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TMI Blog2018 (2) TMI 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in ground No. 2 relates to confirmation of addition of Rs. 5 crores by CIT(A) as made by the AO under Section 68 of the Income Tax Act, 1961 (hereinafter "the Act") in respect of share capital and share premium received by the assessee-company for allotment of 10% non cumulative preference shares to M/s. Janitor Distributors Pvt. Ltd. 5. The brief facts of the case are that the assessee-company filed its return of income on 28.09.2012 declaring a loss of Rs. 3,946/-. The case of the assessee was selected for scrutiny. Notice under Sections 143(2) and 142(1) were duly issued and served upon the assessee. The AO noticed from the Balance Sheet of the company that the assessee has allotted 10% non cumulative preference shares of face value of Rs. 100/- each at a premium of Rs. 100/- each to M/s. Janitor Distributors Pvt. Ltd. on 31.03.2012 thereby receiving a total amount of Rs. 5 crores. According to the AO the transaction of receiving money by way of share capital on premium was unnatural, suspicious and accordingly the AO called the assessee to prove the genuineness of the said transaction. The assessee during the course of assessment proceedings filed a copy of the return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;One has to consider the totality of facts, surrounding circumstances and human probability for arriving at a conclusion as held in by the Hon. Supreme Court sin the following cases : 1. CIT Vs Durga Prasad 82 ITR 540 (SC) 2. Sumati Dayal Vs CIT (1995) 214 ITR 801 (SC) The A.O. has done all the above to arrive at a conclusion that it is an unexplained credit u/s. 68. 8.2 This case also falls within the ambit of the term "colourable devices" as coined by Hon. Supreme Court wherein the Hon. Supreme Court has observed in the case of Me Dowell and Co. Ltd. Vs ITO 154 ITR 148 that "Tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be a part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious method. It is obligation of every citizen to pay the taxes, honestly without resorting to subterfuges". Thus, the addition of Rs. 5,00,00,000/- is confirmed since the A.O. has passed a very speaking order by bringing out all the facts and issues involved in the said transaction. Thus, in the light of the discussion above in Para 7 and 8, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the said money raised by the assessee. The learned A.R. submitted that the conclusion of the AO that the shares of the assessee-company were not worth subscribing in absence of any business activity was incorrect. The ld AR further submitted that the assessee company belongs to G.R. Agarwal Group, Udaipur and its flagship company was G.R. Infraprojects Ltd. which is engaged in development of infrastructural facilities and is renowned in the market for quality construction and timely completion of infrastructural projects like road, highways and flyovers, etc. The average turnover for the last three years of the said flagship company was around Rs. 800 to Rs. 850 crores with the net profit ranging between Rs. 35 to 50 crores. Considering the potential of infrastructure in India there are large number of investors including FIIS and financial institutions which are interested in investment in the group by way of equity participation, preference shares or inter corporate loans etc. The learned A.R. also pointed out that the renowned equity funds, namely India Business Excellence Fund I and IDFC Investment Advisors Ltd. invested Rs. 80 crores by way of equity capital in G.R. Infrapr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are engaging in accommodation business. The learned A.R. for the assessee took us through similar transactions in the case of group company M/S Lokesh Builder Pvt. Ltd. which has received share capital from M/s. Janitor Distributors Pvt. Ltd. in A.Y. 2012-13 and the transaction was accepted by the Income Tax Officer, Ward-1, Udaipur after carrying out a detailed enquiry and gathering various information. The ld AR stated that the AO after satisfying about the genuineness and creditworthiness thereof framed the assessment under Section 143(3) vide order dated 27.03.2010 accepting the contentions and submissions of the assessee qua said transaction. The learned A.R. also placed before the Bench a copy of letter dated 25.11.2014 addressed by the AO to Lokesh Builder Pvt. Ltd. and copy of assessment order of the said group company. The learned A.R. contended that in view of the contemporary evidence filed on record of the Department itself, the suspicion of the AO as regards the transaction being non-genuine was wrong and misplaced. So far as the affairs of M/s. Janitor Distributors Pvt. Ltd. is concerned, the learned A.R. submitted that the assessee is in no way connected with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production of records such as ITR, Balance Sheet and source out of sale of shares could not be taken to mean that the transaction is genuine especially when in both the companies, investor and investee there was no business. The learned D.R. argued that the benefit of similar transaction in the group company M/s. Lokesh Builder P. Ltd. from the same investor which was examined and accepted by Income Tax Officer, Ward-1, Udaipur could not be taken to mean that the instant transaction of the assessee is genuine and not suspicious. The learned D.R. finally relying on the orders of the Authorities below prayed that the order of the CIT(A) be confirmed as this is a case of circuiting transactions intended to route black money into company. The ld DR while distinguishing the decisions relied upon by the ld AR placed reliance on the following decisions in support of her arguments:- i. Sreelekha Banerjee and Ors. vs. CIT 49 ITR 112 (SC) ii. Income Tax Officer vs. Zara Trading P. Ltd. ITA No. 3284/Del/ 2009 dated 26.02.2010 and Khushara Real Estate Pvt. Ltd. ITA No. 4247/Del.2009 iii. Major Metal Ltd. vs. Union of India 207 taxmann.com 185 (Bom) iv. Bisaka Shares Pvt. Ltd. vs. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A). 