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TMI Blog2021 (4) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... res having face value at Rs. 10 and share premium at Rs. 90 per share aggregating to Rs. 40 crores only. The details of the companies which acquired the shares at premium of the assessee company stand as under: S. No Name of shareholder Face value (inRs.) Premium (inRs.) Gross amount (inRs.) 1 Sangam Infratech Ltd. 2,20,00,000/- 19,80,00,000/- 22,00,00,000/- 2 Dhanlaxmi Re-Rolling Mill 90,00,000/- 8,10,00,000/- 9,00,00,000/- 3 Swift Venture Pvt Ltd 90,00,000/- 8,10,00,000/- 9,00,00,000/- 4 Total 4,00,00,000/- 36,00,00,000/- 40,00,00,000/- 3.1 The assessee, besides the above, has also received share application money pending for allotment of shares amounting to Rs. 25,23,27,371/- only from the companies as detailed under: (1) Sangam Infratech Ltd. Rs. 13,95,00,000.00 (2) Swift Ventures Private Limited Rs. 2,95,00,000.00 (3) Dhanlaxmi Re-rolling Mills. Rs. 5,21,78,717.00 (4) Shri Ramkishan Mantri Rs. 50,000.00 (5) Shri Sanjay mantra Rs. 1,05,98,654.00 (6) Shri Nilesh Chechani Rs. 5,00,000.00 (7) Kalyan Sangam Infratech Ltd. Rs. 2,00,00,000.00 Total Rs. 25, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the AO to verify the genuineness of the capital cost shown by the assessee under the project with respect to certain items issued notices to the suppliers of the capital goods but none of them replied. Thus the AO was of the view that the assessee has inflated the project cost of the capital goods in order to avail higher funds from the banks. In other words the assessee claimed the high project cost so that it could take the money back from the supplier which could be reinvested in the guise of share capital/share premium in the name of the companies as discussed above. 3.8 Likewise, the AO found that the companies, namely Sangam Infratech Limited (in short SIL) and Swift Venture Private Limited (in short SWPL), which invested in the assessee company were either showing the meagre income or the losses. Furthermore, these companies (SIL and SWPL) have shown sources of funds in their respective hands by way of issuing shares on premium which was not possible for the simple reason that there was no major activity carried on by them. 3.9 The AO, further to verify the share capital in the hands of SIL and SWPL issued commission under section 131(1)(d) of the Act which submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The genuineness of transaction is established by the fact that the subscribers of share confirmed the investment and reflected the same in their respective balance sheet and all the payments were made through banking channel. Similarly the credit worthiness is also proved beyond doubt that they have available funds in their bank account for making investment. The assessee also submitted that the duty of assessee is only to explain the sources of money in its own hand and not to explain the sources of source. Therefore doubting the impugned transaction of share subscription was not justified, specially, in the facts and circumstances where no cash was deposited in its banks as well as in the bank accounts of the subscribers of shares. Similarly, the aforesaid parties have shown investment in their respective income tax return. There was no information or finding available with the AO that any cash transaction is carried out between the investors and assessee. 5.1 It was further contended that once the assessee discharges its primary onus, then it was duty of the AO to bring cogent material to overturn the documentary evidence supplied by it (assessee) and prove that the same as ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shown investment in the shares of the assessee company in their audited financial statements. (c) The investors namely M/s Sangam Infratech Ltd, M/s Swift Venture Pvt Ltd during the year under consideration has received share capital and premium amounting to Rs. 67 crore and 22.39 crore respectively. But the AO of the respective parties in the assessment proceeding has not doubted the same. Hence it is proved that that they were having adequate fund in their hands for the impugned investments. (d) Similarly, M/s Dhanlaxmi Re-Rolling Mills has shown taxable income of Rs. 3,57,98,017/- share capital of Rs. 3.14 crore and unsecured loan of Rs. 27.80 crores in its balance sheet. But the AO during the assessment proceeding under section 143(3) has made no adverse remark about the same. Further the assessment of impugned party was conducted by the AO range -1 which was headed by the AO of the assessee on hand. (e) The impugned investors are filing the Annual returns with MCA regularly disclosing all the necessary details about their financial positions. (f) On perusal of the bank statement of impugned investors, it was found that all the payments toward share capital and premiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and various contractors about the date of notices and when the response from them was due. Furthermore if the suppliers have not responded to the notices issued under section 133(6) of the Act then the AO does not get the authority to draw any adverse inference against the assessee until and unless such fact is brought to the notice of the assessee for its rebuttal. But what appears from the order of the AO that such opportunity has not been afforded to the assessee. (m) Likewise, the allegation of the AO that the assessee has accepted the cash from the suppliers by inflating cost of the project is without any tangible material. The onus was upon the AO to bring corroborative evidence on record before arriving at the conclusion that the assessee has inflated its cost of the project. 