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TMI Blog2017 (3) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer for making further investigation with the help of well equipped Govt. machinery and the power to make commission to the counter part in the city where the alleged companies are existing so as to substantiate its plea that the alleged two companies are paper companies and also to find out the actual modus operandi of these companies qua investments in share capitals of other companies qua their business operation qua the income earned during the year. Needless to mention that assessee will have a proper opportunity of being heard for putting forth its arguments and submissions against the information collected by the Revenue authorities. - Decided partly in favour of assessee for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... ards share application money and premium paid except for the following three companies which apparently in his view were appearing to be paper/shell companies :- Sr. No. Name & Address of Shareholders PAN Amount of share capital Share Premium , 1 Newjet Trexim Pvt. Ltd. 27, 5th Floor, Brabourne Road, Kolkata-700001. AAACN8738P 300000 1500000 2 Cap Vanijya Pvt. Ltd. 14-C, 4th Floor, Maharshi Devendra Road, Kolkata-700007. AABCC3989 30000 150000 3 Sadashukh Dealers Pvt. Ltd. 6-A, Raja Subodh Malik Squire, Kolkata- 18 AAKCS9420P 500000 200000 3. Notices u/s 133(6) of the Act were issued to the above three parties which were duly served. Necessary details including addresses, PAN, bank statements, income-tax return, audited balance sheets and confirmations of accounts were placed on record by the assessee. During assessment proceedings ld. Assessing Officer came across the statement u/s 131 of the Act given by director of one of the alleged company M/s Cap Vanijya Pvt. Ltd. recorded by DDIT(Inv) Wing, Kolkata. In this statement Mr. Anjani Banka, director of Cap Vanijya Pvt. Ltd. accepted that other than Cap Vanijya (P) Ltd. he is director in other companies also wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to the assessing officer made addition of ₹ 61,00,000/- u/s 68 as he was not satisfied about the explanation/evidence furnished. The AO found that the appellant had received share capital at premium amounting to ₹ 61,00,000/- from 3 companies of Kolkata. The AO made inquiries by issuance of notice u/s 133(6) of the Act and through issuance of commission u/s 131(1)(d) of the Act to Investigation Unit, Kolkata regarding the identity, creditworthiness and genuineness of the transaction pertaining to share premium. The AO found on the basis of the inquires conducted that the 3 companies who have made investments in share capital are shell companies/paper companies and therefore the investment in form of share capital and share premium of ₹ 61',00,000/- was considered to be unexplained cash credit and added to the income of the appellant. The appellant submitted that these 3 companies are having PAN, have shown investments in the balance sheets, have filed confirmations before the AO, assessed to tax etc. which shows the existence of these companies and genuineness of the transactions. 6.1,2 During the appellate proceedings, the appellant was issued a que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Companies Act, 1956 passed and when it was intimated to the Registrar of Companies? The copy of the resolution is to be produced. (v) When were the share applications received, and the shares were allotted and sent to the parties? (vi) Whether any dividend was declared to its investors or not? (vii) The attendance register for the AGM held is to be produced alongwith the relevant proxy authorization forms and any proof of communication to the share holders in regard to the con vening of the AGM ore ven for the dispatch of the share certificates;" 6.1.3 In response to the query letter the appellant submitted a reply dated 3.08.2015 wherein its submitted as following Ms regards premium on share capital, this is based on the intrinsic worth of the company. Copy of audited accounts for 31st March, 2011 is enclosed as Annexure 'B'. The significant aspects therein are brought to your kind notice. 31-3-2011 31-3-2010 Share capita! (This is because of infusion of two lacs New shares ofRs. 10 each during 31 -03-2011.) 1,98,47,500 1,78,47,500 General reserve 4,40,00,000 3,40,00,000 Profit & Loss a/c. balance 3,49,07,684 1,23,15,761 If you consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode of communication with persons for private placement was telecommunication/verbal communication. The private placement was accepted by various parties and company had made private placement to these persons based on acceptance of offer of the company. As regards your reference to resolution u/s.81(1A) of the Companies Act, 1956 as mentioned earlier, the above section does not apply to private companies. On receipt of share applications allotment of shares was made and shares were sent to the parties. No dividend has been declared." 