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TMI Blog2016 (10) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... e result, the sum of ₹ 3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the ld. Assessing Officer. We set aside the order of ld. CIT(A) and restore that of the Assessing Officer - Decided in favour of revenue - ITA No.1716/Ahd/2012 - - - Dated:- 18-8-2016 - Shri S. S. Godara, JM, and Shri Manish Borad, AM. For The Appellant : Shri Prasoon Kabra, Sr. DR For The Respondent : Shri R. B. Rath, AR ORDER PER Manish Borad, Accountant Member . This appeal by Revenue for Asst. Year 2009-10 is directed against the order of ld. CIT(A)-XI, Ahmedabad dated 23.5.2012. Assessment u/s 143(3) of the IT Act (in short the Act) was framed on 26.12.2011 by JCIT(OSD) Circle-5, Ahmedabad. Revenue has raised following grounds of appeal :- i) The Id. CIT(A) has erred in law and on facts in deleting the addition of Rs.3,50,00,000/- u/s 68 of the Act, in respect of unexplained share capital and premium received by the Assessee. ii) On the facts and circumstances of the case, the id. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. iii) It is, therefore, prayed that the order of the Ld. Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and has also failed to discharge the onus of proving the said transactions. Accordingly addition u/s 68 of the Act towards unexplained capital in share capital and share premium of ₹ 3.5 crores was made and income was assessed at ₹ 3,95,85,980/-. 3. Aggrieved, assessee went in appeal before ld. CIT(A). Appeal of the assessee was allowed in full by ld. CIT(A) who observed as under :- 2,2 I have carefully considered rival submissions. I have also perused various evidences filed by the appellant during assessment proceedings and the case laws relied upon by the appellant. The appellant has received share capital of ₹ 3,50,00,000/- from the following five companies :- 1. Green Star Financial Service Pvt. Ltd. ₹ 70,00,000/- 2. Archer Financial Service Pvt. Ltd. ₹ 70,00,000/- 3. Suraj Corporate Service Pvt. Ltd. ₹ 70,00,000/- 4. Fly High Exports Pvt. Ltd. ₹ 70,00,000/- 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to establish the identity of the persons who had subscribed the share capital, in this case the identity of the subscribing companies is established beyond doubt.' The A.O. has not doubted the identity of the subscribing companies. In view of these facts, addition of ₹ 3,50,00,000/- cannot be made u/s.68 of the I.T. Act. ' 2.4 I have also perused various case laws relied upon by the appellant. The case laws support the conclusions as discussed in the preceding paras. 2.5 It is further seen that in some cases the A.O. had doubted the source of deposits in the bank accounts of the subscribing companies before issuing cheques to the appellant company. It is also a matter of fact that the deposits in the accounts of subscribing companies were also through banking channels. Since the deposits in the bank account of subscribing companies are through banking channels, apparently these deposits have been made from legitimate sources. Even if for the argument sake, it is assumed that the deposits in the bank account of subscribing companies are suspect, in such eventuality also, addition cannot be made in the hands of the appellant company. In such a case, appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bank statements, audited balance sheets, for Asst. Year 2009-10 and complete explanation has been offered for the credit appearing in the books of account. Ld. AR further submitted that assessee is not required to prove the source of source as held by Hon. Supreme Court in the case of CIT vs. Lovely Exports (2008) 216 CTR 195 (SC) and the department was free to proceed to take action in the cases of impugned 5 cash creditors but certainly no addition should have been made u/s 68 of the Act in the hands of assessee. 7. We have heard the rival contentions and perused the material placed before us and gone through the judgments, decisions cited by both the parties. The solitary grievance of the Revenue is against the order of ld. CIT(A) deleting the addition of ₹ 3.5 crores made u/s 68 of the Act towards share capital and share premium. We find that during the year under appeal ₹ 70 lacs each was contributed by following 5 parties totaling to ₹ 3.5 crores towards share capital and share premium by way of subscribing one lacs equity shares having face value of ₹ 10/- each and premium of ₹ 60/-:- 1. Green Star F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced in the form of share application money. 10. Relevant extract of statement recorded on 21.09.2010- in the form of Questions Answers in respect of Shri Jitendra Jain by DDIT(Inv), Ahmedabad, are as follows :- Q. 22. In which companies you are the director within last 6 years ? Pl. explain. Ans:22 I am the director within last 6 years in the following companies 1. Surat Corporate Services Pvt. Ltd. 2. Grin BPO Services Pvt. Ltd. 3. Siddhi Vinayak Fincap Ltd. 4. Shelja Finlease Pvt. Ltd. 5. Radhe Finservice Pvt. Ltd. 6. Tirupati Shelters Ltd. 7. Honest Business Deal Pvt. Ltd. Q. 24. How much transactions of Suraj Corporate Services Pvt. Ltd. and Grin BPO Services with B. R. Metals and explain the nature of transaction ? Ans :24 During the F.Y.2008-09 from Suraj Corporate Services Pvt. Ltd. the company invested ₹ 1 crores with B. R. Metals vide a/c No.213090 of PNB as share capital and Grin BPO Pvt. Ltd. has invested 1 crores 85 lacs in F.Y.2008-09 through bank account no.213373 of PNB as share capital. Q. 25 What are the sources of above investment ? Ans: 25 The transactions are nearly accommodat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly explained by the assessee company? As per section 68 where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. This section has received the attention of the Supreme Court and almost all the High Courts in numerous cases. It has been almost unanimously held that the burden under this section is discharged by the assessee only when the assessee proves three things to the satisfaction of the Assessing Officer, viz., identity of the creditor, capacity of the creditor and genuineness of the transactions. Onus under section 68 can be said to have been discharged only when the assessee proves identity and capacity of the creditor along with the genuineness of transaction to the satisfaction of the Assessing Officer. