9911796707
TMI Blog2019 (12) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... -DR ORDER PER BENCH: The assessee has filed this appeal against the order of CIT(A)-I, Patna, dated 16.01.2017, on the following grounds of appeal :- (i). Considering the facts and in the circumstances of the case, the Ld CIT(A) has erred both in facts and in law by allowing relief to the assessee on account of Share Capital and Share premium amounting to ₹ 13,95,00,000/-, when the identity creditworthiness of the Shareholders and genuineness of the transaction were could not be proved. (ii) Any other grounds that may be urged at the time of hearing. 2. Brief facts of the case are that the assessee filed its return of income for A.Y.2008-2009 on 12.08.2008 declaring a loss of ₹ 3,063/-. Thereafter the AO issued notice u/s.148 of the Act on the ground that the assessee claimed an expenditure of ₹ 21,800/- as preliminary expenses written off which is not an allowable deduction u/s.35D of the Act. Subsequently notices u/s.143(2) & 142(1) of the Act were issued. Thereafter the AO framed assessment u/s.147/143(3) of the Act assessing the total income at ₹ 18,738/-. Subsequently, the CIT invoking powers u/s.263 of the Act set aside the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant-company and the directors of the companies subscribing to the Share Capital that too on a premium as directed under section 263 of the Act had not been examined considering the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company which was of immense importance to understand the modus-operandi of the business and to establish the genuineness or otherwise of the transactions and creditworthiness of the subscribing companies in the light of the judicial pronouncements on the subject as mandated to invoke the provisions of section 68 of the Act on the face of peculiar facts of the case in respect of the identity and capacity of the so-called shareholders along with the genuineness of the transactions. In view of this and respectfully following the judgements of the Apex Court, various High Courts as well as the jurisdictional High Court including the Tribunals of several Benches, the AO, therefore, was not within his jurisdiction in treating such share capital and share premium as unaccounted cash credit of the appellant-company and adding the same u/s the Act. Therefore, addition made on this score is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be evident from order sheet entry dated 10.02.2014(copy enclosed at page 32 of PB) where the A.O mentions that " letter u/s. 133(6) of the IT Act issued to the share holders". It is not the case of the A.O either in the order sheet or in the assessment order that the notices u/s 133(6) were returned unserved and/or remained uncomplied with. Thus, even at the stage of second round of assessment proceedings pursuant to order u/s 263, compliances were made in response to enquiry instituted u/s 133(6). However, unfortunately the A.O at the fag end i.e. on 21/03/2014 has resorted to notices u/s 131 and vide show cause dated 27.03.2014 the assessee was asked to produce the investors and the impugned assessment order was passed on 28.03.2014. There is no allegation as to non-service of summons u/s 131 issued by the A.O. on 21.03.2014 on the respective share holder either in the order sheet or in the impugned assessment order. On consideration of peculiar facts available on record the Ld. CIT(A) has deleted the addition by holding that the onus casted upon by Section 68 stands discharged. The Apex Court had an occasion to consider a case where the assessee has discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by section 68 ? and (ii) whether the CIT(A) is justified in recording a finding on peculiar set of facts that the department has not been able to prove that there has been laundering of cash (unaccounted) through layers or within layers of bank accounts for subscription into share capital at premium ?. The appellant carve leave to produce the copies of notices issued u/s 133(6) and its compliance by the shareholders in course of first as well as second assessment proceedings. The same are voluminous and hence is not been enclosed with written submission. It is asserted as a matter of fact and record that these evidences are forming part of assessment record [both i.e.147/143(3) and 147/143(3)/263] which can be requisitioned. The share subscriber of the appellant company have also submitted compliances to DDIT(Inv.), Kolkata in February, 2016. The appellant carve leave to produce the compliances so made by the subscribing company before the DDIT(Inv.), Kolkata. On the basis of evidence already on record it is established beyond all reasonable doubt that the appellant has discharged its onus of proving identity, genuineness of transaction and creditworthiness in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked in this case by ignoring the material fact that the Assessing Officerr had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives ? " In the present case, the subscribed capital of the assessee had been increased. The Income-tax Officer assessed the company and accepted the increase in the subscribed capital. The Commissioner of Income-tax came to the conclusion that the Assessing Officer did not carry out a detailed investigation inasmuch as there had been a device of converting black money into white by issuing shares with the help of formation of an investment company. The Commissioner of Income-tax further held that the Assessing Officer did not make enquiries with regard to the genuineness of the subscribers of the share capital. He thereupon set aside the order of assessment. The Tribunal reversed this decision for reasons which we need not go into. