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TMI Blog2022 (11) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... the books. Therefore, it is quite apparent that the respondent has discharged his onus of substantiating the identity, genuineness and creditworthiness of the investors. Appeal of the Department is dismissed. - ITA No. 140/NAG/2017 - - - Dated:- 28-6-2022 - SHRI SANDEEP GOSAIN, JM AND SHRI ARUN KHODPIA, AM Revenue by: Shri Vitthal M Bhosale (JCIT-DR) Assessee by: Shri Mahavir Atal, CA ORDER PER: SANDEEP GOSAIN, J.M. This is an appeal filed by the Department against the order of the ld. CIT(A)-2, Nagpur dated 12-10-2017 for the assessment year 2008-09 wherein the Department has raised the following grounds. 1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made by the AO on account of share application money received. 2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in ignoring that the assessee had not discharged the onus of proving the identity of creditor, the capacity of the persons advancing the money and the genuineness of the transaction regarding share application money. 2.1 Brief facts of the case are that the assessee - respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd M/s Suvidha Supplier Pvt ltd is false since the companies from whom the alleged share application money received are non-existent The AO also stated that as per the enquiries the 17 companies were not found on the given address and they are mere paper companies. On this premise he stated that the source of investment of the investor companies (M/s Gurudham Sales Pvt Ltd M/s Suvodha Supplier Pvt Ltd) are from investor companies and it was alleged that it was the assessee companies own money. The AO further stated that the 17 companies who have invested in above companies have no source to invest in the two aforementioned companies and therefore question of these two companies investing in the assessee s company is impossible. 2.4 The ld. AR appearing for the respondent drew our attention to the relevant extract of the assessment order to highlight the fact that, the AO issued notices under section 133(6) to both the investor companies and both the companies have duly complied with the directions in the notice and confirmed the transaction. This undisputed fact is stated in para 5 of the assessment order; 5 Confirmation of transactions were called for from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his report has further mentioned that the books of accounts of M/s Suvidha Suppliers Pvt. Ltd. Were examined wherein it is noticed that the company has made investment in shares with M/s Saral Metallurgical Pvt. Ltd. for Rs. 50,00,000/-. The ITO (Inv.), Kolkata in his report has further mentioned that Shri Anil Kumar Chaudhary, one of the Directors of both the companies appeared and made necessary submissions and his deposition was recorded on oath. Shri Chaudhary in his deposition made has furnished a list of 17 companies in support of his claim as source of funds for investing in shares of M/s Saral Metallurgical Pvt. Ltd. The ITO (Inv.), Kolkata in his report has also mentioned that Departmental Inspector Shri Parimal Kumar Modak was deputed to enquire the existence of the above concerns on test check basis. Shri Modak made the necessary enquiries. None of the concerns existed at their given address. The ld. CIT(A) during the assessment proceedings has also called for assessment records as mentioned on page 27 of the CIT(A) order wherein, the ld. CIT(A) had observed the fact that all the relevant details with respect to the transaction such as bank statements, confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies (ROC) records of both the investor companies filed by the appellant during the assessment as well as appellate proceedings reveal that both the investor companies have made investment with the appellant company. Therefore, the inference drawn by the ld. AO that since these 17 companies are non-existent, the two investor companies which have invested with the appellant company are also non-existence does not carry any substance in the absence of any corroborative adverse material in hand. (Page 30 of the CIT(A) order) The Investigation Wing, Kolkata has also examined the books of accounts of the two investor companies and has not found any infirmity. The fact finding to that effect has been culled out by the ld. CIT(A) in the Appellate order. The relevant extract of the order is reproduced below. 5.3 The ITO (Inv.), Kolkata has examined the books of account of both the investor companies, namely; M/s Sri Gurudham Sales Pvt. Ltd. and M/s Suvidha Suppliers Pvt. Ltd. As is obvious from his impugned report itself, the relevant paras of which have been reproduced in para-5.2 above. The ITO (Inv.)-2, Kolkata has not pointed out any sort of the infirmity with the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not permissible under the law. Once the appellant company has explained the source of investment in its share capital, it should no more be required to explain the source of the source; when the investor companies have independently explained the same to the ITO (Inv.)-2, Kolkata as well as before the AO (Page 34 of the CIT(A) order) 2.5 We have heard both the parties and perused the materials available on record. In this case the undisputed fact is that all the investor companies have confirmed the transactions and even the key persons of the investor company have confirmed the transaction. The AO has accepted the genuineness, identity and creditworthiness of the investor but considered the transaction as unexplained since the assessee failed to explain source of source of investment. The impugned Assessment Year is A.Y. 2008-09 and it is related to the period prior to the amendment made by the Finance Act, 2012 in section 68. For sake of completeness, the bare text of section 68 is reproduced below. