9911796707
TMI Blog2022 (1) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... ny. The evidences filed by the assessee clearly satisfy the condition prescribed u/s.68 of the Act. The assessee not only proved identity, but also established credit worthiness of the parties which is evident from the fact that all subscriber companies financial statement shows source of income to explain investments made in Assessee Company which is further supported from the fact that all transfer of funds was through proper bank accounts. It is a well established legal principle of law by the decisions of various courts including the Hon ble Supreme Court in the case of CIT vs. Stellar Investments Pvt. Ltd[ 1991 (4) TMI 100 - DELHI HIGH COURT ] where it was clearly held that once alleged bogus shareholders details are provided to the AO then the AO is free to proceed to reopen the assessments of alleged bogus shareholders but sum received by the assessee cannot be treated as unexplained credit u/s.68 of the Act. In this case, although the assessee has filed various details, but the AO disregarded all evidences filed by the assessee and has made additions solely on the basis of investigation report without confronting those reports and statements recorded from those individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose witnesses were made the basis of the impugned order is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. In this case, the Director of assessee Company Shri Pankaj Agarwal, in his statement recorded during the course of assessment proceedings, has categorically denied that he does not know any persons, whose statements were relied upon by the AO and further stated before the AO that he wants to cross examine those persons whose statements is basis for the addition. However, the AO neither made available copy of statements nor allowed director of the assessee Company to avail cross examination of those witnesses. In our considered view, this a clear case of violation of principles of natural justice in view of the decisions of Andaman Timber Industries Ltd [ 2015 (10) TMI 442 - SUPREME COURT ] and thus, on this count alone the additions made by the AO cannot be sustained. Even though there were circumstances leading to suspicion, yet having taken an action u/s.132 and enquiries made in the assessment proceedings, the assessing authority had not brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciated that from the enquiry conducted at Kolkata and the documentary evidence brought on record by the Assessing Officer during the assessment proceedings clearly showed that the alleged share holders were only paper companies whose credit worthiness and the genuineness of the transactions were not established by the assessee. 2.2 Having regard to the documentary evidences gathered during the assessment proceedings indicating that the alleged shareholder companies were only paper companies having no credit worthiness, the ld. CIT(A) is justified in allowing relief to the assessee solely on the ground that the transactions were carried out through banking channels. 2.3 The Ld. CIT(A) ought to have appreciated that mere production of documents such as PAN, Income Tax assessment particulars, financial statements and Annual returns filed before ROC is not sufficient to establish credit worthiness and genuineness of the transactions under consideration when surrounding and attending facts which were brought on record indicated a cover up and that the documents produced by the assessee at best reflect proper paper work and documentation but genuineness and credit worthiness a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has raised the following grounds of appeal in ITA No.1788/CHNY/2017:- 1. The order of the Commissioner of Income Tax (Appeals) 19, Chennai dated 22.05.2017 in I.T.A. No.204/2016-17 for the above mentioned assessment year is contrary to law, facts, and in the circumstances of the case. 2. The CIT(Appeals) erred in not considering the grounds challenging the validity of the search assessment framed for the Assessment year under consideration without assigning proper reasons and justification and ought to have appreciated that the search assessment under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 3. The CIT(Appeals) erred in partly sustaining the share capital/premium received as unexplained cash credit in so far as the five companies had tabulated in para 28 of the impugned order on the application of section 68 of the Act and consequently erred in sustaining the addition aggregating to ₹ 4,85,99,568/- in the computation of taxable total income without assigning proper reasons and justification. 4. The CIT(Appeals) failed to appreciate that the provisions of section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received Share premium received 2007-08 22,00,000 2,20,00,000 8,80,00,000 2008-09 23,84,000 2,38,40,000 19,52,10,000 2009-10 20,44,000 2,04,40,000 18,39,60,000 2010-11 20,85,000 2,08,50,000 18,76,50,000 2011-12 68,75,600 6,87,56,000 41,41,20,000 2012-13 1,32,04,425 13,20,44,250 1,40,67,98,250 2013-14 83,38,729 8,33,87,290 1,77,36,37,554 5. During the course of assessment proceedings, the AO noticed that the assessee has received share capital from various subscribers including 5 foreign Companies situated in United Arab Emirates (UAE), companies based at Kolkata and other individuals being family members of assessee-company. Insofar as, share capital received from foreign companies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled upon the assessee to furnish details / evidences and to produce the directors of companies invested in share capital including share premium in the assessee company to prove genuine identity of subscribers, genuineness of transaction and credit worthiness of the parties. 