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TMI Blog2020 (1) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... n amount of unexplained cash credits u/s 68 ought not have been held eligible for set off of loss under business head as per hon'ble Kerala high court's judgment in Commissioner of income Tax vs. Kerala Sponge Iron Ltd. (2017) 79 taxmann.com 350 (Ker). 3. The assessee's former grievance in its appeal ITA No.1187/Kol/2019 challenges correctness of both the lower authorities action treating its share capital sum of Rs.3.25 crores as unexplained cash credits. It is in this backdrop of facts that we proceed to examine this common issue of unexplained of assessee's share capital amounting to Rs.3.25 crores as unexplained cash credits. 4. There is no dispute about the impugned sum to have come from three parties M/s Celebration Vintrade Pvt. Ltd., M/s Nice Commotrade Pvt. Ltd., and M/s Samrat Rice Mill Pvt. Ltd., involving 21,50,000, 7,00,000 & 4,00,000 shares sold for Rs.2,15,00,000/-, Rs.7,00,000/- & Rs.4,00,000/-; respectively. We are taken to CIT(A)'s detailed discussion affirming Assessing Officer's action to this effect reading as under:- "4.2 Ground of appeal No. 2 to 5: These grounds relate to the addition made by the Ld. AO to the tune of Rs. 3,25,00,000/- u/s 68 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee of explaining nature and source of credit does not get discharged merely by filing confirmatory letters or demonstrating that the transactions are done through the banking channels or even by filing the income-tax assessment particulars. Therefore, addition in respect of the alleged share subscription received from the said two companies is upheld. 4.4 It is also worthwhile to refer to the judgment of the Hon'ble High Court in the case of CIT vs. Ruby Traders and Exporters Ltd. [134 Taxman 29 (cal)] wherein it was held that it is incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the Assessing officer to find out whether on these materials. It is for the Assessing officer to find out as to whether these materials, the assessee as able to establish the ingredients mentioned above. It is significant to note that the company, which is a private limited company, has no track record or asset base is asking for astronomically high premium per share defying all commercial and financial prudence and logic. There w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee along with the premium are represented in the Balance sheet in the form of current assets being the unquoted equity shares in other such companies. That is the share application money received by the assessee is used for making further investments in other such similar shell companies from whom cash is taken and rerouted through cheques. These shell companies which are acquired by the interested third parties purchase these companies at a fractional amount of the value of the shares. That means a company whose share value is Rs. 10/-, the share is issued at a premium of Rs. 490/- total value of the share becomes Rs. 500/-. This contains first portion of the unaccounted cash brought in or converted through the accommodation entry. Now this 500 rupees shared is purchased by the third party or the interested person in taken over the company of the purpose of utilizing its capital. It may be two rupees or three rupees per share. Here the purchase price is even below the face value of the shares or at the face value. The premium is in effect the bonus. The premium already introduced sits in the liability side as a reserve an on the asset side as investments in other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge that there will no recovery or there is no scope of recovery of share premium. This was designed facilitate the transfer of these companies to other persons on payment of nominal discounted value of shares. In other words the value embedded in the share premium, was meant to be transferred under hand, an prima facie it appears that transfer took place upon payment of under hand money. This is a classic case of money laundering and the share premium was being revived and paid to launder back money. This happens at the second lib i.e., when the directors change and company changes hand." Further, the observation of the Hon'ble ITAT Kolkata, in the case of Bishakha Sales Pvt., on non-compliance against summons u/s 131, may be reproduced as under:- ''This also clearly shows the revisionary tactics that are being adopted to wriggle way out of the corner it has put itself into by its own acts and commissions. A peculiarity in such cases that is noticed is that sheaves of paper documents are readily produced but when a summon is issued the responsible persons conveniently disappear. Only the assessee knows the intricacies of its accounts. It is for the assessee to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its book of accounts lies squarely on the assessee and such proof consist of proving the identity of the subscriber or creditor, capacity of such creditor or subscriber to make payment and also to prove the genuineness of the transaction. It is only when the assessee discharges this primary onus, that onus shifts to the Department. Merely establishing the identity of the creditor is ne sufficient. This is the ratio in a large number of decision held by various courts in the following case including Shankar Industries Vs. CIT (1978) 114 ITR 689 (Cal); C. Kant & Co. Vs. CIT, (1980) 126 ITR 63 (Cal); Prakash Textile Agency Vs. CIT, (1980) 121 ITR 890 (Cal); Oriental wire Industries P. Ltd. Vs. CIT, (1981) 131 ITR 688 (Cal); CIT Vs. United Commercial & Industries Co. (P) Ltd., (1991) 187 ITR 596, 599 (Cal); M.A. UnneeriKutti Vs. CIT, (1992) 198 ITR 147,150 (Ker), Special Leave Petition dismissed by the Supreme Court (1993) 201 ITR (St.) 23 (SC); CIT Vs. Precision Finance Pvt. Ltd .. (1994) 208 ITR 465, 470 (Cal). It is also reiterated that the manner of payment by the account payee cheque is also not sacrosanct and this cannot make a bogus transaction as genuine one as held in [CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee failed to prove identity and capacity of subscriber companies to pay share application money, amount so received was liable to be taxed under section 68. 3. CIT vs. Nova Promoters & Finlease (D) Ltd.(342 ITR 169):- Wherein Hon'ble Delhi High Court held that amount received by assessee from accommodation entry provider in garb of share application money, was to be added to its taxable income under section 68. 