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TMI Blog2019 (12) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... redited and such explanation is found to be satisfactory. However, this proviso is applicable only from AY 2013-14 and the same is not retrospective in nature as held by Hon'ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272]. 2. It is settled position of law that to avoid the rigors of Section 68, the assessee must prove the identity, creditworthiness of the lenders / investors to advance such monies and genuineness of the transactions. Once these three ingredients are fulfilled by the assessee, the primary onus casted upon him, in this regard, could be said to have been discharged and accordingly, the onus would shift upon revenue to dislodge the assessee's claim by bringing on record material evidences and unless this onus is discharged by the revenue, no addition could be sustained u/s 68. The Hon'ble Supreme Court in the case of Lovely Exports P. Ltd. [319 ITR 5], dismissing revenue's appeal, observed as under: - 2. Can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed by the assessee. The appellant prays that the order of the ClT(A) on the above ground above set aside and that of the A.O. be restored. 4.1 Facts on record would reveal that the assessee being resident corporate assessee stated to be engaged in the business of construction was subjected to an assessment u/s 143(3) r.w.s. 147 on 30/03/2015 wherein the income of the assessee was determined at Rs. 370.35 Lacs after certain additions as against returned income of Rs. 17.79 Lacs e-filed by the assessee on 29/09/2009 which was processed u/s 143(1). 4.2 Subsequently, the case was reopened as per due process of law vide issuance of notice u/s 148 dated 28/03/2014 upon formation of belief that the year under consideration was the first year of business operations and the assessee was in receipt of share capital and share premium which was required to be examined. In response, the assessee offered the original return of income filed by it on 29/09/2009 and demanded copy of reasons leading to initiation of reassessment proceedings. The same were duly supplied in due course of time. The statutory notices u/s 143(2) & 142(1) were also issued wherein the assessee was required to file t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure of Rs. 2.55 Lacs against the same. In other words, interest income was offered as business income. However, noticing that the assessee was not in the business of finance and investments and therefore, the interest income could not be said to have been derived from the business activity, Ld. AO proceeded to assessee the same as Income from Other Sources. Consequently, the business expenditure of Rs. 2.55 Lacs was disallowed since there was no business activity carried out by the assessee and interest income on fixed deposits was assessed as income from other sources. 5.1 Aggrieved, the assessee contested the stand of Ld. AO by way of elaborate written submissions before learned first appellate authority, the relevant portion of which has already been extracted in the impugned order in para-5. The assessee submitted that the promoter of the assessee company had rich experience in property market and based on this experience, goodwill and reputation, assessee's Board of directors decided to issue shares at a premium of Rs. 70/- per share. The said proposition was floated to many companies and few companies agreed to subscribe to share capital at a premium. The attention was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies and found that all the entities were assessed to tax and had sufficient net worth to make further investments in the assessee company. The findings of Ld. CIT(A), with respect to each of the entity has been given in para 6.1.6 of the impugned order. 5.5 Finally, Ld. CIT(A) examined the factual matrix at the threshold of primary ingredients of Section 68 and concurred with assessee's stand by observing as under: - 6.1.7 Genuineness: During appellant proceedings, it was contented that all the amounts related to share capital with premium were received from 12 investee companies through banking channels. It was submitted that during the previous year relevant to the assessment year under appeal the appellant company received through banking channel sum aggregate to Rs. 3,50,00,000/- from 12 investee companies on account of share application / allotment money in consideration for an allotment of 4,37,500/ - fully paid up equity shares at a premium of Rs. 70/ - each. All the transactions have been routed through the banking channels and necessary bank statements were produced during appellant proceedings as well as assessment proceedings as acknowledged by the AO in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an adverse Inference on identity based on non-appearance of parties in response to summons u/s. 131, it is observed that in the present case all the notices u/ s. 133(6) and u/s. 131 have been served on the investee's and have been responded in confirmation by them. In fact subsequent decision in Five Vision the Hon'ble Delhi High court has held that non- appearance of parties to notices u/s 133(6) cannot be compel AOs to draw adverse opinions. 6.1.9 Further in its recent judgement the Hon'ble Jurisdictional Bombay High Court 20.03.2017 in case of CIT vs. Gagandeep Infrastructure Pvt Ltd wherein the Hon'ble Court has held that- "In view of the matter the three essential tests while confirming the section 68 laid down by the court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre-amended sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee by filing the copy of the bank account of the share applicants. Thus where the return of income was filed by the creditors of the assessee and was accepted by the AO and payments were through account payee cheques the genuineness of the transaction cannot be doubted. The revenue could not prove that the money received by the appellant in the form of share application has come from its own sources. No evidences regarding this have been brought on record by the AO. b . In CIT Vs. Divine Leasing & Finance Ltd. 299 ITR 268 the Hon'ble Delhi High Court held proof can seldom be discharged to the hilt by the assessee. If the AO harbors doubts of the legitimacy of any subscription he is empowered, rather 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 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 explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself After filing of the affidavits the said subscriber the appellant at no stage of the proceedings sought any opportunity to rebut the said affidavits. f. In CIT Vs. Prayag Hospital & Research IT Appeal No.917 of 2010 the Hon'ble Delhi High Court held that shareholders of the assessee company having appeared before the AO and furnished affidavits along with supporting documents confirming their investment in the assessee, identity of the creditors is established and therefore, addition cannot be made in the hands of the assessee. g. In CIT Vs. TDI Marketing (P) Ltd. IT Appeal No.340 of 2009 the Hon'ble Delhi High Court held that assessee company having furnished complete details of shareholders name, addresses, PAN and bankers and they having confirmed the investment and the AO having not given his specific comments on his enquiries pertaining to them except for nine shareholders, addition u/ s.68 cannot be sustained. h. In CIT vs. Gangour Investment Ltd. 335 ITR 359 (2011) the Hon1ble High Court of Delhi held that assessee company having filed the subscription forms of the investors, including IT Ltd., a group company, containing details and information with respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld the assessee earned interest income only by parking of surplus funds in treasury operations and therefore, the said income was rightly offered as business income. Regarding claim of business expenses of Rs. 2.55 Lacs, it was held that any expenditure to maintain and complying with statutory laws would from part of business activity and the same would be allowable irrespective of the fact that no business was carried out by the assessee during the year under consideration. Further, the expenditure was not found to be personal in nature and therefore, the same was allowable to the assessee. It is evident from ground no.2, the revenue is aggrieved by the fact that stated income has been held to be business income as against Income from other sources as assessed by Ld. AO. The revenue has not challenged the allowance of expenditure by learned first appellate authority. 6. We have carefully heard the arguments advanced by respective representatives and perused relevant material on record and deliberated on various judicial pronouncements as cited before us. 7. Upon careful consideration of factual matrix as enumerated in the preceding paragraphs, it is quite evident that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the investor company. Further, Ld. AO independently got field inquiries conducted at the location of investor companies, the result of which has been tabulated in the said para. Notice was served on few entities but the same were not replied to. In few cases, the notices were returned back. Submissions were received in few cases though DAK wherein the company only provided the mode of investment but no reasons were supplied for paying a huge premium of Rs. 190/- per share. Another striking feature was that most of the investors had reflected meagre income during assessment year under dispute. The two companies in Mumbai as well as Guwahati were found to be non-existent. With respect to Kolkata Companies, the response came through DAK only and nobody appeared. Further, the bank statements were not produced in most of the cases to establish the source of funds for making huge investments. However, the factual matrix, before us, in the present case is quite different. As noted in earlier paragraphs, the investor entities were assessed to tax and the assessee has discharged the initial onus of proving the identity of the investors, creditworthiness of the entities and genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X
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