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TMI Blog2017 (11) TMI 1809X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,487/- made by the AO by disallowing the entire expenses incurred during the year. 2.2 During the course of hearing, the ld.AR of the assessee has not pressed the Ground No. 1 and 2, hence the same are dismissed being not pressed. Thus the appeal of the assessee in ITA No.391/JP/2017 is dismissed. 3.1 Now we take up the appeal of the Revenue in ITA No.491/JP/2017 for the A.Y. 2009-10 wherein the Revenue has raised the solitary ground as under:- ''Whether on the facts and in the circumstances of the case the ld. CIT(A) was right in deleting the addition of Rs. 2,00,00,000/- made u/s 56(1) of the Act ignoring the fact that assets of the assessee company don't commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee.'' 3.2 Apropos solitary ground of the Revenue, the AO made the addition of Rs. 2,00,00,000- u/s 56(1) of the Act in the hands of the assessee company by observing as under:- ''16. Having dealt with each of the contention of the assessee and having found the same to be untenable it is important to place on record certain aspects which have a bearing on the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,56,487/- total income was only processed u/s 143(1) of the Act. Various courts have held that processing of returns u/s 143(1) of the Act is no assessment. It is obvious that if no incriminating material is found during search, then additions, if any, have to be made in the income shown in the return of income (in the case of pending assessments which abate) and to the computed income (in case of assessments were completed). Thus effectively, what was said in the case of Kabul Chawla was that making any addition in the returned income or income earlier assessed was not allowed if no material was found in the search which could lead to an addition on the basis of the said material. Now in this regard, I would like to discuss the issue pertaining to assessment completed u/s 153A r.w.s 143(3) of the Act when no incriminating documents were found from the assessee's premises. Before coming to the facts of the present case it would be appropriate to mention sec. 153A of the Act, the relevant part of which reads as under: "153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisclosed ones, or based on the unplaced material before the AO. Some related Judgments a) CIT vs. Kabul Chawla (Delhi High Court) : Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not... b) Gurinder Singh Bawa vs. DCIT (ITAT Mumbai) : In All Cargo Global Logistics 137 ITD 287 (Mum)(SB), the Special Bench held that in a case where the assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. However, in a case where the assessment has not abated, .... c) Anil Kumar Bhatia vs. ACIT (ITAT Delhi) : S. 153A does not authorize the making of a de novo assessment. While under the 1st Proviso, the AO is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate. d) Sanjay Aggarwal vs. DCIT (ITAT Delhi) : S. 153A: Addition in a search assessment for a AY which is not pending can be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can bereiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence, re-computing the income u/s I53A is bad in law and liable to be quashed. 2. The Ld CIT (A) failed to appreciate the fact that original assessment was made u/s 143(3) vide order 31st August 2007 after considering all the documents and materials on record and due application ff mind and hence re-computing the income by merely changing head of income for the said year under the grab of section 153A based on same documents and materials, is bad in law and order is liable to be quashed, 3. The Ld CIT (A) erred in confirming the action of the AO reassessing the income u/s 143(3) r.w.s I53A, without appreciating the fact that only pending assessment abet and not the completed assessments and hence the order u/s 143(3) r.w.s I53A is bad in law and liable to be quashed. 4. The Ld CIT (A) erred in not allowing the decision of jurisdictional High Court wherein it was held that no addition can be made u/s I53A if no incriminating material / documents are found during search. Therefore, the order of the CIT (A) is bad in law." (iv) On these issues, it was held by the Hon'ble ITAT that: "9. From the above settled legal position of the issue that in the absence of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the AO supposed to do? He has no power to act u/s 147/148 because of the non-obstante clause. He is now precluded from invoking provisions of section 148 because of the conclusion drawn in Kabul Chawla. b) The situation is even more serious if a pending assessment or reassessment abates. What if a show-cause notice had been issued on an undisclosed income prior to search? According to Kabul Chawla if no incriminating material is found during search, then NO ACTION can be taken in such cases also. No interpretation of a provision of an Act can be such that it leads to results which were never intended. By drawing a conclusion that the presence of incriminating material, and addition thereon is necessary for making an addition which is not based on material found during search, Kabul Chawla has done exactly that, and so it has to be held that the conclusion so drawn is per incuriam. In this regard I draw solace from the decision of the Allahabad High Court in the case of CIT v. Raj Kumar Arora [2014] 367 ITR 517(All.) and the decision of the Delhi High Court in the case of Filatex India Ltd. v. CIT [2014] 49 taxmann.com 465(Delhi) both of which precede the decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.2005. The Hon'ble High Court held that this material was enough to justify additions in all the 6 years. c) Recently, the Kerala High Court in Sunny Jacob Jewellers and Wedding Centre v. Deputy Commissioner of Income-Tax [2014] 362 ITR 664 (Ker) has also very categorically stated that incriminating material found during search is not necessary in all the 6 years for additions to be made on other issues. While giving these decisions, the Hon'ble ITAT, Mumbai as well as the Hon'ble ITAT, Delhi Bench has referred to the decision of the Hon'ble Mumbai High Court in the case of All Cargo Global Logistics Limited Vs. DCIT, Central Circle-44, Mumbai and the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla in ITA No. 707/2014 dated 22.8.2015. Here it is pertinent to mention that the Department has not accepted the decisions of Hon'ble Mumbai High Court in the case of M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd., and SLP has been filed before the Hon'ble Supreme Court. The Hon'ble Supreme Court has granted leave vide order dated 12.10.2015 as reported in 64 taxmann.com 34 (S.C.). Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary in all the 6 years for additions to be made on other issues. Therefore, in view of above discussion with regard to the provisions of Sec 153A of the Act, it is seen that from 01.06.2003 onwards the number of years from which assessments could be framed after search were reduced from 10 to six. Section 153A of the Act has mandated that there have to be 6 separate assessments instead of a block assessment. It also started with a non-obstante clause which stated that the operation of sections 139, 147,148,149,151,and 153 was ousted. In other words when an assessment was being completed u/s 153A, the sections mentioned above could not be invoked. The section did not, repeats, and did not mention that for making an assessment u/s 153A of the Act, it was necessary to have some incriminating material found during search. In the case of Kabul Chawla, it was stated that assessments had to be completed u/s 153A of the Act the moment a search has taken place. This is a common ground in all judicial pronouncements, and nobody has any objection to the said conclusion. It was also stated in the above case that, though not prescribed in the Act, but additions had to be made on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Matribhumi Dealers Pvt Ltd 5,000 50,000 10 24,50,000 490 500 25,00,000 3 Narottamka Trade & Vyapaar Pvt Ltd 3,000 30,000 10 14,70,000 490 500 15,00,000 4 Puja Dealcom Pvt Ltd 8,000 80,000 10 39,20,000 490 500 40,00,000 5 Tarang Suppliers Pvt LTd 6,000 60,000 10 29,40,000 490 500 30,00,000 6 Vandana Dealers Pvt Ltd 6,000 60,000 10 29,40,000 490 500 30,00,000 7 Puja Tie-Up Pvt Ltd 8,000 80,000 10 39,20,000 490 500 40,00,000 Total 40,000 4,00,000 1,96,00,000 2,00,00,000 2) During the course of assessment proceedings the assessee submitted the following documents to prove their identity of shareholders, creditworthiness of shareholders and genuineness of transaction with investor companies which was added by ld. AO as income of the assessee: - Name of Shareholder Particulars of Documents submitted Copy at PB Page Anuraj Securities Pvt. Ltd * Share application containing the name/address/PAN of party, detail of payment received etc. * Copy of board resolution. * Copy of PAN card of party. * Copy of bank statement showing the entry of payment made to assessee. * Declaration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Copy of registration certificate issued by ROC. 187 188 189 190 191 192 193-202 203 Vandana Dealers Pvt. Ltd * Share application containing the name/address/PAN of party, detail of payment received etc. * Copy of board resolution. * Copy of PAN card of party. * Copy of bank statement showing the entry of payment made to assessee. * Declaration of source of funds with party. * Copy of Ack. of ITR of AY 2009-10. * Copy of audit report and audited balance sheet along with annexure of 31.03.09. * Copy of registration certificate issued by ROC. 204-205 206 207 208 209-211 212 213-224 225 Puja Tie Up Pvt. Ltd * Share application containing the name/address/PAN of party, detail of payment received etc. * Copy of board resolution. * Copy of PAN card of party. * Copy of bank statement showing the entry of payment made to assessee. * Declaration of source of funds with party. * Copy of Ack. of ITR of AY 2009-10. * Copy of audit report and audited balance sheet along with annexure of 31.03.09. * Copy of registration certificate issued by ROC. 226-227 228 229 230 231 232 233-244 245 3. Al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved. iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the assessee and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt made by the investee companies in shares of the assessee company on the basis of future business expansion plans of the assessee company and outcome there from. ii) Admittedly when the share premium was received, there was no business in the assessee company but as stated earlier the investment was made by the investee companies in shares of the assessee company on the basis of future business expansion plans of the assessee company and outcome there from. It is wrong to say that as on the date of issue of shares the assessee company was not owing any assets. The assessee company has a large chunk of agricultural land at Village Gidani (Near Dudu at main NH Jaipur Ajmer Road and planning development of township thereon. This land was purchased in previous years and the market rate of this land was very high. Further the assessee company is one of the group companies of Motisons Group. The Motisons Group is very prestigious and well know group of the northern part of India, therefore the investor company invested the funds in the assessee company on the goodwill of the Motisons Group after knowing their future plans and future earnings. Therefore the share capital/share premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment made in the assessee company and other investments made by such investor companies are much more than to the investment made in assessee company. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs Smt. P. K. Noorjahan 237 ITR 570 (SC) and CIT Vs Bharat Engineering and Construction Co. (1972) 83 ITR 187 (SC) 5. The ld. AO by doubting the creditworthiness and genuineness of the share capital/share premium in above paras issued a show cause notice dated 06.02.2015 (copy at PB Page 92 to 95) to the assessee for treating the share capital/premium as income of the assessee on the following grounds: - a) Share premium/Share capital paid by investor companies is not justified on any account and it is clear that entire money has been introduced in the assessee company in the garb of share premium. The purpose and justification of charging the share premium in excess of the justifiable amount, which in this case cannot be more than Rs. 10/- per share, is absent from the above exercise of issue and subscription of shares at a premium of Rs. 490 per share. b) The detailed enquiries revealed that most of the companies are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he garb of share premium----" but the ld. AO did not clear that what was the source of such money with the assessee which it introduced in the garb of share premium. The show cause notice as well as assessment order is completely silent on this issue. Without having some money it cannot be introduce in books of accounts and for having the money there should be some unexplained source of income. In the case of assessee the department as a result of search as well as during assessment proceedings or as a result of investigation could not prove the source of income of the assessee wherefrom this much of money was earned, therefore the finding of ld. AO on this issue is totally incorrect and does not maintainable in the eye of law. The allegation of ld. AO is patently wrong, without any basis and merely on surmises and conjectures. Hon'ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good "proof into no proof" Hon'ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir own. It is also relevant to notice here that why only the investment made by those investment companies in the assessee company is being treated as non genuine and other investment/assets of those company is being treated as genuine. This shows that the assessment order was passed by ld. AO with settled mindset that the amount is to be added as income of the assessee. (iii) Further whatever inquiries/analysis discuss by ld. AO in his show cause notice have no relevance in the case of the assessee because from such discussion only it can be proved (not conclusively) that the employees of assessee group was managing affairs of some of the companies who made the investment in some years in the assessee/companies of assessee group but such inquiries nowhere proves that the funds with such companies was not from their own independent sources and the same was introduced by the assessee company. In the instant case for adding the share capital/premium as income of the assessee the department has to prove that the amount so received was revenue receipt of the assessee and in the instant case the department could not prove the same as a result of search proceedings over the assessee gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the reply of the assessee on show cause notice issued by ld. AO he pointed certain issues in the reply of the assessee which have been discuss on page 15 to 23 (Para 15 to 17) of assessment. The finding of ld. AO and submission of assessee