4. CIT vs. Ultra Modern Exports (D) Ltd. (220 taxman 165):- Where Hon'ble Delhi High Court held that where in order to ascertain genuineness of assessee's claim relating to receipt of share application money, Assessing officer sent notices to share applicants which returned unserved, however assessee still managed to secure documents such as their income tax returns as well as bank account particulars in such circumstances. Assessing officer was justified in drawing adverse inference and adding amount in question to assessee's taxable income under section 68. 5. Rick Lunsford trade & Investment Ltd. vs CIT:- R2016 - TIQL-2007-SC-IT(Supreme Court) wherein Hori'ble Supreme Court dismissed SLP upholding that it is open to the Revenue Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Honble Supreme Court in the case of Lakshmichand Baijnath vs. CIT 35 ITR 416 where sums found credited in the books of account of the assessee were treated as business profits Similar view has also been taken by Hon'ble Calcutta High Court in the case of CIT vs Margttret's Hope Tea Co. Ltd. 201 ITR 747 and Mansfield and Sons vs. CIT 48 ITR 254. The Hon'ble Calcutta High Court observed :- 7. A similar question came up before this court in I. T.Ref. No. 5 of 1984 (CIT vs. Hasimara Industries Ltd.), where tile judgement by this Bench was delivered 011 July 25, 1989. There, tile Bench, after, considering the decision in Daulatram Rawatmull v. CIT (1967) 64 ITR 593, observed as follows,' "There is no dispute as to tile fact th at the cash credit account was appearing in tile assessee's tea garden books of account i.e. business books of account. Tile cash credits continued throughout tile accounting period. The assessee's Main activity was tile cultivation, manufacture and sale of tea. For the Assessment Year 1974-75, tile Tribunal on all identical set of facts upheld tile view of tile commissioner of Income Tax (Appeals) that, in such circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital subscription as an instance of unexplained cash credits u/s. 68 of the Act. This tribunal's co-ordinate bench's decision in Income Tax Officer Ward-5(3) vs. M/s Bhagwat Marcom Pvt. Ltd., in ITA No.2236/Kol/2017 decided on 31.07.2019 has taken into consideration the entire case law to conclude that such an instance not involving any cash credits pursuing cannot be treated as unexplained u/s 68 of the Act as under:- "4. The learned DR submitted that the share capital and share premium amount credited in the books of account of the assessee company represented cash credit u/s 68 and since the primary onus to establish the identity and the capacity of the concerned share applicants as well as to prove the genuineness of the relevant transactions was not satisfactorily discharged by the assessee, addition u/s 68 was rightly made by the AO by treating the same as unexplained cash credit. He contended that the Ld.CIT(A) however did not appreciate the facts and circumstances involved in the assessee's case and deleted the addition made by the AO u/s 68 inter alia on the ground that there being no inflow of cash, section 68 was not applicable. He contended that the reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity and capacity of the concerned share applicants as well as the genuineness of the relevant transactions. He contended that the AO completely overlooked this vital and relevant documentary evidence filed by the assessee while the Ld. CIT(A) considered and appreciated the same in the right perspective to arrive at the conclusion that the primary onus to establish the identity and capacity of the concerned share applicants as well as genuineness of the relevant transactions having been established by the assessee on evidence, addition made by the AO us 68 was not sustainable on merit also. He, therefore, strongly supported the impugned order passed by the Ld. CIT(A) giving relief to the assessee on this issue and urged that the same deserves to the upheld. 6. We have considered the rival submissions and also perused the relevant material available on record. It is observed that its shares were issued by the assessee company during the year under consideration it premium to certain companies in lieu of the shares held by the said companies and there was thus no inflow of cash involved in these transactions. The said transactions were entered into in the books of account of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iting the loan amount f the proprietary concern. This credit appearing in the books of account of the partnership firm, M/s. Jatia Investment Co. was treated by the AO as unexplained cash credit u/s 68 and on confirmation of the same, when the matter reached to the Hon'ble Calcutta High Court, it is held by their lordship that when the cash did not pass at any stage and since the respective parties did not receive cash nor did pay any cash, there was no real credit of cash in the cash book and the question of inclusion of the amount of the entry as unexplained cash credit could not arise. In our opinion, the ratio of this decision of the Hon'ble Jurisdictional High Court in the case of Jatia Investment Co. (supra) is squarely applicable in the facts of the present case and the Ld. CIT(A) was fully justified in deleting the addition made by the AO u/s 68 by holding that the said provision was not applicable." We adopt the detailed reasoning mutatis mutandis to hold that both the learned authorities have erred in law and on facts in treating the sum in issue of Rs.3.25 crores as unexplained cash credits. The same is directed to be deleted. Necessary computation shall follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44,705 15 6,706 37,999 Total 27,74,98,360 70,49,305 91,831 28,44,55,834 3,88,15,062 24,56,40,772 *The disallowance made above on account of addition to shad and building and plant and machinery has been considered while recasting the above schedule. 7.2 Considering the above depreciation on account of fixed assets allowed to the assessee at Rs. 3,88,15,062/-. Since the assessee has claim depreciation on fixed assets of Rs. 4,49,88,165/- the balance amount of Rs. 67,73,103/- disallowed as excess depreciation and added to the total income of the assessee. The amount of disallowance of Rs. 67,73,103/- includes disallowance of depreciation on account of addition to shad and building and addition to plant and machinery. Since the assessee has concealed particular of income penalty proceeding is initiated separately. 7. The assessee fails to pin-point any irregularity in the above depreciation chart indicating the correct figure of Rs.3,88,15,062/- as against that claim of Rs.4,49,88,165/-. We accordingly uphold the impugned depreciation disallowance therefore. The assessee's second substantive ground is rejected. Its appeal ITA No.1187/Kol/2019 is partly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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