9. We heard the rival submissions and perused the material on record including the impugned order and various decisions cited by rival parties. The undisputed facts of the case are that the assessee issued 250,00,000 10% non cumulative e redeemable preference shares of Rs. 100/- each at a premium of Rs. 100/- each to M/s. Janitor Distributors Pvt. Ltd. on 31.03.2012. The assessee company was not carrying on any business during the year and so was the investor company M/s. Janitor Distributors Pvt. Ltd. The source of investment was out of sale of shares which were held by M/s. Janitor Distributors Pvt. Ltd. The AO also recorded a finding in the assessment order that M/S Janitor Distributors Pvt. Ltd. the investor company was not doing any business but was doing purchase and sales of shares of other companies and the instant investment in the assessee company was made out of sale of shares by the said company. According to the AO the transaction is not genuine and is a sham transaction on the ground that the assessee company was not doing any business and there was no justification in issuing shares on a premium to the investor when the company has no background such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , namely India Business Excellence Fund I and IDFC Investment Advisors Ltd. invested Rs. 80 crores by way of equity capital in G.R. Infraprojects Ltd. in 2011 and the company is in the process of listing of its shares in the market. In view of all these facts we are not in a position to agree with the conclusion of the AO as confirmed by the learned CIT(A) that the shares in the assessee company were issued at a premium which is sham and non genuine as the potential and growth trajectory of the entire group has to be seen and not the individual company. In our pinion the investments in the market are driven by the past track record, market reputation and growth potential of the group and not on the basis of the net worth or turnover of the company. It is also revealed from the record before us that out of the money raised by the assessee a sum of Rs. 1,32,52,572/- was utilised for acquiring office at Mumbai from which the assessee company earns regular rental income and Rs. 3,35,00,000/- was utilised for acquiring plot No. 45 at PWD Colony, Jodhpur for real estate project and Rs. 20,00,000/- was invested in shares of G.R. Infraprojects Ltd. and the balance amount was advanced to gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in totality we are of the view that the AO has not brought any evidence on record to prove that the transaction to be sham and non genuine and thus we are not in agreement with the conclusion drawn by the CIT(A) on the issue. The case of the assessee is also supported by a series of decisions relied upon by the learned A.R. is discussed as under: - * In the case of ACIT vs. Gagandeep Infrastructure Pvt. Ltd. it has been held that the issue of shares at premium is always a commercial decision which does not require any justification. It was further held by the Hon'ble Tribunal that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such premium. The Revenue authorities cannot question charging of such huge premium. * In CIT vs. Creative World Telefilms Ltd. [333 ITR 100 (Bom)] the Hon'ble Bombay High Court sustained the deletion of the addition made u/s. 68 of the Act in respect of the share application money by observing that "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 07.02.2014 the Coordinate Bench of this Tribunal held that merely because the cheques were deposited in the respective accounts would not lead to the conclusion that these cheques money was the assessee's own money routed through these parties until and unless it is found in the enquiry and substantiated with the facts and material. .................................In view of the above discussion as well as facts and circumstances of the case, we are of the considered opinion that the addition made by the AO under Section 68 of the Act is not justified and the same is hereby deleted. * The above decision of the Coordinate Bench has been upheld by the Hon'ble Jurisdictional High Court in the case of CIT vs. Orchid Pvt. Ltd. in ITA No. 1433 of 2014 dated 05.07.2017. * In the case of Principle CIT vs. M/s. Paradise Inland Shipping Pvt. Ltd. In Tax appeal No. 66 of 2016 dated 10.04.2017 the Hon'ble Jurisdictional High Court observed that once the assessee has produced documentary evidence to establish the existence of such companies, the burden would shift on the Revenue-Appellant herein to establish their case. There no infirmity in the findings arrived at by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court that though apparent must be considered real unless it was shown that there were reasons to believe that the apparent was not real, in a case where a party relied on self-serving recitals in documents it was for that party to establish the truth of those recitals, and that the taxing authorities were entitled to look into surrounding circumstances to find out reality of the recitals. The documents considered by the Hon'ble Court in this ruling were a deed of conveyance and another deed of settlement in respect of a property situated in Calcutta. * In the case of Shankar Industries (supra) the finding recorded by the Hon'ble Court was that the assessee was required to produce proof of identity of the creditor, capacity of the creditor and the genuineness of the transaction. It was only for the reason that except the identity of the creditor nothing was produced by the assessee in support of a cash credit that the ruling of the Hon'ble Court went against it. But in this case all the evidences were produced by the assessee before the AO. * In the case Kant & Co. (supra) the ratio laid down was that in case of a cash credit entry, it is necessary for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Focus Exports Pvt. Ltd. (supra) the assessee was not cooperative and did not furnish complete details/particulars in respect of the share application money received. In fact, the assessee had 'absconded' as a result of which the assessment was completed exparte whereas in the present case the facts are different. * In N R Portfolio Pvt. Ltd. (supra) not only the share applicants did not attend the proceedings despite summons issued u/s.131 of the Act but also most of the notices were received back unserved whereas in the present the investor provided information in response to notice under section 133(6). 11. In the light of the above facts and the ratio laid down by various decisions, we are of the view that the order of the CIT(A) confirming the order of the AO on the ground that the share capital and share premium are non genuine and suspicious is not correct and therefore cannot be sustained. In the present case the identity, creditworthiness and genuineness are proved by filing the necessary evidences. We, therefore, set aside and reverse the order of the CIT(A) and direct the AO to delete the addition. 12. In the result, the appeal filed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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