on such findings is as under: - (a) Finding of AO: - Identity, Credit worthiness and genuineness of the transactions have been proved by filing certain documents. The assessee company has attempted to limit the scope within which revenue authorities can operate only with a self serving interest to make it appear that the transactions entered into get justified. The three aspects certainly are some of those angles, but to say that the revenue cannot go beyond, is not apparently vested with self serving interest but also with ignorance of law. Certainly, simply because some form of identification on paper has been provided does not mean that the transaction stands explained from the viewpoint of the credit worthiness and genuineness. Submission of assessee: - i) The assessee submitted ample documents in support to share application money received to prove the identity, creditworthiness and genuineness of transactions and from examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is not attempted to limit the scope within which revenue authorities can operate and the assessee also accept that the revenue authorities can examine the transactions from all possible angles. In the law in the case of credit entry (such as loan, share capital etc.) the identity, genuineness and creditworthiness of the credit entries has to be examine and in the instant case the assessee has proved all these three ingredients and the ld. AO did not find any infirmity in such details. If the ld. AO is having doubt regarding the detail and submission filed by the assessee than he could surely go beyond for further inquiries but the inquiries should have been with the angel to unearth the truth of the transactions and in the instant case the inquiries should have been made with the angel to find out the following: - * The huge amount received in the form of share capital/share premium. Whether the money so received is actually capital receipt in the hands of the assessee? * Whether money received in the hands of the assessee company was from genuine source or the same was own funds of the assessee? * If the money which flow in the hands of the assesses was managed affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that if the documents submitted by the assessee was not felt sufficient to accept the transaction than the ld. AO could ask from assessee to submit the further details/documents which is felt necessary for deciding the matter in justice & fair manner but the same was not done by ld. AO. b) Finding of AO: - Regarding no bar of issuing of shares at premium, the assessee company has attempted to take an advantage out of the absence of a specific provision which bars the acceptance of share premium which does not match the net worth of the issuing company. In this regard, it needs to be pointed out that mere absence of a specific provision does not by itself mean that a particular colorable device or a sham transaction, acquires legal sanctity, there are numerous provisions related to Gift, sale consideration on sale of assets which came into being at a later stage, but the illegal and tax contravening transactions were still taken up and taxed by revenue authority of course, after the specific inclusion of governing statutes, the matter requires to be dealt within the framework of the specific provision. But, till such time it cannot be said about a transaction, which is pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves. ii) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum observed that issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with section 78 of companies Act 1956. Further the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature is a capital receipts and is not income for its ordinary sense. In the case before Mumbai bench has to consider a case where premium of Rs. 190 per share was charged. The Tribunal observed as under: "No doubt a non-est company or a Zero balance sheet company asking for Rs. 190 per share defies all commercial prudence but at the same time we cannot ignore the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the definition of Income or deemed income as per Income Tax Law. If some specific transaction is not income or deemed income in the Income tax law than the same cannot be presumed as income by the revenue authorities at their own without having any positive material to presume that the same is actually income of the assessee. These type of transaction can only be dealt within the framework of the specific provision after the specific inclusion of governing statutes. In the Income Tax Act the charging of certain amounts share premium deemed to be income of the recipient companies w.e.f. 1.4.2013 i.e. on and from A.Y. 2013-14 and the same cannot be made applicable retrospectively. iv) Admittedly the Section 56 of the IT Act has already been existence since long and but subsection (1) of section 56 only covers the taxing the revenue transactions which not covered under other head of income but the same are included in the definition of income. The section 56(1) does not cover the taxing the deeming capital receipts and such receipts can only taxed under sub section 56 (2) of Income Tax Act, 1961 if consisting specific expression of the manner in which a specific transaction re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the transaction are being genuine. As stated in earlier paras, the Hon'ble ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum observed that issue of shares at premium is always a commercial decision which does not require any justification. Further the company is not require to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature is a capital receipts and is not income for its ordinary sense. iv) The allegation of ld. AO is that the money so received was then immediately invested in the subscription of share capital at high premium with other companies, who in turn continued the exercise in the same form and the assessee company was thus part of this circular ring whereby unjustified and unsubstantiated share premium was being introduced. In this regard this is to submit that if someone is investing the money in the assessee company he must be having the inflow of money from some source. What is the source of inflow with the investor company and how it is managing its affairs is not concern of the assessee. In the case of the assessee, it has full filled its legal obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being treated as genuine than how the investment made in the assessee company can only be non genuine. Further if the allegation of the department is that the assessee managed its unexplained funds in such companies than there should be inflow of new capital in such companies only for making the payment to the assessee company which has not been done in the instant case. The investment was made in the assessee company by investor companies out of funds realized from previous investments/advances/assets. If the payment was made by realizing the funds already invested by such company how such funds can be treated as unexplained money of the assessee. d) Finding of ld. AO: - The contention of the assessee company is only based on accounting jugglery by way of which the transaction has been recorded in the books of accounts of all such persons including the assessee company, who have participated in this exercise. It needs to be understood that merely because the assessee company adjusted the money received, as share capital/share premium in its books of account, the transaction cannot be showed with the character of a capital receipt. It must be said that the face value of a