6.1 In view of the above the learned CIT (A) was pleased to delete the addition made by the AO by observing that the amount of share capital received by the assessee stands explained and therefore there cannot be any addition under section 68 of the Act. Accordingly the learned CIT (A) deleted the addition of Rs. 3 702 25,000 only. Thus the ground of appeal of the assessee was allowed. 7. Being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said shares were purchased from the companies controlled by Mr. Jagdish Purohiti as admitted by the director of assessee company in his statement recorded on 3.05.2013.At the time of such purchase, Swift Venture was a shell/paper company of accommodation entry operator Mr.Jagdish Purohit. (iv) Shri Jagdish Purohit in a statement on oath u/s 132(4) acknowledged multilayering of funds and providing accommodation entries. A list of companies through which accommodation entries were provided is at page 162 to 165 of the paperbook filed by the department. The name of M/s Swift Ventures Pvt Limited is appearing at SI. No. 24 (page 164 of department's paper book) of this list of paper/shell companies. (v) At the time of purchase of shares of M/s Swift venture by promoters of the assessee company, Swift Venture was having so called investment in paper companies amounting to Rs. More than 22 crores. This paper investment was purchased by the promoters at a value of Rs. 75 lakhs (approx.) and over a period of few years, unaccounted money was introduced by showing the liquidation of such paper investment in bogus companies which was simultaneously introduced in the assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r work regarding such transactions has not been accepted by the Hon'ble Courts. It may be submitted that in a recent case of Pr. CIT v. NDR Promoters (P.) Ltd. [2019] 102 taxmann.com 182/261 Taxman 270/410 ITR 379 (Delhi), Hon'ble Delhi High Court has held that a case involving make-believe paper work to camouflage the bogus nature of the transactions is to be treated as unexplained credit u/s 68 of the Act. The said decision of Hon'ble Delhi High Court has been upheld by Hon'ble Supreme Court109 taxmann.com 53 (SC) 17. The Hon'ble Supreme Court in its decision dated 25.03.2019 in the case of NRA Iron & Steel Pvt Limited 412 ITR 161 (SC) after discussing a number of decisions including its own decision in the case of M/s Lovely exports has held that the practice of conversion of un-accounted money through the cloak of share capital/share premium must be subjected to a careful scrutiny and has held that the AO is duty bound to investigate the creditworthiness of the creditor/subscriber and to ascertain whether the transaction is genuine or these are bogus entries of name-lenders. The Hon'ble SC has also held that if the enquiries and investigation reveal th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition by accepting the make-believe documentation and following the decision in the case of Lovely Exports. After considering the decision in the case of NRA Iron & Steels Private Limited and M/s NDR Promoters (P) Limited, the Hon'ble ITAT held that the decision in the case of M/s Lovely Exports is no more a binding decision, The Hon'ble ITAT accordingly remanded the matter back to file of Ld. CIT(A) for deciding the matter in accordance to the decision in the case of M/s NRA Iron & Steels Private Limited and M/s NDR Promoters (P) Limited, (para 10 of the said order page, page 311 of department's paper book) 21. Kind attention is also drawn to para 9.10 ofthe decision of Hon'ble ITAT (Pune Bench) in the case of M/s Prathamesh Ceremics Pvt Limited (ITA No. 2260- 2262/PUN/2014) dated 04.02.2020 (page 310 of department's paperbook) which clearly mentions that the accommodation entry operator involved in that case was also Shri Jaqdish Prasad Purohit who is involved in the present case also. Also some of the companies of Shri Purohit mentioned in para 4 of Hon'ble ITAT's order are common to the present case. 22. It may also be submitted that as info ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned AR further submitted that the assessee has not inflated its project cost as alleged by the AO in his order. In fact the AO has grossly erred in comparing the cost incurred by the assessee with the data available on the Internet which has no relevance. As per the learned AR, the capacity of the product acquired by the assessee were different with the product compared by the AO on the basis of the data obtained from the Internet. The learned AR in support of his contention drew our attention on the invoice issued by the supplier placed on pages 299 to 301 of the paper book. The learned AR also contended that the notices were issued to the suppliers vide letter dated 18 March 2013 whereas the assessment was completed under section 143(3) of the Act dated 28th of March 2013. Thus the notices were issued under section 133(6) of the Act at the fag end of the assessment. Thus no adverse inference can be drawn against the assessee due to non-response of the notices issued to the suppliers. 