TaxTMI 
TaxTMI 
2026 (6) TMI 348
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....emium by treating the same as unexplained cash credit u/s 68 of the Act. 3. The facts in brief are that the assessee assessee-company filed its return of income on 30.09.2013 declaring total income of Rs. 10/-. The case of the assessee company was selected for scrutiny through CASS and notices u/s 143(2) of the IT Act, 1961 was issued on 02.09.2014 and was duly served upon the assessee. Subsequently notice u/s 142(1) of the IT Act, 1961 along with questionnaire were issued on different occasions to furnish the accounts/documents and in response of the same, the assessee submitted the requisite details/documents and replied to all the queries raised. The AO, on the basis of the details furnished by the assessee, noted that during the year under consideration, the assessee had received share capital and share premium aggregating to Rs. 73,36,00,000/- from various companies by issuing equity shares at a face value of Rs. 10/- at a premium of Rs. 714/-. The AO sent commissions u/s.131 of the Act to the Deputy Commissioner of Income Tax, Central Circle-4(3), Kolkata to verify the transactions and the DCIT deputed the Inspector in this regard, however, the Inspector reported that the ....
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....re us that the assessee has raised similar share application/share capital from the same parties amounting to Rs. 29,71,00,000/- in the A.Y. 2012-13 the preceding assessment year. We also note that during the instant assessment year 2013-14, the assessee received further share application money amounting to Rs. 73,36,00,000/- from the same share applicants and, therefore, aggregate of share capital/premium from the said subscribers comes to Rs. 103,07,00,000/-. The details of share capital/premium received in A.Y.2012-13 as well as in A.Y. 2013-14 are extracted below :- Name of the Share applicants Amount of share capital and share premium received in AY 2012-13 Amount of share capital and share premium received during the year Closing Balance of Share application money received Rawdon India Ltd 4,71,00,000 4,13,00,000 8,84,00,000 Fraser India Ltd 8,26,80,000 35,03,00,000 43,29,80,000 Kaveri Management Services Pvt Ltd 8,20,20,000 26,35,00,000 34,55,20,000 Smart Promoters Ltd 4,75,00,000 3,21,00,000 7,96,00,000 Vinayaka Sugars Pvt Ltd 3,78,00,000 4,64,00,000 8,42,00,000 Total 29,71,00,000 73,36,00,000 ....
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....ient balance in its accounts to enable it to subscribe to the share capital. This judgment further holds that once these documents are produced, the assessee would have satisfactorily discharge the onus cast upon him. Thereafter, it is for the AO to scrutinize the same and in case he nurtures any doubt about the veracity of these documents to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the AO and he cannot go into the realm of suspicion. 8. We also note that the assessee has proved the genuineness of the transactions by filing the bank statements of the investors/share applicant companies which proved conclusively that the assessee had received money from the said shareholders. Similarly, the creditworthiness of the share applicants is clearly established from the fact that share application money was received by the assessee company by way of account payee cheques through normal banking channels and also from the copies of the bank statements of the investor companies showing adequate availability of funds for the impugned investments. The confirmations of ....
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.... case of CIT Vs. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC). The relevant observations of the Hon'ble Apex Court in the said case are as follows :- "Sec. 68 of 1961 Act was introduced for the first time in the Act. There was no provision in 1922 Act corresponding to this section. The section only gives statutory recognition to the principle that cash credits which are not satisfactorily explained might be assessed as income. The cash credit might be assessed either as business profits or as income from other sources." (Para 7) "It is not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established; but where the circumstances of the rejection were such that the only proper inference was that the receipt must be treated as income in the hands of the assessee, there is no reason why the assessing authority should not drave such an inference. Such an inference is an inference of fact and not of law. "(Para 10) "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 ....
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....nce, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s.68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 wax not sustainable." 13. It is also seen from the records before us that the assessment has been framed in the case of the assessee for A.Y.2012-13 vide order dated 27.03.2014 passed u/s.143(3) of the Act, wherein the issue of receiving share capital/premium was examined by the Assessing Officer after conducting inquiries and not a single discrepancy has been found and thus, the share capital/premium was accepted. Thereafter the Pr.CIT Circle-2 passed an order u/s.263 of the Act dated 22.03.2016 wherein he raised the issue of identity, genuineness and creditworthiness of shareholders and, thus, revised the assessment order. Further in the consequent proceedings the AO passed assessment order u/s.263/143(3) of the Act dated 28.05.2016 for A.Y.2012-2013 wherein the share capital and premium were again accepted after doing necessary verification. Therefore, we can reasonably conclude that once the opening balances of share capi....