6.1.4 The appellant was again issued a query letter during the appellate proceedings dated 15.09.2015, wherein the appellant was directed to file the following details "On the perusal of the details on record, filed during the course of the assessment and appellate proceedings, certain issues need further clarifications. You are required to submit your explanation/clarification on the queries raised as following: (i) When was the execution of the share application forms completed? (ii) Is there any business/personal relation with investing party directly or indirectly? (iii) Copies of all communications entered with all prosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Hence, share capital was issued to relatives, friends, business associates of directors as also of company. Directors of the investing company Sadasukh Dealers Pvt. Ltd. and of the appellant have been known to each other since last two decades since directors of the investing company and that of the appellant stay in Surat. The other investing parties viz. Newjet Trexim Pvt. Ltd. and Cap Vanijaya Pvt. Ltd. have been known to Mr.Gajanand Agarwal, who is younger brother of directors of the appellant company. In Para 3, you have required information/details on various grounds. They are furnished as under: (a) As regards copies of communication entered with all prospective investors is concerned, this was all done through Shri Gajanan Agrawal as mentioned in earlier para. Share applications were received and copies thereof are enclosed (Page 1- 18). (b) So far as installment of money called and received, entire amount was received at one stroke during September/October, 2010 and is duly recorded in the bank statements (Pages 19-22). (c) As regards decision of premium and negotiation, thereof this was based on intrinsic worth of the company. Copy of audited account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29-37). • You have mentioned about the response of the persons to the offer. There was no such offer but •this was the result of negotiation and the response was positive as is reflected in their investment in the company. There was no instrument of expression of interest/acceptance of offer. • The name of these persons were entered in the share allotment register on 14-09-2010/28-12-2010, Copy of the share allotment register is enclosed (page 38-42). • Although you have not mentioned as to of which AGM the attendance register is called. However, attendance register held on 28-09-2010 and 30-09-2011 are enclosed (page 43-48). There was no question of proxy authorization as nobody had given proxy. • The share application/premium money were invested in expansion of the company's business. The company had availed loan from Bank of Baroda and Bank of Baroda laid out several conditions including bringing additional share capital and for the evidence thereof they required copies of Form 2 filed with ROC as also certificate of Chartered Accountant. It was pursuant to this condition that the company enhanced the share capital (page 49-55). &bull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails furnished by the appellant in each of the case, which are briefly enumerated as following: Sadasukh Dealers Pvt. Ltd. fSDPL) • No fixed assets as per the balance sheet • The total turnover as per P&L account from consultancy is Rs. 28,9451- • The appellant only source of income is from consultancy of ₹ 841/- in AY 2011-12 as per return of income filed on 26.09.2011 on which the appellant has claimed salary/wages expense of ₹ 8.501/-. The total expenses is of ₹ 34.103A which gives the net profit in AY 2011-12 of ₹ 841/- on a total business turnover of ₹ 34,945/- which includes interest onfoanofRs. 6,000/-, • No rental payment shows for its registered office premises other expenses of petty nature have been shown. • No real source of income or actual business activity but various persons have invested into equity shares of the company and the same has been transferred to other companies in form of investment/loans. . • The bank account statement shows meager balances being maintained. Assessment Year Fixed Assets as on 31st March Interest Income/Turnover Accumulated profit Share capital & premium 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of income except interest income but still the expenses incurred towards operation and administration expenses is of ₹ 16,93,812/-. No real source of income or actual business activity but various persons have invested into equity shares of the company and the same has been transferred to other companies in form of investment/loans. The bank account statement shows meager balances being .maintained Assessment Year Fixed Assets as on 31 * March Interest Income/Turnover Accumulated profit Share capital & premium 2010-11 NIL 19,43,641 21,367 36,86,51,200 2011-12 NIL 17,00,594 25,117 36,86,51,200 6.1.8 During the appellate proceedings, the appellant was asked to furnish the details regarding that how he came into contact with these 3 companies, where they met, how they met, copies of all communications entered with all prospective investors including calling for investment, applications, installment of money called, received, decision of premium, round of negotiations. dispatch of share certificates, correspondence about