6. In response to show cause notice, the assessee had filed detailed written submission on 27.03.2015 and claimed that share capital received from various companies in India and Abroad and from individuals is genuine which is supported by necessary evidences including identity of subscribers to the share capital, genuineness of transaction and their credit worthiness. The assessee further submitted that it has filed details of names, addresses, PAN of the share applicants and amount received allotments made to them along with their company master data as available on Ministry of Corporate Affairs website, certificate of incorporation of share subscribers, Memorandum and Articles of Association, ITR acknowledgement copy filed for the relevant assessment year, audited financial statements, copy of relevant bank statements and confirmation letters from share applicants along with source of funds for investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors of the investor companies is ample proof that the assessee company has indulged in routing its unaccounted money through different channels and layers provided by the accommodation entry operators with the help of employees, who act as dummy directors of Jama kharchi/shell/paper companies. The AO had discussed the issue at length in light of statements of Shri Jogendra Pradhan, director of certain companies and Shri Navneet Singhania, purported entry provider in light of financial statement of investor companies and their bank statements, came to the conclusion that share capital including share premium received from certain companies is an accommodation entry for converting the assessee s unaccounted income into share capital. According to the AO, the investor company bank statement reveals fact that they have deposited cheque or other transfer entries before transferring funds to beneficiary accounts leaving behind minimum balance, which clearly shows their inability to establish source for investment in assesseecompany. The AO had also discussed financial strength of investor companies, more particularly M/s. Umra Properties Finance Pvt. Ltd., and M/s. Sourabh Venture Capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee failed to produce the Directors of Jama Kharchi / Shell /paper Companies who had invested in the form of share capital premium even after ample time was given, shows that these were people who were completely unrelated to the assessee and as such, all the entries were merely accommodation entries. f. The equity shares of the company have been allotted at a very high premium upto ₹ 90 per share, only on the basis of Discounted Cash Flow Method and no other report has been filed to substantiate the basis for fixing such a high price for the equity shares of a private limited company. g. The assessee company, being a private limited company has received ₹ 12,86,92,720/- of share premium and ₹ 3,21,73,180/- of share capital, during the year from persons / entries other than Directors and their family members. Out of this, ₹ 12,86,92,720/- is received as share premium from entities based at Kolkata. It is pertinent to note that the assessee company had not placed any advertisement for issuance of share capital. A substantial portion of share capital premium has been received from parties, totally unrelated to the assessee company or its dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred individual(accommodation entry operator) with a set of employees(name lenders) acting as dummy directors, who signed on the dotted lines for a meager remuneration and are in no way connected to the actual control and management of the affairs of the company. 8. Further extracts of section 66 is reproduced as under Cash credits. 68. 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 the assessee of that previous year:... . It is seen that the word/phrase any sum credited in the books of assessee maintained for any previous year. The expression any sum credited has not been specifically defined in the provision. Thus, it would extend to all the amounts credited in the books of account. Any sum credited in the books of account, either find its place either on the income side of profit and loss account or in the liability side of the balance sheet. Items credited to the profit and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of closely held company, the explanation given by such company shall be deemed to be not satisfactory, unless the resident shareholder offers an explanation about the nature and source of such sum so credited and such explanation found to be satisfactory by the Assessing Office. The essence of this amendment is that a closely held company is required to satisfy The Assessing Officer about the share capital etc. Issued by it, in the absence of which, addition under section 68 can be made in the hands of the company. Therefore, the amendment to section 68 by insertion of proviso is clarifictory and hence retrospective. The assessee s case is clearly covered by this proviso. Hence, it is concluded that ₹ 11,00,00,000/- is the unexplained credit recorded in the books of assessee, and is deemed to be not explained satisfactorily and is brought to tax u/s 68 of the Income tax Act. 8. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the ld. CIT(A), the assessee has reiterated its arguments taken before the AO in light of certain judicial precedents. The sum and substance of arguments taken by the assessee before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d additions made by the AO towards share capital and share premium received from certain companies by holding that the assessee has discharged its onus by filing enormous evidences to prove identity, genuineness of transactions and credit worthiness of the parties. The ld.CIT (A) further observed that the assessee has been able to establish the identity of the companies investing in the share capital of the assessee company. The CIT (A) further observed that the share subscribers have continued to hold the shares till the day and have claimed the investment in share capital of Assessee Company in their respective balance sheets. The Department has assessed some of investor companies in their jurisdiction and had made addition towards investment made in Assessee Company as unexplained investment. The assessee company directors have been directors in some of the investor companies and they are very much available for any examination by the AO. The AO had accepted investment received from foreign companies as genuine after considering the report of foreign tax division. Therefore, he opined that the assessee has satisfactorily discharged its onus of providing identity, genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e genuineness of transactions were not established, there was no question of shifting burden u/s.68 on revenue and that the addition of unsecured loans to income of assessee was justified. In the case of M/s. Nova Promoters and Finlease Pvt. Ltd. (18 Taxmann.com 217), the Hon ble Delhi High Court has held that no addition u/s.68 can be made unless the AO verifies that there was a specific involvement of assessee company in the modus operandi followed by the entry providers and that the particulars of entry providers is wrong. Further in the case of M/s.NR Portfolios Pvt Ltd. (ITA No.134 of 2012), the Hon ble Delhi High Court has held that the assessee was duty bound to provide the whereabouts of the share applicants and if the said whereabouts become unverifiable, the onus shifts back to the assessee. In the case of M/s. Vaibhav Cotton Pvt. Ltd (26 Taxmann.com 352) the Hon ble Indore Bench ITAT, has held that the stand of the AO in taking a view that the share transactions were not genuine is correct when the money was routed by the said investors and cash was deposited immediately prior to issue of cheques to the assessee and accounts of those companies were closed immediately aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta and the documentary evidences brought on record by the AO clearly showed that alleged shareholders were only paper companies whose credit worthiness and genuineness of transactions were not established by the assessee. The ld.DR further submitted that if you go by evidences filed by the assessee, there is no doubt it has to be accepted that the assessee had discharged its onus of identifying the subscribers of share capital, but what is to be seen in light of various reasons given by the AO and in light of investigation carried out by the Income Tax Department at Kolkata, is that One has to see the issue in light of principles of corporate-veil to ascertain correct facts. If you lift corporate veil, then the real modus operandi of entry providers through web of companies comes out. In this case, the AO has lifted corporate veil to ascertain correct facts with regard to modus operandi of entry providers, as per which entry providers created various layers of companies through their employees and related parties and has circulated cash given by beneficiaries through bank accounts of those companies and ultimately, transferred the proceeds to beneficiary account in the form of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfactorily established by the assessee company. The sum and substance of ratio laid down by above judgments are that mere furnishing of certain documentary evidences to prove identity, genuineness of transactions and credit worthiness is not sufficient enough to come out of the shadow of provisions of Section 68 of the Act. But, what is required to be proved is genuine identity of subscriber of share capital, genuineness of transaction and capacity of subscriber to establish source for investment. In this case, the AO has brought out various facts to dispel the arguments of the assessee in light of their financial statements as per which none of the subscriber companies have sufficient source of income to establish capacity for huge investments made in Assessee Company. The ld.CIT (A) without appreciating these facts simply deleted additions made by the AO. Hence, his order should be reversed and additions made by the AO should be sustained. 11. The ld.AR for the assessee on the other hand supporting order of the ld. CIT(A) submitted that the ld.CIT(A) has appraised facts in light of various evidences filed by the assessee including identity of the subscriber, genuineness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the AO is free to proceed to reopen the assessments of alleged bogus shareholders but sum received by the assessee cannot be treated as unexplained credit u/s.68 of the Act. In this case, although the assessee has filed various details but the AO disregarded all evidences filed by the assessee and has made additions solely on the basis of investigation report that to without confronting those reports and statements recorded from those individuals to the assessee for its rebuttal and thus, the ld. CIT(A) has rightly deleted addition. 11.1 The ld.AR for the assessee further referring to three charts filed during the course of hearing submitted that the first chart shows companies with common management which has established source for deposits as per which 4 companies from whom assessee has received share capital did not find place in the investigation report. Therefore, amount received from these companies cannot be considered as unexplained cash credit only on the basis of investigation report of Income Tax Department. Further, in two companies namely M/s. Umra Properties Finance Pvt. Ltd., and M/s. Josan Deposits and Advances Ltd., the director of Assessee Company is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds share capital including share premium u/s.68 of the Act. 11.2 The ld.AR for the assessee further referring to paper-book filed by the assessee submitted that the assessee has received major portion of share capital from M/s. Josan