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....and creditworthiness of the parties and genuineness of the transactions. Therefore, the AO has wrongly framed the assessment in the case of the assessee as the AO conducted the enquiry behind back of the assessee which was never confronted to the assessee as mandated by the provisions of Section 142(2)/143(3) of the Act which cannot be converted into a lively admissible evidence for being used against the assessee in the assessment proceedings for the want of confrontation and putting across the assessee. The case of the assessee is squarely supported by the decision of the coordinate bench of the Tribunal in the case of M/s. SPML Infra Ltd. vs. DCIT, ITA No. 1228/Kol/2018 wherein it was held that " ... section 142(2) mandates that any such material adverse to the facts of the assessee collected by AO u/s 142(1) has to be necessarily put to the assessee w 142(3) before utilizing the same for assessment so as to constitute as reliable material evidence through process of assessment u/s 143(3) of the Act." Further, the Hon'ble Kolkata High Court in the case of Peerless General Finance & Investment Co. Ltd. vs DCIT [1999] 236 ITR 671 (Cal) held that "Sub-section (3) of section 142....
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..../share premium from the said parties which remained uncontroverted by the Assessing Officer. In our opinion the action of the revenue in treating the share capital/share premium as unexplained cash credit without any enquiry is bad in law and can not be sustained. The ratio laid down by the Hon'ble Delhi High Court in the case of CIT-II v. Kamdhednu Steel & Alloys Ltd. (2012) 19 taxmann.com 26 (Delhi) is squarely applicable to the case of the present assessee. The relevant observation of the Hon'ble Delhi High Court as under :- "From the various decisions, it is clear that the initial burden lies on the assessee to explain the nature and source of the share application money received by the assessee It is also clear that the assessee has to satisfactorily establish the identity of the shareholders, the genuineness of the transaction and the creditworthiness of the shareholders. At the same time, it is also well established principle of law that in any matter, the ones brought is not a static one. Though initial burden is upon the assessee, once he proves the identity of credits/share application by either furnishing Permanent Account Numbers or copies of bank accou....
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.... disclose the source of amount received and presumption under Section 68 for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non -existence. [Para 14] The AO did not bother to find out from the office of the Registrar of companies, the addresses of those companies from where the registered letter received back undelivered. If the address was same at which the letter was sent or the Inspector visited and no change in address was communicated, perhaps it may have been one factor. In support of the conclusion which the AO wanted to arrive at, that, by itself, cannot be treated as the conclusive factor. The applicant companies have PAN and assessed to income tax. No effort was made to examine as to whether those companies were filing the income tax return and if they were filing the same, then what kind of returns those companies were filing. If there was no return, this could be another factor leading towards the suspicion nurtured by the AO. Further, if the returns were filed and scrutiny thereof reveals that such returns were for namesake. This could yet another be contributing factor in the dire....
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....vesting. It is for this reason the balance is struck by catena of judgments in laying down that the department is not remediless and is free to proceed to reopen the individual assessment of such alleged bogus shareholders in accordance with the law. [Para 18] In conclusion, once adequate evidence/material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it is 'created evidence' the revenue is supposed to make thorough probe of the nature indicated above before it could nail the assessee and fasten the assessee with a liability under Section 68 and 69. [Para 19]." 18. Similarly, the Hon'ble Delhi High Court in the case of CIT Vs. Steller Investments Ltd. (1991) 192 ITR 287 (Del) has held as under: "4. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that ....
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.... the undisclosed income of the company" Attention is further invited to the judgment of the Hon'ble Supreme Court in the case of CIT v. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) wherein the special leave petition filed by the Department against the order of the Hon'ble Delhi High Court was dismissed with the following remarks: "We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the Assessee Company from alleged bogus shareholders, whose names are given to the AO then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment." 20. We further find that the Hon'ble Apex Court in the case of CIT Vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 195 (SC) wherein the special leave petition filed by the department against the order of the Hon'ble Delhi High Court was dismissed with the following remarks :- "We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given....
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.... the asst. proceedings, the assessee was requested by the AO to provide the source of the credits made by these aforesaid entities and also to prove the financial capacity of these loan creditors. However, it is noticed that the assessee had not responded to the notices issued and had not explained the financial authenticity of the said loan creditors satisfactorily before the AO. Consequently, the AO had treated the fresh loan taken by the assessee (supra) of Rs. 12.55 crores as bogus and made the addition u/s 68 of the Act in the form of unexplained cash credit. 6.2.2. During the appellate proceedings, the assessee had contended that it had already taken loans from the aforementioned parties in the preceding years as can be evidenced from the ledger accounts of the aforementioned parties for the financial year 2013-14, which was included in its submission in the appellate proceedings. It had also contended that the said loans were taken from the said parties from preceding assessment years which were all accepted vide intimation order u/s.143(1) of the Act for the A.Y.2014-15 evidencing the fact that loans continuing from the same alleged parties were all accepted in tha....
