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TMI Blog2020 (1) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax (Appeals)-3, Kolkata dated 22.03.2018, passed in case No. 995/CIT(A)/-3/Ward-7(2)/15-16/Kol, involving proceedings u/s 143(3) of the Income Tax Act, 1961; in short the Act Case called twice. None appears at assessee s behest. The registry has already sent an RPAD notice dated 26.11.2019 to the taxpayer. It had not put in appearance in earlier hearing(s) as well. It is accordingly proceeded ex parte. The case is now taken up for adjudication on merits. 2. Coming to assessee s sole substantive grievance challenging correctness of both the lower authorities action treating its share capital of ₹21 crores as bogus unexplained cash credits u/s. 68 of the Act learned CIT-DR submitted in support of the impugned addition that it has failed to prove identity, genuineness and creditworthiness of its investor parties. His further case is that the assessee had also not put in appearance before the CIT(A) as well despite having been afforded adequate opportunities of hearing which culminated in the impugned addition affirmed vide lower appellate order passed ex parte as under:- III. Decision: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o been followed in case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC). Applying the test of human probability and preponderance of probability as laid down by the Apex Court to the surrounding facts and circumstances of this case, as discussed above, the claim of the appellant is farfetched and cannot be sustained on the test of Human Probabilities. Moreover, the issue is squarely covered by the judgement of Hon High Court, Kolkata, in the case of Rajmandir Estate Pvt, Ltd v PCIT in CA No 509 of2016, wherein it has been held as under:- (21) After hearing the learned advocates, we are of the opinion that the following questions arise for consideration:- (a) Whether in the light of the views expressed in the case of Lovely Exports (supra) Steller Investment (supra) the order under Section 263 directing further investigation is legal? (b) Is the finding of the Commissioner of Income Tax that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatriated in the form of transfers. The role of the revenue authorities in tackling the menace of laundering black money was commented by the learned author as follows:- It has to be kept in view that India has a problem of black. economy, which is unaccounted and many a time the holders of black money' also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unreported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled through special anti-money-laundering laws. - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - ------------------------------------------------ (24) From the aforesaid evidence the following, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of ' no enquiry ' conducted by the AO, What to talk of charactering it as an inadequate enquiry', In our considered opinion, the highly inadequate enquiry conducted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. - - - - - - - ----------------------------------- - [28] We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd.' (supra) held that the ITO may even be justified in trying to ascertain the source of depositor . Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court therefore the observations in the above order has now attended finality. Further in this case it is observed that there is huge premium on shares. The NR of the appellant has not appeared before me 3ftd no clarification has been given in this regard. In this case the company issued 30,000 equity shares for ₹ 10/- face value at a premium of ₹ 6990/- per share. There is no justification for premium charged. The appellant has failed to explain. The financials do not justify the premium changed. Moreover, the issue is squarely covered by the judgement of Hon'ble ITAT C Bench, Kolkata, in the case of I.T.O, Ward- 5(3), Kolkata Vs. M/s Blessings Commercial Pvt Ltd in I.T.A. No 271/Kol/2014 for A.Y 2010-11, wherein it has been held as under: The second argument of the Id. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor company as well as the genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that these are fictitious or sham entries and no cognizance should be taken of theses entries. These are not unreal transactions as held by the A.O. These transactions are valid in law. 13. 1. Hence. the credit recorded in the books of accounts of the assessee is not a fictitious credit and has legal sanction. in view of the discussions these arguments of the Id. Counsel for the assessee is dismissed as devoid of merit. 14. We find that the transactions undertaken by these groups of companies are scandalous. A number of companies have been floated and none of them have any business nor any asset worth mentioning. The first company issues a cheque to the second company for allotment of shares at a huge premium and the second company allots shares to the first company. The second company instead of encashing the cheque endorses this cheque to the third company as consideration of allotment of shares at a heavy premium in that company. The third company does not encash the cheque but in turn endorses this cheque to the fourth company towards consideration of allotment of shares at a huge premium by the fourth company. The fourth company in turn e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices Pvt. Ltd., Highyield Securities Pvt. Ltd. Mehul Finvest Pvt. Ltd: and Synergy Finlease P. Ltd. and reason for not charging premium in the case of M/s. Timely Fincap Pvt. Ltd. and Graph Financial Services Pvt. Ltd: is not at all explained. The explanation given that the Ld. Counsel for the assessee that charging of premium is the sole discretion of the company and that price is a contract entered between two parties and cannot be questioned by the revenue is devoid of merit. The AO cannot be expected to wear blinkers and accept bald explanations of the assessee. There should be some explanation which is logical and rationale. Ld. Counsel could not demonstrate that the assessee company was in fact carrying on the business of finance and investment. It is common sense that shares of loss making companies do not command a premium. The financial status or the projected cash flow of the assessee company or any such record has been produced by the assessee to justify the charging of such premiums for allotment. Discounted cash flow matter is one of the accepted methods to determine premium chargeable on share capital. Certain other methods have also been prescribed. Premium cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. In CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under section 66 of the Indian Income Tax Act, 1922. The Supreme Court referred to the leading case of Edwards (Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (HL.) decided by the House of Lords in which Viscount Simonds observed as under:- For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, 1 think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is a fortiori as the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion. namely, that the monies intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the respondent assessee had taken care to ensure legal compliances. The said evidence is primarily documentary evidence. But, what the tribunal has noticed but not given due credence to are the surrounding circumstances which include a huge premium i.e. four times of the face value of the shares, credit entries in the bank accounts before transfer of money to the assessee, failure of the companies to file details of the inventories and the fact that the assessee company had not charged any premium earlier. Identity, creditworthiness of the shareholders and genuineness of the transaction in all cases is not established by only showing that the transaction was through banking channels or account payee instrument. It would be incorrect to state that the onus to prove genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Surrounding and corroborative factual detail are equally important and may justify further proof or details before it is held that onus is discharged. As held in N.R Portfolio (P.) Ltd. (supra) the question of discharge of onus depends upon whether the two parties are related o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o segregate cases of bona fide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paper work though important may not be always conclusive or determinative of the final outcome or finding whether the transaction WIZ genuine. When and under what circumstances onus is discharged, as held in NR. Portfolio (P.) Ltd. (supra), cannot be put in a straitjacket universal formula. It will depend upon several relevant factors. Cumulative effect has to be ascertained and understood before forming any objective opinion whether or not onus has been discharged by the assessee. Of course suspicion or doubts may not be sufficient and care and caution has to be taken that the assessee has limitations but this cannot be a ground to ignore contrary incriminating evidence or material which when confronted, meets silence or no answer. (emphasis ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant has not justified that 30,000 equity shares of ₹ 10/- ( face value ) were issued at a premium of ₹ 6990/- per share. Respectfully applying the propositions of law laid down by the co-ordinate bench of the Tribunal to the facts of the case, we find that section 68 of the Act applies to the facts of this case as a sum of money was credited, in the books of the assessee and the assessee could not prove the genuineness of these credits as well as the creditworthiness of the creditor. Hence in our informed view the addition has rightly been made by the A.O. Accordingly, the appeal of the appellant is hereby dismissed as the factual matrix is more or less similar. 3. The above detailed lower appellate discussion sufficiently indicates that the CIT(A) has taken note of the earlier factual matrix as well as the relevant case law (supra) whilst declining assessee s grievance on merits. There is no rebuttal to the same emerging from the instant case file. We therefore quote hon'ble apex court s landmark decision in Commissioner of Income Tax vs. K.Y. Pilliah Sons (1967) 63 ITR 411 (SC) to affirm both the lower authorities action treating the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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