dividend or any other matter etc., along with mode "of communication and proof of dispatch etc. The appellant submitted that Mr Ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submitted in his reply dated 03.08.2015 that there was no mechanism prescribed for calculation of premium on shares of Pvt. Ltd. Companies during AY 2011-12. It was entirely a matter between the company and the subscribers to share and premium has been fixed on the basis of the intrinsic worth of the company. The valuation of the shares such a high figure and the charging of the premium has been fixed without any basis, performance- past or present or professional opinion i.e. in consultation with experts or financial institutions. In such a situation the only inference that could be drawn that the rate of premium was fixed unilateraily by the appellant without any reference point to past records, present earnings or future prospects. The object was not to attract genuine investors by pegging the premium at a realistic level but to bring in large amounts of unaccounted funds in the guise of share premium. The net worth as disclosed by the balance sheet, the potential earnings as disclosed by earnings per share or even the vague protestations of future prospects would not justify a high premium. 6.1.11. it was also noticed on the verification of the return of income filed by thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan1 received from a 'paper company', it invariably means that such entry represents unaccounted money of the person in whose books of account the money has been credited as share capital/ loan and the lender company is only a conduit for routing the money back to the books of account of that person. However, despite having knowledge of this fact and knowing the techniques and methods used by the taxpayers for this purpose, it remains a huge challenge for the tax authorities to bring all material facts and evidences on record so as to prove which in his opinion is a fact, beyond doubt. In an economy where unaccounted income is a big menace, there are always efforts made by the tax evaders to bring their unaccounted income back to their books of account without paying any tax on the same. Numerous methods and techniques are used for this purpose and there are lots of techniques that authorities know about and probably countless others that have yet to be uncovered. Routing the unaccounted income back to the books of account disguised as loan or share capital is one of such methods widely used by the tax evaders in our country. The method is most prevalent and perhaps also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The process, prima facie, may appear very simple but it is extremely difficult to expose the whole chain of money deposited and layers' through which it is routed back to the beneficiary. The biggest problem is that there is no effective deterrence to curb the activities of these entry operators. Even conducting search and seizure operations against them have not really worked as deterrence and such operations often ended up in disclosure of 'unaccounted commission income' of these entry operators which definitely could not be the purpose of conducting search and seizure operations against these operators. 6.2:3 An important question arises-'IW/e dealing with doubtful cash credits, is it necessary for the assessing officer to establish that the money came back to the books of the assessee as 'entry' actually emanated from the coffers of the assessee?' This issue has been decided by the Hon'ble Delhi High Court in a decision dated 20.07.2012 in the case of Commissioner of Income-tax v/s Independent Media (P.) Ltd. 210 TAXMANN 14(Delhi)(2012), which is significant as the observation made by the Hon. Court in this decision regarding the cases where & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of ₹ 80,000/~ and the other being receipt of ₹ 42,000/~ from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been it was clearly upon to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Incometax Officer is entitled to draw the inference that the receipt are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs." 6.2.5. The identity, capacity and genuineness aspects are not water tight compartments. An assessee's explanation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law as such would arise for consideration. The Court further observed thus:. "...The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real one. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence," The overall circumstances is to be taken into consideration and in the present case, mere transactions being made through banking channels do not make the transactions genuine as in the instant case where the frank accounts of the lenders do not show any genuine activities as discussed in the aforesaid paras. 