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TMI Blog2021 (3) TMI 1058X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year as on 31.03.2012. 3. The AO further noted that this is the first year of the assessee company and the assessee has shown its share capital at Rs. 4,37,500/- and share premium at Rs. 6,71,62,500/-. He, therefore, asked the assessee to explain as to how it has got share premium of Rs. 6,71,62,500/- when its authorized capital was only Rs. 5 lakh and issued, subscribed and paid-up capital is Rs. 4,37,500/- only and there is no fixed assets. He further asked the assessee to give the names and present postal addresses of the parties from whom the same have been received during the year. He asked the assessee to prove their identity, credit worthiness and genuineness of the transaction by filing their confirmations as on date and their confirmations must contain the bank account numbers and the name of bank branch from which they have given the said amount, their IT particulars/PAN and Wards/Circles where assessed to tax, copy of their audited balance sheet and P&L Account and copy of their income-tax returns and computation of income and copies of extracts of their bank statement from which the said amount has been given. 4. In response to the same, the assessee filed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gajanan Realcon Pvt. Ltd. The Book value of one Equity share of Gajanan Realcon Pvt. Ltd. is Approx. Rs. 996.16p. 2(c) M/s Freshtex Technologies Pvt. Ltd. In its confirmation has stated that M/s Maiden Building Solutions Pvt. Ltd. has issued 6000 Equity shares of Rs. 10/- each at a premium of Rs. 1990/- to it (means M/s Freshtex Technologies Pvt. Ltd.) and they (means M/s Freshtex Technologies Pvt. Ltd) have sold them 15000 Equity shares @ 10/- each at a premium of Rs. 800/- per share of M/s Om Jai Jagdish Pvt. Ltd. The Book value of one Equity share of M/s Om Jai Jagdish Pvt. Ltd. is Approx. Rs. 962.61 p. However it is strange to see that there is no such company in the name of M/s Om Jai Jagdish Pvt. Ltd. as verified from the MCA website. The actual company name is M/s Om Jai Jagdish Infrastructure Pvt. Ltd., but assessee has never written the correct name neither intimated this fact. 2(d) M/s Delite Buildtech Pvt. Ltd. In its confirmation has stated that M/s Maiden Building Solutions Pvt. Ltd. has issued 7500 Equity shares of Rs. 10/- each at a premium of Rs. 1990/- to it (means M/s Delite Buildtech Pvt. Ltd.) and they (means M/s Delite Buildtech Pvt. Ltd) have sold them 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at Rs. 6,84,54,504/- as against the returned loss of Rs. 2,281/-. 7. Before the CIT(A), the assessee submitted that:- 1. the sum found credited in the books of accounts of the assessee is not cash or cheque, hence, section 68 doesn't get triggered. 2. The credit in the books of the assessee arose on account of purchase of shares and not on account of receipt of any money from the investing companies. 3. The investing companies furnished all the documents confirming the transactions. 4. There was no allegation or evidence of operation by an accommodation entry operator. 5. There is no evidence for allegation of cash deposits in either the bank accounts of the assessee or the investing companies. 6. The allegations are for purchase of share at higher than real value from the investing companies and allotting shares to the investing companies at equally high price. If the higher price is reduced to the level justified according to the assessing officer, then also there will not be any income or tax implication to the assessee. 7. Entire exercise has not resulted into earning of even a single rupee to the assessee in the revenue account or even in capital account. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the face value of the shares acquired. iv. The transactions have not resulted into any inflow or outflow to the appellant company or any of the transacting company. In that sense, the transaction is cash neutral. v. As a result of these transactions, the appellant became shareholders having investments in following companies:- (a) M/s Coronet Telecom (P) Ltd (b) M/s Gajanan Realcon (P) Ltd (c) M/s Om Jai Jagdish (P) Ltd (d) M/s Pawansut Media Services (P) Ltd (e) M/s Oxygen Projects (P) Ltd vi. Further, the following companies became shareholders of the appellant:- (a) M/s Instent Construction Pvt. Ltd (b) M/s Kesri Lab Electronics (P) Ltd (c) M/s Freshtex Technologies (P) Ltd (d) M/s Delite Buildtech (P) Ltd (e) M/s Vishwanidhi Chemicals (P) Ltd 10. So far as the allegation made by the AO that the assessee has allotted share at a value hugely disproportionate to the real value is concerned, it was argued that the assessee at the same time purchased shares at a value much higher than the real value and the allotment has been made to the same party from whom shares have been purchased and there is no inflow or outflow of money even though the stated consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- made by the AO under section 68 of the IT Act in respect of alleged share capital and premium. 2. Ld. CIT(A) erred in law and on facts of the case in deleting the addition of Rs. 8,50,000/- made by the AO under section 68 of the IT Act in respect of alleged creditor. 