share i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share capital as well as share premium. Further if the shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. The book value of the share is increased by the amount credited in share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. The companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. iii) As himself admitted by ld. AO one of the deciding factor for share premium is the value or worth of such assets or profits which the issues company may create in the further or may derive, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies to whom shares were issued during the year were being funded by the assessee company. All the companies were having their own independent funds to invest at their wisdom. It is further relevant to mention here that whatever funds paid by the investor companies to the assessee company were transferred from their own source of funds which they were possessing much prior to investment made in the assessee company and by no stretch of imagination it can be presumed that those funds were introduced by the assessee company in the investor companies. iv) Further from the show cause inquiries on the basis of which the modus operandi of issue of shares on share premium is being justify by the ld. AO no where it proves that the funds were introduced in such companies by the assessee company. There is no cogent reason to have such presumption either as a result of search over the assessee as well as inquiries carried out by the department. If we believe on the inquiries carried out by the department which is not in knowledge of the assessee, than there may be introduction of some suspicious funds in the intermediate companies where from the flow of funds started from one company/p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further there is nothing positive in the inquiries to alleged that the assessee has introduced its own unexplained money under the garb of share capital and share premium. ii) The rate of share was decided after discussion of assessee company and investor company. The shares were issued to the investor companies at premium because of the reasons mentioned in forgoing paras. From the documents submitted to the AO no where it proves that all the companies are simply paper companies and providing only accommodation entries and the investment made by them in the assessee company is not genuine. The finding of the ld. AO is based on the assumption and presumption. g) Finding of ld. AO: - It is also to be noted here that the notices u/s 133(6) were issued to the Kolkata based companies from where the assessee company received share capital/share premium. Till the stipulated date of compliance none of the company replied to the above said notices. Submission of assessee: - i) The ld. AO had issued the notices u/s 133(6) of Income Tax Act, 1961 and he alleges that the same were not complied by the investor companies. But this fact was not brought to the notice of the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is shown that there are reasons to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities. Importing the ratio of the Hon'ble Supreme Court of India as propounded in the case of Sumati Dayal (supra), there is no dispute that the amount has been received by the appellant from various companies, some of which are listed companies, and the funds have been received against the issue of shares and that the funds have been received through banking channels. What is disputed is whether the funds received by the assessee is actually genuine investment or the unaccounted income introduced in the garb of investment. This raises the question whether the apparent could be considered as real. In the present case the claim of the assessee having received genuine investment is incorrect. Submission of assessee: - i) As laid down by the Hon'ble Supreme Court in the case of CIT v/s Sumati Dayal (1995) 80 Taxman 89 (SC), (Also relied by ld. AO) apparent must be considered real until it is shown that there are reasons to loo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof. Hon'ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof. 8. By giving the above findings the ld. made addition of Rs. 2,00,00,000/- in total income of the assessee u/s 56(1) of Income Tax Act, 1961. Regarding the applying the provisions of section 56(1) of Income Tax Act, 1961 we may submit as under: - a) As per provisions of section 56(1) of Income Tax Act, 1961 "Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E." In the case of the assessee company, the amount was received from investor companies were against share application and the same is capital receipt which was adjusted against share capital and share premium. The money so received to assessee company was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nship P Ltd 367 ITR 466 observed at page 494. "Tax Laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction and any ambiguity must be resolved against imposition of the tax. In Billings V U.S 232 U.S.261 at page 265, 34 S.Ct 421 (1914), the Supreme Court clearly acknowledged this basic and long standing rule of statutory construction. Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favour of citizen. "If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sprit of the law the case might otherwise appear to be" As observed in Partington V Attomey General LR4HL100. Since for the year under consideration there was no provisions in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Rajasthan High Court in the case of S. Zoraster and Co. V/s CIT 322 ITR 35 had on occasion to consider the taxability of receipt of Rs. 20,000 received by vendee on default of the purchaser as per agreement for sell of Prem Prakash Talkies. The Hon'ble High Court after referring to the decision of Apex Court in the case of Travancore Rubber and Tea Co Ltd. V CIT 243 ITR 158 held that such receipt is capital receipt. Such Capital receipt is not taxable in view of judgment of Apex Court in D.P. Sandu Bros. Chembur (P) Ltd (Supra). Hence capital receipt is not taxable unless there is charging provision for a capital receipt and computation provisions are also applicable. e) The Hon'ble Bombay High Court in the case of Vodafone India Services P. Ltd. V/s UOI 368 ITR 1 had an occasion to consider the difference between the share premium determined by revenue and the share premium charged as deemed loan and taxing of national interest on deemed loan. The Hon'ble Bombay High Court has referred to the decision of Apex Court in the case of Mathuram Aggarwal V/s State of MP (1999) 8 SCC 667 for the test to interpret a taxing statue which reads as under: "The intention of the legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITAT, DRP's and CIT (Appeals). In view of above instruction, it is clear that ratio deciding of treating of share premium as capital receipt is binding on revenue authorities. g) By finance Act 2012 a new clause (viib) was inserted in 56(2). Memorandum explaining the provisions in Finance Bill 2012 stated as under:- Share premium in excess of the fair market value is to be treated as income. "Section 56(2) provides for the specific category of incomes that shall be chargeable to income tax under the head "income from other sources". It is proposed to insert a new clause in 56(2). The new clause will apply where, accompany, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income Tax, under the head "income from other sources". This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to assessment year 2013-14 and subsequent assessment years and the provisions of