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TMI Blog2022 (11) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... nishing all the evidences which unequivocally proved all these three ingredients of Section 68 of the Act. Besides the issue of shares at a high premium is a management decision taken by the Board and there is no bar in the instant assessment year to issue shares at a high premium. We are also aware of the fact that the Clause (viib) to Section 56(2) of the Act was brought by Finance Act, 2012. CIT(A) has discussed the individual details of each investor and recorded a finding that how the three ingredients of section 68 of the Act were satisfied on the strength of evidences filed by the assessee as well as by the investors. Considering these facts, we are of the view that the assessee has proved identity and creditworthiness of the shareholders and also the genuineness of the transactions. Therefore, we do not find any infirmity in the order of Ld. CIT(A) who has passed a very reasoned order by following various decisions as discussed therein and therefore we uphold the same by dismissing the appeal of the revenue. - I.T.A. No. 232/Kol/2021 - - - Dated:- 10-11-2022 - Shri Rajesh Kumar, Accountant Member And Shri Sonjoy Sarma, Judicial Member For the Appellant : Shri A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged before the Tribunal. 6. In the set aside assessment proceedings, the AO issued notice u/s 142(1) of the Act dated 22.05.2014 calling upon the assessee to furnish details/evidences in respect of share subscription money received during the year. The assessee complied with the said notice by furnishing the details in respect of 15 share applicants comprising the details of shares allotted along with names and addresses of the allottees, copies of ITRs, confirmations from the investors, payments having been received by cheques and bank accounts of investors. The AO in order to independently verify these transactions has issued notices u/s 133(6) of the Act to all the 15 share applicants out of whom only 8 shareholders responded to the said notices and the remaining 7 was returned unserved. Thereafter the assessee again furnished the correct addresses of the share applicants and notices u/s 133(6) of the Act were duly served and were duly responded by the shareholders. The share applicants proved the source of investment and even source of source was proved with documentary evidences. The AO also issued summons to the directors of the assessee company and in compliance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital raised by the appellant during the relevant year. The Ld. CIT accordingly set aside the assessment to be framed de-novo with the following directions: (i) Examine the genuineness and sources of share capital, not on a test check basis, but in respect of each and every shareholder by conducting independent enquiry not through the assessee. The bank account for the entire period should be examined in the course of verification to find out the money trail of the share capital. (ii) Further, the AO should examine the directors as well as examine the circumstances which necessitated the change in directorship if applicable. He should examine them on oath to verify their credentials as director and reach a logical conclusion regarding the controlling interest. (iii) the AO is directed to examine the source of realization from the liquidation of assets shown in the balance sheet after the change of Directors, if any. ) 5.2 From the assessment order, I find that the Ld. AO had conducted enquiries in accordance with the directions issued by the Ld. CIT. The AO had made independent enquiries from each and every shareholder under Section 133(6) of the Act The ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see also proves that there was genuine issuance of shares as per the provisions of the Companies Act, 1956 then the assessee is not required to prove anything more. 5.5 In the appellant's case it is noted that all fifteen share subscribers in respect of whom addition u/s 68 was made were corporate assesses. The assesseeshad furnished the complete corporate information regarding these fifteen share subscribers. Based on the information gathered from the appellant, the AO made independent enquiries u/s 133(6) from each and every shareholder. On perusal of the contents of the notice issued u/s 133(6) to these fifteen shareholders, it is noted that the AO had called for the following information / details to verify their identity, creditworthiness and the genuineness of the transactions. 