3. The appellant craves leave, modify, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 14. The ld. DR heavily relied on the order of the AO. He submitted that in the instant case, the assessee has issued shares at a high premium to the investing companies and has also purchased shares at a high premium from the investing companies. Despite being asked by the AO, the assessee company failed to produce the directors of the investing shareholder companies for their physical appearance and there is apparent close connection between various companies. He accordingly submitted that under the facts and circumstances of the case, the ld.CIT(A) was not justified in deleting the addition made by the AO. 15. The ld. Counsel for the assessee, on the other hand, strongly relied on the order of the CIT(A) and reiterated the arguments advanced before the CIT(A). He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. ITO, ITA No.2691/Kol/2018, order dated 28.02.2020; vii) ITO Vs. M/s. Saffron Comtrade Pvt. Ltd., vide ITA No.2029/Kol/2016, order dated 28.08.2019; viii) ITO Vs. M/s. Pansu Commercial Pvt. Ltd., ITA No.1859/Kol/2017, Order dated 08.05.2019 and ix) ITO Vs. M/s. Sunglow Dealcom Pvt. Ltd., ITA No.2178/Kol/2016,Order dated 16.11.2018; and x) ITO vs. M/s Anand Enterprises Ltd., ITA No.1614/Kol/2016, order dated 26.09.2018. 16. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has received the share capital of Rs. 4,37,500/- and a share premium of Rs. 6,71,62,500/- by issue of 33750 shares to five corporate entities, the details of which are given at para 4 of this order. Although the assessee filed the confirmations, affidavit of the directors, acknowledgement of their ITRs for the assessment year 2012-13, copy of their balance sheet and P&L Account, etc., however, the assessee failed to produce the directors/principal officers of these companies for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." 18. As per the above provision where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory according to the AO, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 'Any sum' has not been defined in the Income-tax Act. However, the Hon'ble Supreme Court had an occasion to analyse the use of the expression: 'any sums paid' while deciding a case u/s 80G of the Act in the case of H.H. Sri Rama Verma vs. CIT, reported in 57 Taxman 149 (SC). The relevant observations of the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 8.3.1 It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs. 27,00,00,000 made u/s. 68 of the IT Act, the amount of Rs. 25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs. 15,00,00,000 were issued against the outstanding liabilities i.e there were only the transfer of entries from trade liability head to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the assessee is required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Assessee has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third parties in the chain were also filed by the assessee. Thus the assessee has not only proved the creditworthiness of the said share holders but also proved the source of the source, for which though no onus lie on him. 8.5 The Assessee has also furnished the copies of agreements in respect of swapping the shares with the other three companies. Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Ld. AR before the Ld. CIT(A). It is pertinent to mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... especially the portion reproduced above, it is seen that section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by the appellant when purchase and allotment are under a barter system. The AO has not refuted the appellant's claim that shares were allotted in exchange for acquisition of shares by the appellant from the companies which surrendered such shares to the appellant. Though as per the AO to apply section 68 to make the said addition in the appellant's hand. Transactions purportedly executed by entry operators involve multiple layers and other complexities, introducing delays in introduction of unaccounted cash/money and multiple players being incorporated entities. Measures taken by the AO in the course of the assessment proceeding falls much short of what is required to be done in such case laws, which have evolved on this issue, call for concerted actions on the part of the AO pinpointing utilization of unexplained/unaccounted/untaxed money and the players and the beneficiaries effectively using the weblike scheme to plunder black money. For example introduction and use of black money in the present case may be at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question were also of the companies of the group. There was no attempt at hiding the transactions. Nor is it the case of any of the parties to the transaction that there was any passing of cash. Every party unequivocally stated that the transactions were carried into effect merely by way of adjustments of the said loans and the share transfers. Shri A. C. Moitra, the learned advocate for the Revenue, reiterated the grounds on which the Tribunal has affirmed the addition of the amount of Rs. 11.20 lakhs as unexplained cash credit. He particularly