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts of assessee and investor companies were available with the assessee and the AO has not found any infirmity in the books. Therefore, it is quite apparent that the respondent has discharged his onus of substantiating the identity, genuineness and creditworthiness of the investors. At this juncture, it is worthwhile to refer to the judgment of the Jurisdictional Bombay High court's decision in case of Apeak Infotech vs PCIT 88 taxmann.com 695 (2017). In this case it was held by the Hon ble Bombay High Court that the receipt of Share capital and share premium is capital receipt and cannot be considered as income in the hands of the assessee. The relevant para of the order is extracted below (a) We find that the impugned order of the Tribunal upheld the view of the Commissioner of Income-tax (Appeals) to hold that share premium is capital receipt and therefore, cannot be taxed as income. This conclusion was reached by the impugned order following the decision of this court in Vodafone India Services (P.) Ltd. (supra) and of the apex court in G. S. Homes and Hotel (P.) Ltd. (supra). In both the above cases the court has held that the amount received on issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the preamended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained. With regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was cast on the assessee in the impugned assessment year to produce the persons or the books from the investment companies. The requirements of enquiry and obtaining explanation from the person making the investment in these circumstances have been brought into the statute books by amendment to section 68 of the Act. These have been clearly held in the above case laws to be prospective as they were effective only from 01.04.2013. Admittedly, the present assessment year being assessment year 2010-11, the Assessing Officer was not justified The another important judgment is that of the Jurisdictional Bombay High court's decision in case of CIT vs Orchid Industries (P) Ltd IT appeal no. 1433 of 2015.The Jurisdictional Bombay High Court decided that where assessee had produced on record documents to establish genuineness of party such as PAN of all creditors along with confirmation, their bank statements showing payment of share application money, only because those persons had not appeared before Assessing Officer would not negate case of assessee so as to invoke section 68. The relevant para of the order is reproduced under;. 6. The Tribunal has considered that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities. The Commissioner (Appeals) concluded that assessee has furnished adequate documents to prove the identity, genuineness and creditworthiness of the share applicants. After justifying the share premium charged by the assessee, the Commissioner (Appeals) observed that addition under section 68 cannot be made of share premium money since such is a receipt on capital account and is not of revenue nature. The detailed finding so recorded by the Commissioner (Appeals) are as per material on record. We further found that the provisions of section 56(2) (viib) inserted by the Finance Act, 2012 had been made applicable from the assessment year 2013-14 and does not apply to the year under consideration i.e., for the assessment year 2012-13. Our this view is supported by the decision of Income Tax Appellate Tribunal in the cases of Gagandeep Infrastructure (P) Ltd. ITA No. 5784/Mum/2011 and Green Infra Ltd. v. ITO 38 Taxman 253 (Mum-ITAT) wherein it is held that it is the prerogative of the board of directors of the company to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium. 12. We found that the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack unserved in five cases. In the meanwhile, the Assessing Officer managed to get hold of the bank statements of the shareholders, who had allegedly made deposits by way of cheques and pay orders. It was found that huge cash deposits in lakhs were being regularly deposited in the said accounts and then pay orders/cheques were issued to the assessee. These companies were under control of one M and his group, who were operating various accounts. The Assessing Officer, accordingly, made addition under section 68. In a case before Hon ble Delhi High Court, the assessee was non compliant. The investor companies have not responded to the notices. There is a clear fact finding that in case of the investors cash was first deposited in the bank account and then the amounts were transferred to the assessee. However, in the case of the assessee company, it is undisputed fact that both the investor companies have confirmed the transactions. The statement of key persons were recorded and they also confirmed the transaction. The source of the investment is not doubted by the AO, but the source of source of investment was doubted.The respondent has submitted plethora of judgments of Jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned DR is that of the Madras High Court in the case of CIT Vs Midas Golden Distilleries Pvt Ltd (2021) 130 taxmann.com 206 (Mad). The peculiar facts of this case is that the assessee is a private limited company engaged in the business of manufacture of Indian Made Foreign Liquor (IMFL). A search was conducted under section 132 of the Act in the business premises and the factory and the residential premises of the directors of the assessee. 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 establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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