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment." The appellant would like to draw your honour's kind attention to some other judgments on the issue :- [2018] 401 ITR 83 (Del) - Principal Commissioner of Income-Tax V. Oriental International Co. P. Ltd. Facts noticed 2. The assessee had claimed that these amounts were received as share application money from various parties, i.e., M/s. Creative Financial Services Pvt. Ltd. ; M/s. Rahul Finlease P. Ltd. ; M/s. Shri Niwas Leasing Finance Ltd. ; M/s. Meghdoot Express P. Ltd. and M/s. Niti Housing Development and Finance Corporation Ltd. 3. The Assessing Officer (AO) was of the opinion that such large amounts of share application money need to be probed further and, therefore, required the assessee to furnish particulars, which it did. 4. The assessee, inter alia, provided details relating to the share application money provided by each of the entities confirmation letters ; board resolutions from each company ; PAN card details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal was perverse in deleting the addition of ₹ 95,00,000 made under section 68 of the Act, relying only on the documentary evidence produced by the respondent-company while ignoring the key factor that these entities were not traceable at their given addresses ? 6.4 Whether on the facts and in the circumstances of the case and in law, the Tribunal erred in not appreciating the observations made by the Delhi High Court in CIT v. Nova Promoters and Finlease Pvt. Ltd. [2012] 342 ITR 169 (Delhi); [2012] 18 taxmann.com 217 wherein the court has observed that cases of this type cannot be decided only on the basis of documentary evidences above and there is need to take into account the surrounding circumstances ? Verdict of the court 5. The Assessing Officer added ₹ 95 lakhs as income under section 68 of the Income-tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of original as well as second round of assessment proceeding; (ii) transfer of share capital through bank account of investor company; (iii) the bank account shows debit of the sum so subscribed in the subscribers' bank accounts; and (iv) allotment of shares in favour of investors under necessary intimation to ROC in Form No.2. The appellant has submitted the bank accounts of the companies from whom the subscribers / investor company have received the funds for subscribing the share capital. A chart summarizing the source from where the subscribing companies have received the fund was also submitted. Copy of the chart along with bank statement of the companies from whom the subscribing companies have received the funds is enclosed at page 33 to 68 of PB. As submitted elsewhere in this submission, there is no cash deposit in the bank account of investor companies prior to subscribing the fund towards share capital. It would be evident from perusal of the bank statement of the companies from whom the subscribing company has received the fund that there is no cash deposit in the bank account of such companies as well. Thus the appellant has not only been able to explain the so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by, deleting the addition of ₹ 2,50,00,000 made under section 68 of the Act, even when the assessee failed to establish the identity, genuineness and creditworthiness of the share applicants ? (ii) Whether the order passed by the Tribunal in not treating the subscription of the share capital by alleged bogus shareholders as unexplained cash credit of the assessee is legally sustainable, more so, when no finding to prove identity, genuineness and creditworthiness of the share applicants has been given by the Tribunal ? (Hi) Whether the order passed by the Tribunal is perverse and contrary to the specific findings recorded by the Commissioner of Income-tax (Appeals) as well as the Assessing Officer and the asses see's own statements recorded during survey ? (iv) Whether on the facts and circumstances of the case, the finding of the Tribunal is perverse, contrary to the record and untenable in the eye of law ? " Verdict of Court 10. Taking into consideration the observations made by the twin decisions as observed by the Tribunal that all the share applicants stand identified. The assessee has provided permanent account numbers of the share applicants. The mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate the source of the funds from which the alleged investments were made. c. The two companies at Guwahati viz. Ispat Sheet Ltd. and Novelty Traders Ltd., were found to be non-existent at the address provided. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between ₹ 90,00,000 to ₹ 95,00,000 in the Assessment Year 2009-10, for purchase of shares at such a high premium. For example: Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income of ₹ 9,744/-for A. Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. - Kolkatta filed a NIL return, but had purchased Shares worth ₹ 95,00,000 in the Assessee Company - Respondent. Another example is of Ganga Builders Ltd. - Kolkatta which had filed a return for ₹ 5,850 but invested in shares to the tune of ₹ 90,00,000 in the Assessee Company -Respondent, etc. iii.There was no explanation whatsoever of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced from the context of the question under consideration and treat it to be complete "law " declared by this Court. The judgment must be read as a whole and the observation from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Court must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasoning." Thus with due respect and reverence to the Apex Court it is humbly submitted that the above said judgment is starkly distinguishable on facts and hence will not come to the rescue of the revenue. The Kolkata bench of ITAT had an occasion to consider the above said judgment of the Supreme Court i.e. NRA Iron & Steel Pvt. Ltd. in one of its order dated 05.04.2019 (copy placed at pages 69 to 81 of PB) wherein at para 6.17, the Hon'ble Tribunal has found the said judgment to be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdictional High Court in the case of Addl. C1T vs. Hanuman Aggrawal 151 ITR 244, it is held that the AO has failed to spell out his dissatisfaction about the compliance of the requirements of the provisions of section 68 of the Act nor brought out any cogent material whatsoever on record in this regard. It is, therefore, requested that your honour would be kind enough to dismiss the departmental appeal. To support his contentions, ld. AR relied on the decision of coordinate bench of the Tribunal in the case of M/s Baba Bhootnath Trade & Commerce Ltd., ITA No.1494/Kol/2017, order dated 05.04.2019. 6. On the other hand, ld. DR supported the order of the AO and submitted that as per the direction by CIT, notices under section 131 were issued and sent to shareholders asking them to personally appear before the AO to verify the identity and creditworthiness of the shareholders and genuineness of the transaction made by them in the assessee company. However, the assessee could not prove the identity and creditworthiness of the shareholders and genuineness of the transaction. Even the assessee could not produce subscribers in response to the aforesaid show cause letter. Apart from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares being issued and allotted to and subscribed by the prospective shareholders. Why would a prospective shareholder invest in a company at a premium of ₹ 240/- per share and face value of share is ₹ 10/- in the large value. The assessee also not able to show that from the date of issue of shares to the floating company, no any dividends have been distributed by the assessee company. It is well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT (214 ITR 801) (SC) that the true nature of transactions has to be ascertained in the light of surrounding circumstances. It needs to be emphasized that stand of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. It is also well settled that tax authorities are entitled to look into surrounding circumstances to find out that the reality of the transaction by applying the test of human probability. This was the principle laid down by the Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More 82 ITR 540(SC). It is also well settled law that onus of proving credits in its book of accounts lies squarely on the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 7th Floor, G.C. Avenue, Chandni Chowk, Kolkata 43,100/- 7. JC Motor & General Finance Company Ltd, Chandhi Chowk, Kolkata 33,240/- 8. Popcorn Vyapaar (P) Ltd.,6th Floor, P-41, Princep Street, Chandni Chowk, Kolkata Nil 9. Damodar Niketan (P) Ltd., 85, Metcalfe Street, 2nd Floor, Room No. 206, Kolkata 420/- 10. Kuber Residency (P) Ltd.,C/o B.K. Chatterjee & Compnay, Old Court House Street, 2nd Floor, B.B.D Bag, Kolkata 676/- 11. Kasturi Home (P) Ltd. ,85 Metcalfe Street, 2nd Floor, Room No. 206, Kolkata 211/- 12. Puspak Commercial (P) Ltd., 2nd Floor, Saklat Place, Chandni Chowk, Kolkata Nil 13. Charms Suppliers Pvt. Ltd. 4th Floor, Anjali Apartment, R.B.C. Road, Dumdum, Kolkata 36,240/- 14. Adishwar Trade Link(P) Ltd., 6th Floor, P-41, Princep Street, Chandni Chowk, Kolkata- PIN-700072 36,310/- From the above share applicants companies it is clear that they have meagre income or nil income. While going through the bank statements submitted by the assessee for a small period, which have been placed on record, we find that huge transactions have been made and the amount i.e. more or less have been withdrawn on the same day. The ld. AR of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. 8.3 With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. The Delhi High Court in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 9 taxmann.com 179/198 Taxman 247/333 ITR 119, held that : "The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise." It has been held that merely proving the identity of the investors does not discharge the onus of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 291 ITR 278 this Court held that: 'A bare reading of section 68 of the Income- tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.' (emphasis supplied) iii. The Delhi High Court in a recent judgment delivered in PR.CIT v. NDR Promoters (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application money received by an assessee was examined in the context of Section 68 are Lovely Exposes (P.) Ltd. Divine Leasing & Financing Ltd. (supra), and CIT v. Value Capital Service (P.) Ltd. [2008] 307 ITR 334 (Delhi) 11. The principles which emerge where sums of money are credited as Share Capital/Premium are i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 12. In the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company - Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assessee Company -Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a h ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