this section cannot be made apply in previous years. In this regard the ratio has been laid down in following judgments: - a) By Finance Act 1994, section 55(2) was amended to provide that cost of acquisition of a tenancy right will be taken as Nil. The Hon'ble Apex Court in the case of D.P. Sandu Bros. Chembur (P) Ltd (supra), held that amendment took effect from 1st April, 1995 and therefore will not be applicable for A.Y. 1987-88. Similar finding has been recorded by Hon'ble Raj, High Court in the case of Gotan Lime Stone Khanij Udhyog. The ratio of law in respect of amendment in 55(2) being held as prospective is applicable for 56(2)(vibe) and hence share premium in excess of fair market value can not be held taxable for A.Y. 2011-12. b) Recently the Hon'ble Apex Court in the case of M.G. Pictures (Madras) Ltd V/s ACIT 373 ITR 39 held that amendment in section 40A(3) w.e.f. from 1.4.1996 is prospective and cannot be applied to previous years of Block period prior to F.Y. 1995-96. c) The figure of 10,000 was changed to 20,000 u/s 40A(3) of Income Tax Act, 1961 and 269SS of Income Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Without prejudice to our submission in this regard this is to submit in the in the show cause notice the ld. AO mentioned that share premium/share capital should be taxable in the hands of assessee company u/s 56(1) of Income Tax Act, 1961 on a/c of share premium/share capital alleged to be not in accordance with the value of the shares. In this regard without prejudice to our submission on this issue this is to submit that in case the share premium is made taxable as income of the assessee on the ground that the same is not as per fair market value and held as taxable than still the amount received against share capital amounting to Rs. 4,00,000/- cannot be treated as income of the assessee. 10. In addition of above submission it is further submitted that the assessee submitted sufficient documents to prove identity, creditworthiness and genuineness of share capital. To support that shareholders were genuine and creditworthiness is proved, the assessee enclosed necessary details, in respect of incorporation of such companies and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t justified in making any addition under s. 68 of the Act. The learned counsel for the assessee has referred to the decision of Hon'ble Supreme Court of India in the case of Divine Leasing & Finance Ltd. dt. 21st Jan., 2008, the copy of which is placed on record where it has been observed by the Supreme Court as under : 'Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961 ? 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 to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Therefore, we find no infirmity in the order of the learned CIT(A), with the impugned judgment.' The said decision of Hon'ble Supreme Court of India has been followed by the Tribunal, Delhi Bench in the case of ITO vs. Bhor Mal Dhansi Ram Ltd. in ITA No. 4670/Del/2007, dt. 3rd March, 2006. The copy of the said decision of Tribunal, Delhi Bench is placed on record. The learned counsel for the assessee Shri H.M. Singhvi, chartered accountant has also relied upon the decision of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company. 28.8 The Hon'ble High Court in the case of First Point Finance Ltd. (supra) held that burden of proof on the assessee company lies to the extent of making out a case that investor exists and thereafter it is not for the assessee to further prove where they have brought money from to invest with it. 28.9 The Hon'ble Delhi High Court in the case of CIT vs. United Bio-tech (P) Ltd. 2010 TIOL-533-HCDel held that in case the identity of the share applicants has been established and it is found that the said applicants are corporate assessees who are assessed to tax with IT Department then there is no case of any substantial question of law. In the instant case, the share applicants are corporate assessees. 28.10 The Hon'ble Delhi High Court in the case of CIT vs. Samir Bio-tech (P) Ltd. (supra) held that if investments have been shown by the share applicants in their audited balance sheet then the addition cannot be made under s. 68 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arely applicable on the facts and circumstances of the appellant's case, therefore, we reverse the order of the ld CIT(A) on technical ground as well as on merit also...." (iii) CIT v/s. Shree Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175 Appeal(High Court)- Substantial question of law-Cash credit vis-a-vis share application money-Tribunal found that 6 out of 7 companies from which the share application money had been received were genuinely existing and no enquiry was conducted in respect of the source of share application money at the time of making the investment in the assessee-company and thus the assessee has discharged its initial burden except in one case-As regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO-Thus, additions were sustained only in respect of investments said to have been made by U, an individual investor and by W Ltd., for the reason that such investments were not proved-Finding of the Tribunal is essentially a finding of fact which is not vitiated in law-No sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f bogus share application money under provisions of s 68-CIT(A) deleted addition made by AO-Held, in case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held that If share application money was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company-It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147-That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capital and advances received by established identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences-Assessee company substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO-These facts had not been rebutted on behalf of Revenue-ITAT was not inclined to interfere with findings of CIT(A) who thus rightly deleted entire impugned additions of Rs. 40 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial question of law arises for consideration. viii) CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38; Income-Cash credit-Share application money-Burden of proof can seldom be discharged to the hilt by the assessee-If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations-But if the AO 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-If relevant details of address and identity of the subscribers 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 explanation by the assessee-Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices- Tribunal has noted that the assessee-company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies jurisdiction of AO would be limited only to see whether identity of shareholders is established and whether they exist or not-Once identity is established, then, possibly no further enquiries need to be made-Since the shareholders of assessee-company were in existence, they were assessed to tax, complete details were available, share capital money as well as loan were received through account payee cheques and they were cleared through proper banking channels, AO was not justified in disbelieving the capital invested by the shareholder companies-Similarly, AO was not justified in disbelieving the loan taken from DTL as the cheques were cleared through bank channels and confirmation and supporting evidence was filed-CIT(A) was justified in deleting the additions. xii) CIT vs STL Extrusion (P) Ltd. 333 ITR 269 (MP) Income-Cash credit-Share application money-Assessee has duly established the identity and source of credits-Assessee having duly furnished the name, age, address, date of filing the application of shares, number of shares of each subscriber there was no justification for the AO for making the impugned addition-Once the existence of the investors/share subscribers is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h cheques and his identity is not doubted-Accordingly, share capital advanced by U and V is also to be accepted as genuine-Therefore, no addition of share capital money could be made in the hands of the assessee-company. 