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the Assessing Officer can lawfully make addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 68. [Para 13.w.] It is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarify the real intent, such amendment has to be considered as retrospective from the date when the earlier provision was made effective. Such clarificatory or explanatory amendment is declaratory. As the later amendment clarifies the real intent and declares the position as was originally intended, it takes retroactive effect from the date when the original provision was made effective. Normally such clarificatory amendment is made retrospectively effective from the earlier date. It may also happen that the clarificatory or explanatory provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the balance sheet can be loans or share capital etc. Once there is specific reference in section 68 for applying it to 'any sum credited', there can be no reason to restrict its application only to 'loans' and not to 'share capital1. The burden of proof under section 68 can be no different in respect of issue of share capital by closely held companies vis-a-vis loans or gifts. The High Court in CIT v. Maithan International [2015] 375 ITR 123/231 Taxman 381/56 taxmann.com 283 (Cal.). CITv. Active Traders (P.) Ltd. 19951214 ITR 583/[1993] 69 Taxman 281 (Call Mimec (India) (P.) Ltd, v. Dy. C1T[2Q\3] 353 ITR 284/216 Taxman 157 (Mag.)/35 taxmann.com 319 (Cal.) and CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623/1 30 Taxman 153 (Cal.)a has specifically held that the three ingredients, viz, identity and capacity of creditor and genuineness of transaction are required to be satisfied even in case of issue of share capital by a closely held company. It shows that the intention of the legislature, as interpreted by the High Court, is always to cast duty on the assessee to prove the satisfaction of the three ingredients in case of transaction of issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties Investment in ITA No.2080 of 2010 Hon. Delhi High Court vide its judgment dated 28.11.2013 has held as under :- 31. We are of the considered opinion that the Assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. The surrounding circumstances and inquiries made by the Assessing Officer were significant but the said finding though not disturbed have been ignored. Further the Tribunal has failed to take holistic view and has relied upon neutral and general evidence without noticing other evidence, which are :- a) The Respondent - Assessee is a private limited company. b) The subscribers were unknown persons, not related or friends. c) The subscribers bank account statements furnished were forged and fabricated. d) There were corresponding cash deposits in the bank accounts before issue of share application cheques. e) The subscriber companies it has been shown were carrying on effective and day to day business or were angle investors. f) The subscribers did not bother and ensure protection of their investment. 32. In view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss ;.e. whether these parses had sufficient means to advance such huge loans, is not without basis. It is well establishes that credits allegedly based on loan from parties, who are. not possessed of sufficient means cannot be accepted as genuine. The Assessing Officer was required to make proper investigation to determine whether the money was really lent by the third party or it has come out of the resources of the assessee himself. Thus the Assessing Officer has failed to apply his mind to all aspects of the case is selfevident. Such non-application of mind constituted passing of an erroneous order which is also prejudicial to the interest of revenue. [Para 11] I In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the bank pass book, profit and loss account and balance sheet of the creditors is not enough. When the requisite enquiry was not made, the order is bound to be erroneous and prejudicial to the interest of the revenue. The Tribunal proceeded on the theory that it was not a case of no enquiry; that no doubt is true, but that is not enough, if the relevant enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany it is surprising to note that none of them was able to appear before the Assessing Authority nor the assessee was able to bring any of them in person to prove the genuineness of transaction and creditworthiness of the investor towards share capital and share premium given these impugned 5 parties. More so we find that out of the 5 parties three parties are within Ahmedabad and so is the assessee. It is not simple to believe that none of them could have been made to appear before the Assessing Officer to prove the transaction. This non-attendance of the equity share holders makes the situation little grimy which further gets suspicious when the financial statements are gone through. It has been uniform situation in all the 5 parties that transactions totaling in crores are routed through bank accounts, huge reserve and surplus is appearing in the balance sheet along equal amount of investment; but when the profits and loss account is looked into it seems complete dry as interest against investment running in crores the income shown is few thousand and so is the total turnover. Adding more to this in the statement given by one of the directors of Suraj Corporate Services Pvt. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance money towards capital. iii. Genuineness of the transaction. If the assessee has adduced evidences to establish the prima facie, the aforesaid onus shifts to the Department. However, mere furnishing of particulars or the mere fact of payment by account payee cheque or the mere submission of confirmation letter by the share applicant is by itself, not enough to shift the onus to the Department although these facts may, along with other facts be relevant in establishing the genuineness of the transaction. As held by Hon. Supreme Court in the case of CIT vs. N. Tarika Properties Investment (2014) 51 taxmann.com 387(SC) that PAN cannot be treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of application without actual de facto clarification of identity or ascertainment of activities, nature of business activity and are just as to facilitate the Revenue to keep track of transactions and thus PAN cannot be blindly and without consideration of surrounding circumstances treated as sufficient disclosing the identity of individual . 21. We further observe that Hon. Delhi High Court in the case of CIT V Empire Builtech P Ltd 361 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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