2018 (4) TMI 930 - AT - Income Tax

Unexplained share capital receipts - A.O. issued notices u/s. 133(6) of the Act to the share applicant companies which were returned unserved - Held that - As seen that not only the directors are common but also the director of the appellant company is also a director of the share applicant companies. Therefore, it can be safely concluded that the impugned transaction is not between strangers. We find that the Assessing Officer and the First Appellate Authority has completely ignored the direct evidences which justify the share application money and the share premium. The direct evidence are in the form of confirmations by the share applicant companies, their bank accounts, and most importantly one of the directors Shri Rajesh Agarwal attended the proceedings on behalf of the investor companies. We find that the A.O. has disbelieved the existence of the share applicant companies on the basis of the questions asked to Shri Rajesh Agarwal which questions in our opinion are irrelevant. A perusal of the bank statements of the share applicant companies clearly shows that no cash was found to be deposited prior to the issue of cheque - It was brought to the notice of the A.O. and the First Appellate Authority that Samrat Dealcom Pvt. Ltd. was converted into LLP on 25.07.2014, Breeze Mercantile Pvt. Ltd. was converted into LLP on 24.03.2015 and Shristi Barter Pvt. Ltd. was converted into LLP on 01.01.2015. Moreover, the attendance of one of the directors Shri Rajesh Agarwal has been recognized by the A.O., therefore the allegation that the share applicant companies do not exist holds no water. No merit in the additions made by the A.O. and confirmed by the First Appellate Authority - Decided in favour of assessee.

Summary

Issues:
- Appeal against orders of CIT(A) for A.Y. 2012-13
- Share application money and share premium contention
- Existence and legitimacy of share applicant companies
- Assessment based on direct evidence
- Conversion of share applicant companies into LLP
- Justification of share premium charged
- Applicability of Section 68 of the Income Tax Act
- High Court judgments on share premium and capital nature

Analysis:
1. The appeals were filed against orders of the CIT(A) for the assessment year 2012-13. The appeals were by different appellants against separate orders, but as the underlying facts were common, they were heard together for convenience.

2. The key contention was regarding the share application money and share premium received from three subscriber companies. The concern was that the transactions were not between strangers due to common directors among the appellant and subscriber companies.

3. The Assessing Officer (A.O.) issued notices under section 133(6) of the Income Tax Act to verify the legitimacy of the subscriber companies, which were returned unserved. However, direct evidence such as confirmations from the subscriber companies, bank statements, and attendance of directors supported the legitimacy of the transactions.

4. The lower authorities failed to consider direct evidence such as Memorandum of Association, Articles of Association, and conversion of subscriber companies into Limited Liability Partnerships (LLP), which were crucial in establishing the genuineness of the transactions.

5. High Court judgments were cited to support the legitimacy of charging share premium and the capital nature of share premium receipts. The judgments emphasized the importance of examining the genuineness, identity, and capacity of investors in such transactions.

6. After reviewing all relevant documentary evidence, the Tribunal found no merit in the additions made by the A.O. and directed the deletion of the impugned additions from the appellant companies' hands. The appeals of the assessee were allowed based on the comprehensive analysis of the facts and legal precedents.

This detailed analysis of the judgment highlights the issues involved, the arguments presented, and the legal principles applied to arrive at the final decision in favor of the appellant companies.