11. Without prejudice to above this is to submit that the share application money cannot be treated as income of the assessee. Reliance is placed in following decisions: - i) CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 Income-Cash credit-Share application money-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, but it cannot be regarded as undisclosed income of assessee company ii) CIT vs. Steller Investment Ltd. (200) 251 ITR 263 (SC) Even if the subscribers to the increased share capital of assessee-company were not genuine, the amount could not be regarded as undisclosed income of the assessee-company. iii) Commissioner of Income Tax Vs. Bhaval Synthetics (Raj HC) (2013) 84 DTR 0449 (Raj) Held that even in case of doubt about subscribers to increased share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awari Estates Pvt. Ltd 769/14-15 2010-11 2,00,00,000 -------------- 2,00,00,000 Godawari Estates Pvt. Ltd 768/14-15 2012-13 10,30,00,000 -------------- 10,30,00,000 Bholenath Real Estates Pvt Ltd 770/14-15 2009-10 2,90,00,000 --------------- 2,90,00,000 Rainbow Buildcon Pvt. Ltd 757/14-15 2009-10 2,00,00,000 --------------- 2,00,00,000 Shivansh Buildcon Pvt. Ltd 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Total additions 94,14,07,100 8,71,97,727 85,42,09,373 In view of above facts and circumstances of the case as discussed above, addition of Rs. 2,00,00,000/= made on a/c of bogus share capital in the hands of assessee M/s Rainbow Buildcon Pvt Ltd is hereby deleted. Assessee get relief in Gr No. 2 & 3.'' Para 2.1.4.7 reads of ld. CIT(A)'s order as under:- ''2.1.4.7 In view of the above findings, it is also seen that this cash /DD was deposited at 4th Channel of source/ stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter, it is also seen that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition made by the AO tantamount to double addition. It is also mentioned here that as per Ld. ARs request, appellate proceedings in case of M/s. MayukhVinimay Pvt. Ltd have been kept in abeyance till the dispostal of appeal by Hon'ble ITAT. In view of aforementioned findings, now additions made by the AO are being discussed with respect to grounds of appeal raised by the respective assessee in para below.'' 3.4 During the course of hearing, the ld. DR supported the order of the AO and submitted that the order of the ld. CIT(A) may be set aside. 3.5 To this effect, the ld.AR of the assessee filed the following written submission praying therein to dismiss the appeal of the department. ''2.01.2 Submission of assessee:- a) During the year under consideration the assessee allotted 58,000 equity shares of Rs. 10 each to various companies at a premium of Rs. 490/- per share detail of which is as under: - Sr. No. Name No. of Shares alloted/ applied during the year Amount Adjusted against share capital Rate per share Amount adjusted against share premium Rate of premium per share Issue price of the share Total Consideration Received 1 Anuraj Securities Pvt Ltd 4,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence Companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves. f) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L656-ITAT-Mum (PB pg 354-359 of case laws) observed that issue of shares at premium is always a commercial decision which does not require any justification. The finding of the ITAT was confirmed by Mumbai High Court in its decision dated 20.03.2017 in appeal No. 1613 of 2014. PB page 306-366 /Case Laws) Further the premium is a capital receipt which has to be dealt with in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A.Y. 2013-14. In so far as the year under consideration is concerned, the transaction has to be considered in the light of the provisions of Sec. 68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos, the bank details and the confirmatory letters. 11.1. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee . Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s. 68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Loevely Exports Pvt. Ltd. 317 ITR 218. We, therefore do not find any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the fair market value of the shares shall be chargeable to income Tax, under the head "income from other sources". This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent Assessment years. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. This suggests that premium in excess of fair market value was not an income but is to be treated as income due to amended provision. Before the amendment, consideration received as premium was not income. The legislature in its wisdom required the share premium in excess of fair market value to be income from Assessment year 201314 and not the entire premium to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for Assessment year 2013-14 onward. Therefore, amendment in section 56(2)(viib) of Income Tax Act, 1961 effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent assessment years and the provisions of this section cannot be made applicable in previous years. In this regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerally, and where to confer such benefit appears to have been the legislators objects, then presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provision as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. The Hon'ble Apex Court further noticed that CBDT circular mentioned that proviso is applicable from 1.6.2002. In respect of 56(2)(vii b), CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for assessment year 2013-14 onward. Hence Share premium even if in excess of Fair market value is not taxable u/s 56(1) for the A.Y. 2011-12. i) Section 56 is not a charging section. This section starts with the following sentence. "Income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head." Income from other sources if it is not chargeable to income tax. Under any of the heads specified in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "...If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sprit of the law the case might otherwise appear to be" As observed in Partington V Attomey General LR4HL100. Since for the year under consideration there was no provision in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the same cannot be taxed. The reliance is also placed on following cases: - i) The Hon'ble Bombay High Court in the case of Cadell Wvg. Mills Co.(p) Ltd. V CIT 249 ITR 265 (PB 2241/Case Laws) had an occasion to consider the taxability of a sum received in respect of consideration of tenancy Right. Hon'ble High Court held that surrender of tenancy right which was not chargable to tax as capital gain under section 45 could not be taxed as casual and non recurring receipt under section 10(3) r.w. s. 56 under the head "Income from other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not flow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spent and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter." Hon'ble Bombay High Court in this case (Vodafone case) observed that issue of shares at a premium is on capital account and gives rise to no income. 