6.2.7. In another judgment of the Supreme Court in Vijay Kumar Talwar Vs. CIT (2011) 1 SCC 673 the same principle was applied in the following observations: ". ...All the authorities below, in particular the Tribunal, have observed in unison that the assessee did not produce any evidence tc rebut the presumption drawn against him under Section 68 of the Act, by producing the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ils to establish at the first stage, the identity of the creditor itself, there is no question of an Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys and nor therefore, the Assessing Officer examining the matter at the second stage of ensuring and satisfying himself of the capacity of the creditor to advance the moneys, even then the onus lay on the assessee to further establish certain things because nonproduction of documentary evidence of corroborative value invites adverse inference against the person who ought to have produced 6.2.10 Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v C1T[1963] 50 ITR 1 (SC),and Roshan Di Hatti v CIT [1977] 107 !TR (SC), it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him, Where the nature and source thereof cannot be explained satisfactorily, it is open to the revenue to hold that it is the income of the assessee and no furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y presume that it represents an 'income receipt', So too, the onus of proving that such income receipt did not fall under the head 'income from other sources' was on the assessee. If the assessee did not place any satisfactory material before the AO to enable him to arrive at a contrary conclusion, the AO might presume that trie cash credit fell under the head 'Income from other sources'. The presumption that an unexplained cash credit is an 'income from other sources' are presumptions which flow naturally from the circumstances that all facts which can establish the nature and source of the cash credit are peculiarly within the knowledge of the assessee. It may be that the onus of displacing the presumptions may be heavy in some cases and light in others, depending on the facts and circumstances of the case. But, the presumptions are there and the burden of rebutting the presumptions is on the assessee.{Commissioner of Income-tax v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194,196,197 (SC).} 6.2.12 In Sreelekha Banerjee v. Commissioner of Income-tax [1969] 49 ITR (SC) 114, 120; [1964] 2 SCR 552 (SC), the Supreme Court observed: "The very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011-12 ' Sumati Dayal v. CIT [1995] 214 ITR 801 (SC); and Jaspal Singh v. CIT [2006] 290 ITR 306 (P & H). Dhanalaxmi Steel Re-rolling Mills 57 ITD 361 (HYD.) 6.3.1 The appellant being a private limited company, the basic structure of a private limited company is such that a private limited company cannot make an invitation for issue of shares to the public, The private limited company is prohibited from making any invitation to the public to subscribe for any shares in the company. This provision is contained in section 3 of the Companies Act, 1956. whereby sub-clause (iii) of sub-section (1) of section 3 defines a "private company". Section 3 of Companies Act, 1956, defines "private company" as under; (iii) "private company" (means a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed, and by it articles, -] (a) restricts the right to ............. (b) limits............................. (c) Prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company: (d) Prohibits............] ................... As a single member Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcoriated by the Revenue. Equally, where the preponderance of evidence indicates absence of culpability and complexity (sic) of the assessee it should not be harassed by the Revenue's insistence that it should prove the negative. In the case of a public issue, the Company concerned cannot be expected to know every detail pertaining to the identity as well as financial worth of each of its subscribers. The Company must, however, maintain and make available to the Assessing Officer for his perusal, all the information contained in the statutory share application documents. In the case of private placement the legal regime would not be the same. A delicate balance must be maintained while walking the tightrope of Sections 68 and 69 of the Income Tax Act. The burden of proof can seldom be discharged to the hilt by the assessee; if the Assessing Officer harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations. But if the Assessing Officer 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 Company.". 6.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the department was free to proceed to reopen their individual assessments in accordance with law. On this ground, the Supreme Court while dismissing the Special Leave Petition found no infirmity in the judgment of the Delhi High Court. The observation of the Hon'ble Supreme Court while deciding the special leave petition in the case of Lovely Exports (P.) Ltd. f2Q09I 319 ITR (St.) 5, cannot be considered to be a law declared which has a binding precedent under article 141 of the Constitution of India. Such observations are purely on the facts of the respective case and cannot be applied across the board even when the facts in other cases are altogether different. It is a settled position that the court while deciding the appeal will not put