9.3 The learned AR further contended that the assessee has furnished all the relevant details of the parties which have subscribed the shares of the assessee at a premium. Thus the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of transaction and credit worthiness of the parties. These details of the parties are available on pages 16 to 161 of the paper book. Similarly, there is also no dispute to the fact that all the transactions were carried out through the banking channel. What is the inference that flows from a cumulative consideration of all the aforesaid contending facts is that the assessee has discharged its onus imposed under section 68 of the Act. The details filed by the assessee were cross verified by the Revenue from the respective parties and no infirmity was pointed out in the same except doubting the credit worthiness of the parties on the reasoning that these parties are earning lower income/ incurring the losses/ capital was insufficient for such investment. Accordingly the AO had a suspicion that the investors as discussed above were acting as the conduit for converting the unaccounted money of the assessee in the guise of share capital /share application money and premium on shares. Conversely the AO has not brought anything on record suggesting amount credited in the books of assessee does not belongs to respective parties but the same belongs to the assessee. Now we proceed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise. But no such evidences were brought on record. IV) It is also pertinent to note that the commission under section 131(1)(d) of the Act was issued upon the company SIL which submitted its report but there was no negative remark about the financial position of the company i.e. SIL. V) It is also important to note that the assessee besides the share capital of Rs. 17.85 crores has also received share application money for Rs. 13.95 crores from the company i.e. SIL, which is pending for allotment as on 31 March 2010 but there was no doubt raised by the revenue with respect to such share application money which is pending for the allotment. In other words the revenue has accepted part of the amount shown as share application money pending for allotment as correct with respect to the identity /creditworthiness of the party as well as genuineness of the transaction. To our mind, the AO erred in accepting part of the amount as genuine and at the same time doubting the genuineness for part of the amount as discussed above. 11.4 Kalyan Sangam Infratech Limited (for short KSIL)- Share application money of Rs. 2 crores I) On perusal of the balance sheet of KSIL, placed on pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VPL has made investment in various other companies in the year under consideration as well as in the earlier assessment year which can be verified from the financial statement of the company. Thus, it is not the case that the entire capital of the SVPL was invested in the shares of the assessee company. II) It was also noticed that the assessee received a sum of Rs. 85 lacs in the earlier assessment year from SVPL which was accepted by the revenue. In other words there was no doubt raised by the revenue of whatsoever in the earlier assessment year for the amount of Rs. 85 lacs received by the assessee from SVPL. Thus a question arises whether the creditworthiness can be doubted in the year under consideration towards the amount received by the assessee in the year in dispute. To our mind, the answer stands in negative. It is for the reason that once the revenue has accepted the creditworthiness of the company in the earlier year, the same cannot be disturbed in the subsequent year until and unless the corroborative evidences require otherwise. But no such evidences were brought on record. III) It is also pertinent to note that the commission under section 131(1)(d) of the Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l position of the firm was not doubted. The copy of the assessment order for the year under consideration is placed on pages 152 to 153 of the paper book. V) It was also noticed that the assessee received a sum of Rs. 5,14,53,717/- in the earlier assessment year from DRM which was accepted by the revenue. In other words there was no doubt raised by the revenue of whatsoever in the earlier assessment