Deposit and Advances Pvt. Ltd., a company based at Kolkata. The AO of M/s. Josan Deposit and Advances Pvt. Ltd., has assessed the investment made by the company in the share capital of the assessee company as unexplained investment. M/s. Josan Deposit and Advances Pvt. Ltd., has challenged the assessment order before the appellate authorities. The ITAT, Kolkata Benches in ITA No.2096/KOL/2017 for assessment year 2008-09 has considered additions made by the AO u/s.68 of the Act and held that the assessee is a genuine company and not an entry provider and further, deleted additions made by the AO towards unexplained cash credit u/s.68 of the Act. Similarly, the AO has made additions towards share capital received from M/s. Kaner Investment Ltd., and M/s. Kaner Investment Ltd., has challenged the additions made by the AO. The ITAT, Kolkata Benches in ITA No.2095/KOL/2017 has deleted additions made by the AO. From the above, what is clear is that those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata has conducted an enquiry on various companies operating in Kolkata which are involved in providing accommodation entries to various beneficiaries. As per said investigation report, during the course of inspection conducted by the Income Tax Department, it was noticed that certain individuals have floated number of companies with a dummy directors so as to facilitate accommodation entries of share capital to various beneficiaries. The AO had discussed the issue at length in light of investigation report of Income Tax Department Kolkata, statements of Shri. Jogendra Pradhan, director of certain companies and Shri. Navneet Singhania, purported entry provider and also analysed financial statement of investor companies and their bank statements to come to the conclusion that share capital including share premium received from certain companies is an accommodation entry for converting the assessee unaccounted income into share capital. According to the AO, the investor companies bank statements reveals modus operandi of entry providers, as per which, they have deposited cheque or other transfer entries before transferring funds to beneficiary accounts leaving behind minimum balance, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Assessing Officer. Such proof includes proof of the identity of the creditor, the capacity of such creditor to advance the money and lastly, the genuineness of the transaction. Only when the assessee has proper evidence to establish prima facie the aforesaid facts, the onus shifts on to the Department. Once the source of the credit, the genuineness of the remittance and the identity of the sender are established, it would be for the Department to show that the amount in question is not a loan but constitutes income assessable to tax. In such a case the Departmental authorities are entitled to probe further into the matter and investigate the materials available to them to come to an independent and unbiased finding as to the genuineness of the transaction though they should not reject the assessee's explanation summarily or arbitrarily or without sufficient reason. The duty of the Assessing Officer is to examine all materials carefully and objectively. Therefore, from above discussion what is clear is that as per the provisions of section 68 of the Act, both parties shall discharge their onus one after the other. 14. The question whether such onus has been duly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven to the AO, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income u/s.68 of the assessee company. Therefore, from the above discussion what is clear is that the assessee shall first discharge its onus by filing necessary evidences and once, the assessee files all details, then it is for the AO to disprove what is claimed is not real and sum credited in the books is income from undisclosed sources of the assessee. 15. In light of above settled legal position, if we examine facts of present case, there is no doubt, the assessee has discharged burden cast upon it under section 68 of the Income-tax Act, 1961 in respect of share capital received from share capital subscribers. The AO has not disputed the fact that the assessee has furnished various evidences to prove identity of the subscribers. The assessee has filed name and address of subscribers, their PAN numbers, details of amount received and allotment made to them, return of allotment filed with Registrar of companies, company master data as available on website of Ministry of Corporate Affairs, Certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly ignored genuine documents produced before him and passed the Assessment Order on a sweeping statement without any material evidence or fact on record. The AO has merely stated modus operandi of how, the transaction took place without considering the facts of the present case. He had instead passed a general statement on the lines of suspicion and surmises without any vital material evidence against the Assessee. From the above, it is very clear that the observations of the AO in his assessment order on the basis of report of investigation wing, Kolkata is a general observation of modus operandi of certain parties who are involved in alleged activity of entry providing, but it cannot be a conclusive evidence to draw an adverse inference against the assessee of having benefited from so called alleged hawala activity. No doubt, an alleged scam may have taken place, but, it has to be seen whether the assessee is part of an alleged activity and he had any direct or indirect role in alleged scam. Unless, evidences in the possession of the AO directly or indirectly linked to the assessee, it is difficult to implicate the assessee in the alleged scam. This is because, suspicion however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is a serious flaw, which makes the order nullity in, as much as, it amount to violation of principle of natural justice, because of which, the assessee was adversely affected. In this case, the Director of assessee Company Shri Pankaj Agarwal, in his statement recorded during the course of assessment proceedings, has categorically denied that he does not know any persons, whose statements were relied upon by the AO and further stated before the AO that he wants to cross examine those persons whose statements is basis for the addition. However, the AO neither made available copy of statements nor allowed director of the assessee Company to avail cross examination of those witnesses. In our considered view, this a clear case of violation of principles of natural justice in view of the decisions of Hon ble Supreme Court discussed hereinabove and thus, on this count alone the additions made by the AO cannot be sustained. 