1. Nature purpose of transaction and copy of the ledger accounts of the above mentioned assessee as it appears in the books of accounts for the period from 01.04.2009 to 31.03.2010 i.e. FY 2008-09 relevant to AY 2009-10.was served and duly complied by the shareholder company, copy of which is provided at Pages 116- 147 of the Paperbook. In the said reply, the shareholder company furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has invested sum of Rs. 96,50,000/- in the appellant company s shares during the relevant FY 2008-09. The investments made are supported by the shareholder company s net worth (Rs 14.21 crores) which is at Page No. 193 of the Paperbook. The AO issued notice u/s 133(6) on the shareholder company, which was served and duly complied by the shareholder company, copy of which is provided at Pages 181-216 of the Paperbook. in the said reply, the shareholder company furnished copies of IT Acknowledgement and audited financials, enclosed at Pages 188 to 199 of the Paperbook, along with investment schedule evidencing investment made in appellant company. Further, copies of relevant and corresponding bank statement were submitted (enclosed at Page 187 of Paperbook), evidencing that funds were transferred to the appellant company on 11.09.2008 22.09.2008, through proper banking channels. Copy of the share application form along with allotment advice was also submitted. The shareholder company has also furnished explanation regarding the source of these funds, 2. No. of shares applied for and allotted during the year along with payment of share premium with documents. 3. Source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and IT Acknowledgement for each of the source-payers were also provided. The AO' has not pointed out any defect in the documents furnished by the shareholder company in response to notice u/s 133(6) of the Act. (b) In the case of Ancient Commotrade Pvt Ltd., it is noted that the share applicant is assessed under the PAN AAHCAi138P.lt has invested a sum of Rs. 84,00,000/- in the shares of the appellant company during the relevant FY 2008-09. The investments made are supported by the shareholder company s net worth (Rs.5.80 crores) which is at Page No. 126 of the Paperbook. The notice issued u/s 133(6) by the AO on the shareholder company,viz., share application money received from Star Vincom (P) Ltd. along with its the Financial Statements, Bank Statement and IT Acknowledgement, in support thereof. The AO has not pointed out any defect in the documents furnished by the shareholder company in response to notice u/s 133(6) of the Act. (e) In the case of Key Dealers Pvt. Ltd., it is noted that the share applicant is assessed under the PAN AABCK0799C. It has invested sum of Rs. 90,00,000/- in the appellant company s shares during the relevant FY 2008-09. The investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y received from Wonder Vintrade (P) Ltd. In support thereof,, the Financial Statements, Bank Statement and IT Acknowledgement of the source-payers was also provided. The AO has not pointed out any defect in the documents furnished by the shareholder company in response to notice u/s 133(6) of the Act. (g) In the case of Nortel Commodeal Pvt. Ltd., it is noted that the share applicant bearing PAN AACCN7839F, has invested a sum of Rs. 89,00,000/- in the shares of the appellant company during the relevant FY 2008-09. The investments made are supported by the shareholder company's net worth (Rs 10.62 crores) which is at Page No. 302 of the Paperbook. The notice issued u/s 133(6) by the AO on the shareholder company, was served and duly complied by the shareholder company, copy of which is provided at Pages 290-342 of the Paperbook. In the said reply, the shareholder company, furnished copies of IT Acknowledgement and audited financials, enclosed at Pages 297-310 of the Paperbook, evidencing investment made in appellant company. Further, copies of relevant and corresponding bank statement were submitted (enclosed at Page 295-296 of Paperbook), evidencing that funds were transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued notice u/s 133(6) on the shareholder company, which was served and duly complied by the shareholder company, copy of which is provided at Pages 378-413 of the Paperbook. In the said reply, the shareholder company furnished copies of IT Acknowledgement and audited financials, enclosed at Pages 382 to 395 of the Paperbook, along .with investment schedule evidencing investment made in appellant company. Further, corresponding bank statements weresubmitted (enclosed at Page 381 of Paperbook), evidencing that funds were transferred to the appellant company on 14.11.2008, through proper banking channels. Copy of the share application form was also submitted. The shareholder company has also furnished explanation regarding the source of these funds, viz., share application money received from Link Commodeal (P) Ltd. In support thereof, the Financial Statements, Bank Statement and IT Acknowledgement of the source-payer was also provided. The AO has not pointed out any defect in the documents furnished by the shareholder company in response to notice u/s 133(6) of the Act. (j) In the case of Rosemary Commercial Pvt Ltd., it is noted that the share applicant is assessed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has also furnished explanation regarding the source of these funds, viz., share application monies received from Wise Commodeal (P) Ltd. and Lifeline Projects (P) Ltd. In support thereof, the Financial Statements, Bank Statement and IT Acknowledgement for each of the source-payers