emphasised that the assessee's contention that the entries are only adjustment entries is not acceptable, because the adjustment entries are not made through the cash book. It is an accepted principle of accounting that book adjustments and the entries in effecting them are made by journal entries and not cash entries. He urged that the purported motive of the entries being the reduction of loans of the three limited companies does not explain the whole matter, because the entries are cash entries. The fact remains that, at every stage, the parties showed the payments and receipts of cash even when there was no cash available for suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act. In our view, the effect and import of the transactions is that the assessee took over the liability of the aforesaid non-financial companies to GB and Co. in exchange for the shares as aforesaid. In the premises, we answer all the questions, in the affirmative and in favour of the assessee and against the Revenue." 4.2. It would be pertinent to note that in the instant case, the ld. AO had not doubted the investment made in shares by the assessee company. There is no dispute raised by the ld. AO with regard to number of shares; value thereon invested by the assessee company. We also find that the Co-ordinate Bench decision of Pune Tribunal in the case of Kantilal and Bros. vs. ACIT reported in 52 ITD 412 (Pune Trib.) also supports the case of the assessee. 4.3. In view of the aforesaid observations, in the facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, we hold that the ld. AO had erroneously invoked the provisions of section 68 of the Act to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com private Limited for AY 2012-13 order dated 16.11.2018 has held as under: "3. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 4. The undisputed fact in this case is that the allotment of shares were for consideration other than by way of cash. The four companies which applied for allotment of shares, have sold their investment to the assessee company and the assessee company, has as consideration for the purchase of those shares had allotted shares at a premium. It is a case of swapping of shares. The shares were allotted for consideration other than cash. The question is whether under these facts and circumstances Section 68 of the Act, would be attracted. 4.1. The ld. D/R, submits that the premium is not justified and that the ld. CIT(A) was wrong in holding that the assessee has proved the identity, creditworthiness and genuineness of the transaction. He relied on the order of the Assessing Officer. In reply the ld. Counsel for the assessee, submits that each of the above companies have filed replies befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance to advance said amount to assessee - He, thus, concluded that source of funds for purchase of shares by assessee was not explained, and consequently, assessed that amount as income from undisclosed sources - It was contended by assessee that notional cash entries were made to reduce indebtedness of three companies of 'J' Group to GB in order to comply with certain directions of RBI - Assessee-firm substituted three companies of 'J' Group as debtor to GB - It was further stated that question of cash credit did not arise, there being no actual passing or receipt of cash but transactions were mere book entries - Whether, in aforesaid circumstances, effect and import of transaction was that assessee took over liability of aforesaid three companies to 'GB' in exchange for shares and, therefore, amount of loan in question could not be treated as assessee's income from undisclosed sources - Held, yes" 4.3. Recently, the Hon'ble Madras High Court in the case of V. R. Global Energy (P.) Ltd. v. Income-tax Officer, Corporate Ward 3(4), Chennai [2018] 96 taxmann.com 647 (Madras) while dealing with a case where cash credit towards share capital were admittedly, only by way of book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he various other decisions relied on by the ld. Counsel for the assessee in the paper book also supports the case of the assessee that provisions of section 68 are not applicable in a case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and, instead, considerations were settled through issuance of shares to the respective parties. In other words, provisions of section 68 of the Act does not apply to cases of purchase of shares and allotment of shares when the purchase and allotment are under a barter system. In this view of the matter, we do not find any infirmity in the order of the CIT(A) in deleting the addition of Rs. 6,75,00,000 /- (wrongly typed in the grounds as Rs. 6,76,00,000/-). Therefore, the ground of appeal No.1 raised by the Revenue is dismissed. 23. So far as ground of appeal No.2 of the Revenue is concerned, we find, the AO made addition of Rs. 8,50,000/- u/s 68 of the Act on the ground that the same is shown in the name of M/s Wamil Clothing Pvt. Ltd. and the summons issued u/s 131 was received back unserved. We find, the order of the AO is very cryptic on this issue and the ld.CIT(A) has not at all given an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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