year for the amount of Rs. 5.14 crores received by the assessee. Thus a question arises whether the creditworthiness can be doubted in the year under consideration towards the amount received by the assessee in the year in dispute. To our mind, the answer stands in negative. It is for the reason that once the revenue has accepted the creditworthiness of the company in the earlier year, the same cannot be disturbed in the subsequent year until and unless the corroborative evidences require otherwise. But no such evidences were brought on record. VI) It is also important to note that the assessee besides the share capital of Rs. 9,00,00,000/- crores has also received share application money for Rs. 5.21 crores, which is pending for allotment as on 31 March 2010 from the firm i.e. DRM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at: a. Out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. b. With respect to the Kolkata companies, nobody appeared nor did they produce their bank statements to substantiate the alleged investments. c. Guwahati companies - Ispat Sheet Ltd. and Novelty Traders Ltd., were found non-existent at the given address. d. None of the investor-companies appeared before the A.O. 12.1 Based on the above it was held the by the Hon'ble Apex Court, that the Assessee-Company failed to discharge the onus required under Section 68 of the Act. Therefore, the Assessing Officer was justified in adding back the amounts to the Assessee's income. However in the case on hand, we find that the assessee has discharged its onus cast upon it under the provisions of section 68 of the Act which has been elaborated in the preceding paragraphs. 12.2 In our humble understanding, we also note that the decision in the case of NRA Iron & Steel (P.) Ltd. (supra) is based on facts. Thus such case will become binding on those cases having similar facts and circumstances and not other cases having different facts and circumstances. In this regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source. 22. In NRA Iron & Steel (P.) Ltd. (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either non-existent or lacked credit- worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case. 12.5 The next aspect that arises for our consideration whether the assessee company can issue the shares at a premium in view of the fact that it had not carried out any business activity in the year under consideration since its inception. On perusal of the profit and loss ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee we also note that it has shown reserve and surplus for the year ending 31st March 2009 at Rs. 25,12,448/- against the share capital of Rs. 1 lakh which was divided into 10,000 shares of Rs. 10 each. In other words the valuation of the shares of the assessee company as per its financial statement stands at Rs. 250/- approx. (Rs. 25,12,448/10000). Based on this information only, the intrinsic value of the share of the assessee company is much more than the value at which it has issued the shares at premium. Furthermore, we note that the shares has been issued by the assessee based on the techno economic feasibility report as discussed above. 12.10 Regarding the allegation of the Revenue that the assessee has inflated its project cost, we note that cost which has been shown by the assessee in its books of accounts has been compared with the data obtained by the AO from the different websites using the Internet. In our considered view, the basis adopted by the AO for the comparison between the project cost shown by the assessee with the market value was absurd. It is because the information which is available on the Internet cannot be relied blindly until and unless it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on hand. The learned DR further submitted that the matter of the assessee for the year under consideration against the search proceedings is pending before the learned CIT (A). Accordingly the learned DR contended that the matter on hand can also be restored to the file of the learned CIT (A) for fresh adjudication along with the search proceedings. However, we are not convinced with the argument of the learned DR for the reason that both the proceedings are separate and independent to each other. 12.14 The assessments in the search proceedings are special assessments to be carried out under the provisions of section 153A of the Act which begins with non-obstante clause. As a result of search, the proceedings under section 153A of the Act have already begun which are based on the search materials. Furthermore, the issue before us is arising against the assessment order framed under section 143(3) of the Act and we are not adjudicating the appeal/matter arising against the assessment framed under section 153A of the Act. It might be quite possible that search material has a bearing on the income to be determined for the year under consideration but for that purpose the proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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