18. Be that as it may. Let us come to reason given by the AO to treat share capital as unexplained cash credit u/s 68 of the Act. The AO had given various reasons to draw adverse inference against the assessee. According to the AO, when notices issued u/s 133(6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of the parties, then there is no reason for the AO to came to the conclusion that share capital and share premium received from alleged shareholders is unexplained cash credit. 19. In this case, one more important fact which dismisses the allegation of the Assessing Officer is three charts submitted by the ld. AR during the course of hearing explaining the amount of share capital received from certain Companies. The first chart shows companies with common management which has established source for deposits. As per said chart four companies from whom assessee had received share capital did not find place in the investigation report, nor did the AO gives any findings in his order that those Companies are part of group of companies which involved in providing accommodation entries. Therefore, share capital received from those four companies cannot be considered as unexplained cash credit only on the basis of investigation report of Income Tax Department. Further, in the said list, in two companies namely M/s. Umra Properties Finance Pvt. Ltd., and M/s. Josan Deposits and Advances Ltd., the director of Assessee Company Shri. Pankaj Agarwal is also one of the directors. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit u/s.68 of the Act. Similarly, the AO of M/s. Kaner Investment Ltd., has made additions towards share capital invested in assessee Company and M/s. Kaner Investment Ltd., has challenged the additions made by the AO. The ITAT, Kolkata Benches in ITA No.2095/KOL/2017 has deleted additions made by the AO. From the above, it is very clear that the assessee had furnished all records to prove identity, genuineness of transaction and credit worthiness of the parties. Therefore, on the basis investigation report alone, no addition could be made, more particularly when the assessee has filed all evidences. 21. Having said so, let us come to another observation of the AO with regard to invoking proviso to section 68 of the Act. The AO had invoked proviso, to section 68 and observed that the assessee had not proved source of source in the hands of shareholders. The Proviso inserted by the Finance Act, 2012 w.e.f 01-04-2013 deals with the case where the assessee is a company (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium, or such amount by whatever name called and any explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and no other report has been filed to substantiate the basis for fixing such a high price for the equity shares of a private limited company. We have carefully considered reason given by the AO and we ourselves do not subscribe to reasons given by the AO for simple reason that, first up all the AO is not examining the issue of excess share premium charged by the assessee in light of provisions of section 56(2)(viib) of the Act. Therefore, while examining any credit in light of provisions of section 68 of the Act, the whole share application money needs to be considered, irrespective of amount of premium charged by the assessee. Secondly, the provisions section 56(2)(viib) inserted by the Finance Act, 2012 w.e.f 10.04.2013, is applicable from A.Y. 2013-14 onwards. In fact, a similar amendment has been made to section 68 by insertion of a proviso by the Finance At 2012 w.e.f. 01.04.2013 and said amendment held to be prospective by the Hon ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no question of law arose from the Tribunal Order. The High Court also observed that it was evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, could the amount of share capital be regarded as undisclosed income of the assessee. It held that it might be that there were some bogus shareholders in whose names shared had been issued and the money might have been provided by some other persons and if the assessment of the persons who were alleged to have really advanced the money was sought to be reopened, that would have made sense but there was no reason why this amount of increased share capital could be assessed in the hands of the company itself. On appeal to the Supreme Court, the SC was in agreement with the High Court. Plainly, the Tribunal came to a conclusion on facts and on interference was called for . 