has been brought into statute from 01.04.2013 and therefore not relevant for the year under consideration. A step further, a bare perusal of section 68 which stood prior to 01.04.2013 assessee was required only to explain the source of funds received by it and if for the sake of discussion, even the amendment brought in 01.04.2013 is considered, then also such amendment excludes the funds received from a non resident as well as funds received from a Venture Capital fund or Venture Capital Fund as referred to in clause 23FB of section 10. In other words, even the amended provisions also could not have been invoked for the funds r....