56(1) provides the income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However before section 56 of the Act can be applied there must be income which arises. If the receipt is capital then it is not income. Hence share premium is not an inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO satisfied that addition under section 68 cannot be made, so he applied section 56(1) of ITax Act to make the addition. The assessee submitted detailed reply before ld CIT(A) vide letter dated 22/08/2016 (copy at PB pg 246-299). Ld CIT(A) when satisfied that the addition u/s 56(1) can't be made, he tried to sustain the addition by applying the provisions of section 68 of Income Tax Act. He issued a show cause notice vide letter dated 09/03/2017 (Copy at PB pg 300-346). The assessee submitted detailed reply on the show cause notice of ld CIT(A) vide letter dated 24-03-2017 & 28/03/2017 alongwith documents (Copy at Pb pg 347-430). To support that shareholders were genuine and creditworthiness is proved, the assessee has filed all details, in respect of incorporation/existence of investors and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application. l) During the course of assessment proceedings the assessee submitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liers Pvt. Ltd * Share application containing the name/address/PAN of party, detail of payment received etc. * Copy of board resolution. * Copy of PAN card of party. * Copy of bank statement showing the entry of payment made to assessee. * Declaration of source of funds with party. * Copy of Ack. of ITR of AY 2009-10. * Copy of audit report and audited balance sheet along with annexure of 31.03.09. * Copy of registration certificate issued by ROC. 187 188 189 190 191 192 193-202 203 Vandana Dealers Pvt. Ltd * Share application containing the name/address/PAN of party, detail of payment received etc. * Copy of board resolution. * Copy of PAN card of party. * Copy of bank statement showing the entry of payment made to assessee. * Declaration of source of funds with party. * Copy of Ack. of ITR of AY 2009-10. * Copy of audit report and audited balance sheet along with annexure of 31.03.09. * Copy of registration certificate issued by ROC. 204-205 206 207 208 209-211 212 213-224 225 Puja Tie Up Pvt. Ltd * Share application containing the name/address/PAN of party, detail of payment received etc. * Copy of board resolution. * Copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p Pvt Ltd 40,00,000 11,95,23,840 11,95,12,729 From the above chart it is clear that all the Investor companies were having their own share capital and Reserve & surplus which were much more than to the amount invested in the assessee company. From the audited P & L Account of these companies it is apparent that these companies had trading activities of large amount. The above chart shows that the investor companies were having their own independent funds and having their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved. iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: The above proviso was inserted with effect from the 1st day of April, 2013 so it cannot be applied retrospectively. Therefore as per law the assessee has no onus to prove source of source. Hon'ble Mumbai High Court in the case of Commissioner of Income Tax 1 Vs M/s. Gagandeep Infrastructure Pvt.Ltd held as under:- "(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 201314 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Act, 1961 has been submitted in forgoing paras. The various judgments regarding addition cannot be made u/s 68 of Income Tax Act, 1961 are as under:- a) Rajasthan High Court: - (i) CIT-1, Jaipur V/s M/s. ARL Infratech Ltd, (PB pg 130 to 143/Case Laws) wherein Hon'ble Rajasthan High Court has recently confirmed the findings of Hon'ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016 regarding deletion of addition of share capital made by applying the provisions of 68 of Income Tax Act, 1961. (ii) Commissioner of Income-tax, Jaipur -II Versus Morani Automotives (P.) Ltd. No.- D.B. IT Appeal No. 619 of 2011 Dated.- October 23, 2013 (Rajasthan High Court) (PB pg 144 to 149/Case Laws). The findings of Hon'ble Rajasthan High Court was as under:- 10. The points as sought to be raised by the appellantrevenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by AO. We do not agree to this submission for more than one reason. 8. In the first place, it is a pure question of fact, what to say question of law, much less substantial question of law. Secondly, this Court cannot again in this appeal undertake the examination of factual issues nor can draw factual inferences on the basis of explanation offered by assessee. Thirdly, once the explanation is accepted by the two appellate Courts i.e. CIT(A) and Tribunal in this case, then in such event, a concurrent finding recorded on such explanation by two appellate Courts is binding on the High Court. 9. Perusal of impugned finding quoted supra would go to show that Tribunal did examine the explanation offered by assessee in detail and then recorded a finding for its acceptance. Such finding when challenged does not constitute a substantial question of law within the meaning of s. 260A ibid in an appeal arising out of such order. 10. In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerations, and on sound reasonings. These findings have neither been shown suffering from any perversity nor appear absurd nor are of such nature that cannot be reached at all. Thus, no case for interference in the findings of the appellate authorities is made out. In the result, the appeal fails and is, therefore, dismissed." (iii) Barkha Synthetics Ltd. vs. Asstt. CIT (005) 197 CTR (Raj) 432. (PB pg 150 to 156/Case Laws) Substantial question of law-Cash credit vis-a-vis share application money-Tribunal found that 6 out of 7 companies from which the share application money had been received were genuinely existing and no enquiry was conducted in respect of the source of share application money at the time of making the investment in the assessee-company and thus the assessee has discharged its initial burden except in one case-As regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO-Thus, additions were sustained only in respect of investments said to have been made by U, an in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014) 267 CTR (Raj) 396 (PB pg 186 to 192/Case Laws). No liability to prove source of source. (xi) Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199. (PB pg 193 to 200/Case Laws) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans. (xii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) (PB pg 201 to 202/Case Laws) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans. b) ITAT Jaipur/Jodhpur i) Shalimar Buildcon (P) Ltd. vs ITO (2011) 128 ITD 0396 (Jaipur) (PB pg 214 to 238/Case Laws) In this case Hon'ble ITAT Jaipur Bench has relied on its old decision in the case of Hotel Gaudavan ITA No. 1162 and 1137/JP/2008 and addition on account of share capital was deleted. 28.5 On identical issue, the Tribunal, Jaipur Bench in the case of Hotel Gaudavan (P) Ltd. (supra) has held as under : "6. As regards the issue on merit in the Departmental appeal, we concur with the views of the learned CIT(A) that the AO has not considered the explanation of the assessee. The amount under consideration of Rs. 1.89 crore has been received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court of India on the said issue in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 wherein 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 AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company." 