23.3. The Hon ble Madras High Court has also considered this issue on many occasions. In the case of M/s. Electro Polychem Ltd. (2007) 294 ITR 661(Mad-), the Hon ble Madras High Court has held as under: The assessee filed its returns for the AYrs 1998-99 and 1999-2000. The AO ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their investment. Thus, the assessee has categorically established the nature and source of the said sum and discharged the onus that lies on it in terms of Section 68 of the Act. When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income. Therefore, the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted. That apart, a reading of the decision of the Supreme Court in Lovely Exports (P) Ltd. case, referred supra, makes it clear that the department has a right to reopen the individual assessment if the allegation of bogus shareholding is proved. This is not a case of investment by bogus shareholders. The four limited companies have made investment and that is borne out by records. The Commissioner of Income Tax (Appeals) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessee has explained in no uncertain terms the nature and source of the income. We find that the decision of the Delhi High Court in Sophia Finance Ltd., referred supra, does not get attracted to the facts of the present case, as rightly held by the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted. Moreover, since the share applicants in all these cases are one and the same and they have confirmed the transactions, it cannot be treated as the unexplained investment of the managing directors of the company and on that score, no addition can be made in the hands of the managing directors. The CIT(A) and the Tribunal, on facts, have found that the transaction in this case is beyond the pale of controversy and the assessees have explained in no uncertain terms the nature and source of the income. We find no reason to differ with the said findings of the Commissioner of Income Tax (Appeals) and the Tribunal, based on facts. 23.6. Similar issue has been considered by the Hon ble Delhi High Court. In the case of M/ s.Value Capital Services Pvt Ltd.(2008)307 ITR 334. The gist of said decision is as under: The assessee had received an amount of ₹ 51 lakhs as share application money from 33 persons. The AO required the assessee to produce all these persons. It appeared that some of them did appear. The AO accepted the explanation and the statement given by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es drawn by the CIT (A) are not only factual but facially accurate. Having regards to these circumstances, no question of law, least a substantial question arose. 23.8 In a recent decision, the Hon,ble High Court of Bombay in the case of M/s. Gagandeep Infrastructure Pvt Ltd.(2017) 394 ITR 680, has held that the share capital and share premium received by the assessee company from alleged bogus share holders is liable to be taxed in the hands of the said share folders by the revenue. The order of the Hon ble High Court is as under: We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. The assessee had also produced the entire record regarding issuance of shares, i.e., allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance-sheet and profit and loss account of those persons disclosed that they had sufficient funds in their accounts for investing in the shares of the assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the assessee. Therefore, the addition was liable to be deleted. 23.10 The ITAT., Nagpur Bench in the case of ACIT Vs. Swiftsol (I) Pvt.Ltd. (2018) 171 ITD 577 (Nag) had considered an identical issue of additions made towards share capital u/s.68 of the Income Tax Act, 1961, and after considering relevant submissions held that merely because the assessee failed to produce directors of investing company personally for confirmation, amount in question could not be ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority himself had found that both these applicants in their respective accounts had disclosed investment made with the assessee. However, the share application money was treated as cash credits and added to the assessee s income. Held that dispute all the material available with the assessing authority and discreet enquiries as were made within the scope of his powers, the assessing authority found that there remained a mystery as to whom the money really belonged. Even though there were circumstances leading to suspicion, yet having taken an action u/s.132 and enquiries made in the assessment proceedings, the assessing authority had not brought any positive material or evidence to indicate that the share application money as such represented assessee s own undisclosed money brought back in the garb of share capital. Merely because of his subjective satisfaction that the source of availability of money with the shareholder or their creditworthiness were not established, the AO could not treat the genuinely raised share capital as deemed income u/s.68. In the even the intermediary companies were to be taken as conduits or persons without requisite creditworthiness and eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Revenue, the fact of the matter is that this issue has been considered by the Hon ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd (supra), where the issue has been thoroughly examined in light of provisions of section 68 of the Act, and held that if the share application money is received by the assessee company from alleged bogus share holders, whose names are given to the AO, then the department is free to proceed to reopen their assessment in accordance with law, but sum received from share holders cannot be regarded as undisclosed income of the assessee. 26. In this view of the matter and considering the facts and circumstances of this case and also taking into consideration various case laws as discussed hereinabove, we are of the considered view that the assessee, by filing enormous details, has discharged its initial onus to prove identity, genuineness of transactions and creditworthiness of the shareholders. The AO, without carrying out further inquiries in order to ascertain the claim of the assessee, jumped into conclusion on the basis of report of Investigation wing, and financial statements of the subscribers that none of the subscribers had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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