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TMI Blog2021 (9) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... ized representative of the assessee, who had filed a written submission on 03.12.2007 raising certain factual issues and relying upon certain decisions. Those factual issues were considered and held to be not sustainable and the decisions, which were relied upon by the assessee, were also distinguished and in our considered view, are rightly so. - Decided against assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer by order dated 27.12.2007. 7. The Assessing Officer held that the enquiry with the past and the present directors would show that there was no transparency in the control and administration and even about the ownership of the company; that the share capital has been introduced in the company through two intermediary companies, which operated with the same pseudonymous address and there was no business activity in those companies; that the directors of the intermediary companies pleaded ignorance about the decision regarding the investment in the assessee company; that the sources of the shareholders, who made their investment in the assessee company through the intermediary companies were not properly explained; that the affairs of the two intermediary companies established the fact that those were only paper companies created with the sole intention to act as a conduit for facilitating transfer of funds; that the signatories to the agreement were between the assessee and another company, as per which, the shares of the assessee were to be allotted to the other company or its nominees in lieu of the alleged advance of ₹ 5.35 Crores, totally denied by stating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine the facts and circumstances of the entire issue to find out as to whether the amounts shown as representing the share application were genuine and also to ascertain the capacity of the share applicants. 13. Thus, the Assessing Officer held that if, on the facts and circumstances, the Assessing Officer came to the conclusion that the share capital of a company was in question, the Assessing Officer was at liberty to make an enquiry and if the enquiry proved that the transactions were not genuine, he could treat the amount as income of the assessee. 14. With regard the argument of the assessee that the share application money had been received by cheque/demand draft, the Assessing Officer relied upon the decision of the Gauhati High Court in the case of Nemi Chand Kothari Vs. CIT [reported in (2003) 264 ITR 254] and held that merely because the amounts were received by cheques, it could not make the transaction sacrosanct and that the assessee was bound to prove the identity of the creditors, the genuineness of the transactions, which they had with the creditors and the creditworthiness of their creditors vis-a-vis the transactions, which they had with the creditors and only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re application money through the intermediary companies by the shareholders, who could not properly explain their source. 20. Therefore, the Assessing Officer held that the provisions of Section 68 of the Act got attracted and that the share application money, which was not explained, had to be assessed in the hands of the assessee company. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Sumati Dayal Vs. CIT [reported in (1995) 214 ITR 801] wherein it was held that apparent could not be considered as real and that when there was no reason to believe that the apparent was not real, the Taxing Authorities were entitled to look into the surrounding circumstances to find out the reality and the matter had to be considered as per such a finding. Accordingly, the entire share application money amounting to ₹ 13,94,15,000/- was brought to tax by the assessment order dated 27.12.2007. 21. Aggrieved by such an order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-I, Chennai-34 [for brevity, the CIT(A)], who, by a very detailed and reasoned order dated 21.7.2008, dismissed the appeal by confirming the assessment order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin his right to probe the genuineness and source of the share application money received by the assessee during the year. The statements recorded from the persons had clearly established that the needle of suspicion inevitably and inexorably pointed to one particular person and since the suspicion was so overwhelming, the Assessing Officer had no other option except to trace the origin of funds, which got channelized into the assessee company through the corporate entities. Further, the CIT(A) pointed out that the Assessing Officer, while embarking upon such an enquiry, found that the share application money was primarily contributed by two companies and an aggregate sum of ₹ 3 Crores was found to be contributed by three Mumbai based companies. 26. During the course of enquiry, the Assessing Officer was able to establish that two persons, who were common directors in the two companies and who were alleged to have contributed, had no social standing or any financial capacity to bring in such amount of monies as share application monies. The statements revealed that those two persons acted as puppets under the instructions of a single person. It was also found that the two c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on money as such represented assessee's own undisclosed money brought back in the garb of share capital. 30. Unfortunately, the Tribunal did not take note of the elaborate exercise done by the Assessing Officer and the various statements, which have been recorded in a well reasoned order running to 44 pages. The Tribunal, in a single line, held that the Assessing Officer had not brought in any positive material or evidence. This finding is wholly erroneous and contrary to the facts, as the Assessing Officer clearly brought out as to how the so-called investors were either shell companies or without any financial capacity to bring in such monies for the purpose of investment and all fingers pointed to one individual. These facts were re-appreciated by the CIT(A), who had concurred with the Assessing Officer. 31. Section 68 of the Act states that 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, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of theas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions, which were relied upon by the assessee, were also distinguished and in our considered view, are rightly so. 37. The case of the Revenue stands substantiated and supported by the decision of the Delhi High Court in the case of PCIT Vs. NDR Promoters P. Ltd. [reported in (2019) 102 Taxmann.com 182] wherein it has been held that when the Assessing Officer made additions to the assessee's income under Section 68 of the Act in respect of the amounts received as share capital from several companies, which was, in fact, maintained by one person, the additions were held to be justified. The special leave petition filed against this decision was dismissed by the Hon'ble Supreme Court in the decision reported in NDR Promoters P. Ltd. Vs. PCIT [reported in (2019) 109 Taxmann.com 53]. 38. In the decision of this Court in the case of B.R.Petrochem P. Ltd. Vs. ITO, Ward I(1), Chennai [reported in (2017) 81 Taxmann.com 424], it was held that where assessee received share capital from various contributors, in view of fact that those contributors were persons of insignificant means and their creditworthiness to have made contributions had not been established, impugned addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said issue, the Hon'ble Supreme Court held that it is for the assessee to prove by cogent and credible evidence that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. After referring to several decisions, the principles, which emerged there from, were summed up in paragraph 11 of the judgment on the following terms:- "11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who has to prove the contrary. In the case on hand, we find that the initial onus, which has been cast on the assessee has not be discharged by them. Reference to a statutory form prescribed under the Companies Act is of little avail, as it does not reveal the PAN numbers of the alleged investors. 15.In the light of the above facts, we have no hesitation to conclude that the Tribunal erred in confirming the order passed by the CIT(A) by observing that merely because the share applicants are from Andhra Pradesh that cannot be a reason to disallow the claim of the assessee. The factual position being, the Assessing Officer did not do so, but disallowed the same on the ground that the assessee has not furnished any details, viz., the names and addresses of the persons, who paid the share capital advances, the cheque numbers, the name of the bank, PAN numbers etc. Thus, the order passed by the Tribunal calls for interference." 40. For the above reasons, we have no hesitation to hold that the impugned order passed by the Tribunal calls for interference. 41. In the result, the above tax case appeal is allowed, the impugned order passed by the Tribunal is set aside and the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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