28.6 The Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing & Finance Ltd. (supra) had an occasion to consider the addition on account of share application money. We are reproducing the held portion from the decision of Hon'ble Delhi High Court as mentioned in (2007) 207 CTR (Del) 38 (supra). "Income-Cash credit-Share application money- Burden of proof can seldom be discharged to the hilt by the assessee-If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations-But if the AO 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 28.11 In view of the legal position as discussed above, the AO was not justified in making the addition of Rs. 1.10 crore without bringing on record any material for the addition. Simply on the basis of information which is not substantiated in the course of assessment proceedings against the assessee, the AO could not have added the amount. (ii) The Honb'le ITAT, Jaipur Bench, Jaipur in its judgment the case of M/s Jadau Jewellers & Manufacturers Pvt. Ltd., B-1, Trimutri Circle, Govind Marg, Jaipur in ITA No. 686/JP/2014 dated 14.12.2015 (PB pg 239 to 267/Case Laws) gave the following findings:- ".6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director's report, auditor's report, copy of balance sheet, copy of P&L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly because scrutiny assessments were not made in the case of shareholders, such assessments could not be made in the course of assessment of the assessee-Having regard to the information collected by the AO from the banks, identity of the shareholders was fully established-If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee- U had invested in the share capital through cheque except for a small sum which was returned to her-Her bank account shows several entries, both credit and debit, which have no relation with the amount invested with the assessee-company-Merely because she has not submitted her returns after the asst. yr. 1984-85, it cannot be said that she was not assessed to tax-Though V has not been shown to be assessed to tax, he had made major part of investments towards share capital through cheques and his identity is not doubted- Accordingly, share capital advanced by U and V is also to be accepted as genuine-Therefore, no addition of share capital money could be made in the hands of the assessee-company. (iv) The ld. Jaipur Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adverting, the facts of the given case, we are of the considered opinion that all the share applicants stand identified. The assessee has provided PANs of the share applicants. The mode of payment has also been made explained. There is no direct or indirect relation between the assessee company and the share applicants. The statements recorded during survey has got no evidentiary value and the law is very much settled on this issue. In any case, even under the provisions of Section 68 of the Act, the assessee cannot be forced to prove the source of the source. The law on this subject is also settled by numerous decisions. The alleged report of the Inspector of the Department who is stated to have visited at the given addresses of the share applicants was never put or confronted to the assessee. The cumulative effects of these reasons is that the impugned addition cannot be added in the hands of the assessee company. Accordingly, we order to delete the entire additions and allow the appeal of the assessee. 3.0 In the result, the appeal of the assessee stands allowed. The department filed appeal before Hon'ble Rajasthan High Court. Hon'ble Rajasthan High Court confirmed the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices-Tribunal has noted that the assessee-company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange-Complete details were furnished- Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources-As regards receipt of share capital on issue of rights shares to five companies, these companies were duly incorporated under the Sikkimese Companies Act and were assessed under the Sikkimese Taxation Manual- Their share subscriptions were also received through banking channels and found to be valid by the jurisdictional AO-Therefore, no addition could be made under s. 68 (iv) CIT v/s Value Capital services P Ltd. 307 ITR 334 (Delhi) (PB pg 319-3202/Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation money-Assessee was in business of builder and developer-Assessment was completed u/s 143(3) r.w.s. 147-Re-assessment proceedings were initiated on basis of information received from Directorate of Income-tax (Investigation) without recording AO'S own satisfaction and information was accepted in mechanical manner-After reopening of assessment u/s 147, AO made addition of Rs. 40 lakhs received by assessee from various corporate entities- Addition was made by AO on account of bogus share application money under provisions of s 68-CIT(A) deleted addition made by AO-Held, in case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held that If share application money was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company-It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147-That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company had substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO, then additions made by AO u/s 68 on account of share capital subscription received by assessee-company was rightly deleted. (iii) Meera Engineering & Commercial Co. (P) Ltd. vs. Asstt. CIT (1997) 58 TTJ (Jab) 527 (PB pg 393 to 399/Case Laws) Income-Cash credits-Genuineness of share capital of company-All the 51 shareholders filed their affidavits and confirmatory letters and 24 of them filed their replies also to notice under s. 133(6)- Names of parties purchasing the shares with amount subscribed were furnished before AO-All documents clearly show that shareholders do exist- Assessee-company had discharged its onus of explaining the cash credits as required under law-If the company is able to establish that shareholders existed and they have invested money for purchase of shares burden of company to prove the credit is discharged-Identity of shareholders not in dispute-Assessee is not required to prove credit-worthiness of shareholders-Addition deleted (iv) Allen Bradley India Ltd. vs. Dy. CIT (2002) 74 TTJ (Del) 604 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. ii) CIT vs. Steller Investment Ltd. (200) 251 ITR 263 (SC) Even if the subscribers to the increased share capital of assessee-company were not genuine, the amount could not be regarded as undisclosed income of the assessee-company. (iii) CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC) f) Ratio Laid down in following cases not applicable to the facts of the case of assessee:- i) Nova Promoters & Finlease Pvt. Ltd (2012) 342 ITR 169 (Delhi High Court): - Summons sent to the companies received back unserved and other summons remained uncomplied with Whereas, in the case of this assessee company, notice u/s 133(6) was sent to investor companies, all of which were served and some of them were complied with. ii) CIT V/s N. R. Portfolio Pvt. Ltd 206 (2014) DLT (DB) (Del)/ 264 CTR 0258 (del) Assessed u/s 144 of Itax Act. In this case the AO issued several notices and show cause notice which was not served/complied and assessment was framed u/s 144 of Income Tax Act. In our case all the compliances were made and evidences submitted. iii) N Tariks Properties Pvt. Ltd 227 Taxmann.com 373 (with reference to decision of Delhi high court in 264 CTR 472) AO noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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