blinker in its sight and merely believe what is written on paper but also consider concerning circumstances and ground reality as observed by the Hon'ble Supreme Court in the cases of CIT v. Durga Prasad More [1971] 82 ITR 540 and Sumati Dayal [1995] 214 ITR 801 -. . ' 6.3.5 The principle which was emphasized by the Delhi High Court in the case of Lovely Exports was followed by another Division Bench in Commissioner of Income Tax Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards issue of shares before such sum is accepted as genuine credit, If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. Thus in case of private limited companies higher onus is cast upon them to explain even source of source of the share application money/ share premium etc. 6.3.7 In the present case in spite of all the efforts where the Assessing Officer could not even locate the respective so-called applicants, the assessee could file only confirmations and acknowledgment of ROI. Therefore, it is a case where all the papers are manufactured at the instance of the appellant and not the real transaction. Therefore, merely on the basis of such papers it cannot be held that the amount received by way of share, capital is explained within the meaning oTsection 68 of the Act. The Full Bench of the Delhi High Court in the case of Sophia Finance Ltd. [1994] 205 ITR 98 have held that the provision of section 68 shall equally apply even in the case of amount stated to be received towards share capital. Since the appellant failed to prove even the basic identity as also the creditworthiness and the genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been obtained through application and other forms and formalities unilaterally filed before the ROC etc. 6.3.10 Thus, on overall consideration of facts and circumstances of the case and as discussed in detail above, the amounts claimed to be received by the appellant do not in any way appear to be genuine loans. They are nothing but arranged affairs being pre-ordained series of transactions and tax evasion device where money laundering transactions have been camouflaged as loans. Hence no credence can be placed on the copies of various documents filed to support I such claim of share capital contribution aid addition of ₹ 61,00,000/- is hereby confirmed and grounds of appeal is dismissed." 4. Aggrieved, assessee is now in appeal before the Tribunal. Ld. Authorised Representative submitted that with regard to the alleged three companies namely -Newjet Trexim (P) Ltd., Cap Vanijya (P) Ltd. and Sadasukh Dealers (P) Ltd. which has subscribed to the equity shares of assessee company along with share premium totaled at ₹ 18,00,000/-, ₹ 18,00,000/- and ₹ 25,00,000/- respectively. Assessee had submitted the income-tax record with computation, confirmation le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order it is true that copy of the report DDIT(!nv.) and statement recorded were given. The report of the DDlT (Inv.j, Unit- 11/3, Kolkata is one page report in which he states that none of the three concerns could be located at the given address and that the directors have held that the concerned companies were papers/shell companies. In the statement of Shri Nangalia out of the three companies, name of only one company viz Cap Vanijya Pvt. Ltd. mentioned; other names are not mentioned, Therefore, apart from what is mentioned in our letter on 14th April, 2015 as regards the statements of Mr. Nangalia and Mr. Banka, nothing applies to the other two companies viz. NewJet'Trexim Pvt. Ltd. and Sadasukh Dealers Pvt. Ltd. Both these companies have given complete details pertaining to them to the Assistant Commissioner of Income Tax, Circle-4, Surat. Copy of the report dated 31.01.2014 alongwith the copies of statements of Mr. Banka and Mr. Nangalia are enclosed. Ld. Authorised Representative also submitted that promoters of the assessee company were previously having business in the State of Assam and thereafter shifted to Gujarat and were having their connection in Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and it is hard to believe that the alleged three companies are carrying on any regular business activities. Ld. Departmental Representative also referred and relied on the following judgments/decision:- 1. N. Tarika Property Invest. (P) Ltd. vs. Commissioner of Income Tax (2014) 51 taxmann.com 387 (SC) 2. Navodaya Castle (P) Ltd. vs. Commissioner of Income Tax (2015) 56 taxmann.com 18 (SC) 3. Commissioner of Income Tax vs. Maithan International (2015) 56 taxmann.com 283 (Calcutta) 6. We have heard the rival contentions and perused the record placed before us and also gone through the judgments/decisions quoted by both the parties. Though several grounds have been raised but the only issue involved in this appeal revolves round the alleged unexplained cash credit of ₹ 61 lacs added to the income of the assessee u/s 68 of the Act by ld. Assessing Officer and duly confirmed by ld. Commissioner of Income Tax(A). We observe that during the course of assessment proceedings ld. Assessing Officer wanted to verify the identity, genuineness and creditworthiness of the following three parties which have subscribed to the assessee's share capital:- Sr. No. Name & Address of Shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting as a conduit of funds with no real business. 