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....the last 5 years from the subjected AY are very low in comparison to the loan extended to the appellant assessee. For the AY 2015-16, total income filed by M/s ADPL is a loss of Rs. 40,650/-, where revenue from operation was Rs. Nil. It proves that the said entity has no self-worth or strength to provide such huge amount of loan of Rs. 10.61 Crores to the assessee during the year and gross total extended in this regard to Rs. 280,46,03,254/- who had neither own worth or creditworthiness (even including share capital) or had capacity to generate revenue which is even a nano part of such abnormal amount of loan provided to the appellant assessee. It proves that the said loan was provided by M/s ADPL to the assessee only by way of absorbing entries from other entities who existed only papers like M/s. ADPL. 6.2.3.1. The appellant assessee has failed to provide further details regarding the source of fund of the loan creditor M/s. ADPL for making such fresh unsecured loans to the extent of Rs. 10,61,96,120/- to the appellant assessee during the relevant financial year, at the appellate stage also, after taking so many years of time which could not be provided to the AO due to ....
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....he sources of the funds of the lender & no explanation has offered in respect of credit entries in the account of lenders. Hence, the addition of Rs. 12,55,11,120/- is confirmed and subsequently the initiation of penalty proceedings u/s 271(1)(c) of the Act is highly justified as there are inviolable inaccurate furnishing particulars of income on the part of the assessee for the year under consideration. Subsequently, these appeal grounds raised by the assessee are conclusively dismissed." 25. The ld. CIT(A) while dismissing the appeal relied on various decision such as CIT Vs. NR Portfolio (P) Ltd. [2014] 42 taxmann.com 339 (Delhi HC); CIT Vs. Precision Finance (P) Ltd. 208 ITR 465 (Calcutta- HC) and ACIT Vs. BST Infratech Ltd., 161 taxmann.com 668 (Cal). 26. After hearing the rival contentions and perusing the material on record including the submissions filed by the assessee, we find that the assessee has received unsecured loans of Rs. 12,55,11,120/- from four parties. We note that the assessee has also made similar borrowings from these parties by way of unsecured loans in the assessment year 2014-2015. We note that the assessee filed before the AO as well as the CIT(A) ....
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....098/- under short term loans and advances. Further, in the details of loan given during the year, the name of the assessee is duly appearing. * M/s. Octal Suppliers (p) Ltd. During the relevant assessment year, the assessee took fresh loan of Rs. 40,80,000/- from its group company, M/s. Octal Suppliers (P) Ltd., whose opening balance continuing from previous assessment year was appearing at a figure of Rs. 13,65,82,466/-. Relevant copy of ledger account of the said party as appearing in the books of assessee is enclosed at page 45 of the P/b. The company is a regular tax assessee. Relevant copy of PAN, ITR acknowledgement establishing the identity of the loan creditor company, Audited accounts for the FY 2014-15, relevant copy of the bank statement evidencing the advancement of loan through banking channel, confirmation of account are enclosed at page nos. 46-73 of the P/b. On a perusal of the Balance Sheet enclosed at page 53 of the P/b, it is evident that the said company was into the business of giving/taking loans as it has shown an amount of Rs. 4,38,50,000/- under short term borrowings and an amount of Rs. 46,36,35,000/- under shor....
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....n the details of loan given during the year, the name of the assessee is duly appearing. More so, the company possessed sufficient shareholders fund to the tune of Rs. 187,43,44,985/- which sufficiently establishes the creditworthiness of the said loan creditor company. Thus, taking into consideration the above details, it is clear that the identity and creditworthiness of the alleged four loan creditor companies as well as the genuineness of the transactions is proved beyond doubt. Hence, no addition can be made alleging the loan transactions to be bogus unless the AO brings on record documentary evidences to dispute the facts and details furnished by the assessee, especially when it is not mandatory till 01/04/2023 to give explanation regarding the source of the source of the receipts in the nature of loan. The said claim finds strength from the following: * The Delhi High Court in case of Commissioner of Income -tax v. Lovely Exports P. Ltd. |299 ITR 268| held that "In the case of a company the following are the propositions of law under section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2)....
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.... SAS & Associates 1,000 In connection to Income Tax Matter Ravinder Sethi 1,75,000 For conference and appearance relating to case of M/s Aspective Vanijya vs. IFCI at Delhi High Court. SNG Consultants 10,00,000 For conference and appearance relating to case of M/s Aspective Vanijya vs. IFCI at Delhi High Court. VK Sharma & Associates 2,000 In connection to ROC Compliance RKS Corporate Advisory Pvt Ltd 5,000 In connection to Income Tax Matter 33. We observe that the expenditure of legal and professional charges were incurred during the financial year in connection with High Court litigation by the assessee company. We note that the assessee has taken loan of Rs. 80 crores from IFCL. Due to some dispute between the assessee and IFCL, the IFCL recalled the entire loan amount. Therefore, litigation arose and then assessee had to file cases in Delhi High Court and, thus, these expenses are duly and exclusively expended for the purpose of business of the assessee. Consequently we set aside the order of the ld.CIT(A) and direct the AO to delete the addition. Ground No.3 is allowed. 34. The issue raised in ground No.5 is against the disallow....