6.1 We further observe that ld. Authorised Representative has repeatedly asserted the fact that assessee company which is having a huge turnover of ₹ 189.98 crores as against ₹ 116.19 crores in the immediately preceding year and regular manufacturing activities are being carried out. Share capital/premium received during the year has been utilized for the business purposes including purchase of machinery. The share capital/premium received during the year apart from the alleged three companies have also come from other share holders relates to directors and some amount of premium have been paid by them and this fact is not disputed by the Revenue. Ld. Authorised Representative has also submitted that all evidences in support of identity, creditworthiness and genuineness which a prudent businessman can collect within his limited power which includes addresses, Permanent Account Number, confirmation letters, bank statement and audited balance sheet and profit and loss account and no error has been found in this regard. Further it is not possible for the assessee to know about the source of source and such powers are wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove the identity, creditworthiness and genuineness of the transactions, assessee has filed PAN, copies of income-tax returns for Asst. Year 2009-10, confirmation regarding share purchases along with proof of payments through cheques, copies of bank accounts and audited balance sheets for Asst. Year 2009-10. We further find that summon was served u/s 131 to the following three parties based at Ahmedabad :- (3) Green Star Financial Service Pvt. Ltd., Ahmedabad. (4) Archer Financial Service Pvt. Ltd., Ahmedabad. (5) Suraj Corporate Service Pvt. Ltd., Ahmedabad. 9. It was alleged by assessee that summons u/s 131 were not received by Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. As far as personal attendance of the director of Suraj Corporate Service Pvt. Ltd., authorized representative on behalf of the company appeared and again filed documents which were already filed by the assessee and submitted that he took leave on behalf of the director for attending in personal due to illness of director's father. We further find that Assessing Officer came across the statement of Mr. Jitendra Jain, one of the directors of Suraj Corporate Service P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 9,77,080/- and similarly in case of Oasis Cine Communication Ltd., Kolkata against bank transaction in crores of rupees there is sales turnover of ₹ 348500/- and net profit before tax at ₹ 1289.56 which shows that the transactions which happened through the bank account are not having any impact on the profit and loss account. 12. Similarly in the case of Suraj Corporate Services Pvt. Ltd. when we refer to the bank statement placed on pages 14 & 15 of CIT(A)'s order, we find that transactions worth crores of rupees have moved through bank balances at various points of time are more than ₹ 50 lacs whereas a meager amount of interest has been shown at ₹ 18,903/-. Similar type of financial datas are depicted in other two impugned parties namely - Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. having common address. From observing these documents it seems that huge volume of transactions are in the form of debit and credit of cheques and are of typical nature of paper companies engaged in providing accommodation entries. 13. Further we observe that Co-ordinate Bench, Kolkata in the case of Subhlakshmi Vanijya(P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 13.t] Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1-4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective? • As per this proviso where any share capital etc. is credited in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation is found to be satisfactory by the Assessing Officer. The essence of this amendment is that a closely held company is required to satisfy the Assessing Officer about the share capital etc. issued by it, in the absence of which, an addition under section 68 can be made in the hands of the company. If the amendment is accepted to be prospective, then it would mean precluding the Assessing Officer from examining the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition under section 68 notwithstanding the same being non-g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive provision which is aimed at clarifying the existing position or removing unintended consequences to make the provision workable has to be treated as retrospective notwithstanding the feet that the amendment has been given effect prospectively. The border line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament at the time when the original provision was incorporated and also the new amendment. If the later amendment simply clarifies the intention of the original provision, then it will always be considered as retrospective. [Para 13aa] On adverting to the language of section 68, it transpires that it refers to 'any sum credited' in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision Thus, it would ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has always been on the closely held companies to prove the issue of share capital etc. by the company in terms of section 68. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the Assessing Officer and it was only with the aim of setting to naught certain contrary judgments which 'created doubts' about the onus of proof by holding that there was no requirement on the company to prove the share capital etc. and as such no addition could be made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. [Para 13. ad.] Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the assessee being devoid of any merit, are hereby jettisoned. [Para 13. ae.] Thus, the contention of the assessee that since the Assessing Officer of the assessee-company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxing provi- sion and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See :Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut , the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. (See : Sreelekha Banerjee (supra) at p. 120) 16. Further we observe that in the case of CIT vs. Maithan International (2015) 56 taxmann.com 283 (Calcutta), Hon. Calcutta High Court has held as under :- Held - • When payment by cheque did not establish the cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course is bound to result in erroneous and prejudicial, orders. Where the relevant enquiry was not undertaken as in this case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. .[Para 19] • In view of above, the order of the Tribunal is set aside. 17. Hon'ble Apex Court in the case of Navodaya Castle (P) Ltd vs CIT reported in (2015) 56 taxmann.com 18 (SC) has held that mere filing of certificate of incorporation, PAN were not sufficient for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor. 18. Examining the facts in the light of above judgments and decisions we observe that assessee is a private limited company which is not open to public and, therefore, if it requires to increase its capital base or invite investment in the share capital along with premium which in this case is ₹ 60/- over the face value of ₹ 10/- then it has to approach within its friends and relatives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper company. 19. From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case before us we observe that assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to produce the new share holders who have been allotted a substantial portion of equity shares, he would have easily called upon the investors. The investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that in the given facts and circumstances of the case and respectfully following the judgments of Hon. Supreme Court, High Court and the decision of Co-ordinate Bench as discussed above, we are of the confirmed view that assessee has been able to just prove the identity of the company but unable to prove the genuineness & creditworthiness of the impugned 5 parties. In the 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. In the result ground no.(i) of Revenue is allowed. 7.1 On going through the above decision of Co-ordinate Bench which has referred and relied on various judgments of Hon. Supreme Court, Hon. High Courts and Tribunal's decisions and examining the facts of the case in the light of the above, we find that one common event is with regard to the report of investigation of the Department and the statement on oath of the director of one of the alleged companies admitting it to be a paper company. In the case of assessee out of the alleged three companies M/s Cap Vanijya (P) Ltd. is admittedly a shell/paper co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work without having a concrete base or evidence. It is well established fact that each assessee is having its distinct identity and its own course of working. Unless the companies are working in the same group or a under a common director it merely cannot be inferred by comparing the finance of the paper company that the alleged two companies are also paper companies. In the given case the alleged two companies which have responded to the Department's notices, all details have been filed then it was on the part of Revenue to further deeply examine the modus operandi of the companies with the help of investigation. In the given case the report of Investigation Wing, Kolkata, heavily relied on by the Revenue authorities is having no mention of the alleged two companies. Undoubtedly to a great extent the picture evolving out of the financial statements of the alleged two companies gives an indication about something happening abnormal in their working but that merely cannot be basis to doubt the genuineness and creditworthiness because in various investment companies also one can find that there are no fixed assets and investments are regularly made in other companies. Duty is heavily ..... X X X X Extracts X X X X X X X X Extracts X X X X
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