were also provided. The AO has not pointed out any defect in the documents furnished by the shareholder company in response to notice u/s 133(6) of the Act. (l) In the case of Star Vincom Pvt. Ltd., it is noted that the share applicant is assessed under the PAN AAMCS3520J. It has invested sum of Rs. 85,00,000/- in the appellant company s shares during the relevant FY 2008-09. The investments made are supported by the shareholder company's net worth (Rs 10.07 crores) which is at Page No. 525 of the Paperbook. The AO issued notice u/s 133(6) on the shareholder company, which was served and duly complied by the shareholder company, copy of which is provided at Pages 516-552 of the Paperbook. In the said reply, the shareholder company furnished copies of IT Acknowledgement and audited financials, enclosed at Pages 520-533 of the Paperbook, along with investment schedule evidencing investment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., it is noted that the share applicant is assessed under PAN AACCT9520F. It has invested a sum of Rs. 1,10,00,000/- in the shares of the appellant company during the relevant FY 2008-09. The investments made are supported by the shareholder company s net worth (Rs 11.77 crores) which is at Page No.635 of the Paperbook. The notice issued u/s 133(6) by the AO on the shareholder company, was served and duly complied by the shareholder company, copy of which is provided at Pages 622-672 of the Paperbook. In the said reply, the shareholder company furnished copies of IT Acknowledgement and audited financials, enclosed at Pages 630-641 of the Paperbook, evidencing investment made in appellant company. Further, copies of relevant and corresponding bank statement were submitted (enclosed at Page 629 of Paperbook), evidencing that funds were transferred to the appellant company on various dates, through proper banking channels. Copy of the share application form and allotment advice was also submitted. The shareholder company has also furnished explanation regarding the source of these funds, viz., share application monies received from Quest Vincom (P) Ltd. and Link Commodeal (P) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was having substantial own funds in the form of capital 81 reserves which were several times more than the share subscription amount paid to the appellant. I find that only a fraction of the net owned funds of the respective subscribing companies was invested inassessee s equity shares. The investments made by each of the share subscribers were paid by way of account payee cheques and/or RTGS and there was no prior cash deposit in their bank accounts, in view of the aforesaid facts it can be safely inferred that the assessee had discharged its onus of substantiating the creditworthiness of the shareholders. It is further noted that the investments made by the shareholders were reflected in their respective Investment Schedule forming part of the financial statements. The shareholders had also furnished copies of their share application forms and allotment advices. They had also explained the nature of their respective source of funds. In support thereof, the shareholders had also furnished the relevant documentation in form of bank statements, IT Acknowledgments and financial statements in relation to their source-payers. The Director of the appellant also attended the summons is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant s Director for AO s verification. 5.10 l also find merit in the alternate contention of the Ld. AR that even if the Director of the appellant did not produce the Directors of the share subscribing companies before the AO yet the material documents independently requisitioned by the AO u/s 133(6) were indeed furnished by the share applicants before him. On these facts therefore I find that the appellant had brought on AO s record sufficient documentary evidences which prima facie proved the three ingredients of Section 68, that is to say, the appellant had proved identity creditworthiness of the sharesubscribers and genuineness of the transactions. Gainful reference may also be made to following observations made the Hon ble Bombay High Court in the case of CIT Vs Orchid Industries Limited Pvt Ltd (397 1TR136). 6. The Tribunal has considered that the Assessee has produced on record the 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. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions. On the contrary however, the AO had not conducted any inquiry nor proved any falsity in the documents furnished. The High Court therefore held the addition u/s 68 to be unsustainable. 5.12 Apart from these judgments of the Delhi High Court, the A/R also placed before me the following decisions of other High Courts where the unanimous View was that no addition u/s 68 in respect of share application money is permissible once the assessee shows that there was genuine issuance of the equity shares. -CIT Vs Vacmet Packaging (India) Pvt Ltd (367 ITR 217) (Allah HC) - CIT Vs Pranav Foundation. Ltd (22:8 Taxman 58) (Mad HC) -CIT VsSupertech Diamond Tools Pvt Ltd (229 Taxman 62) (Raj HC) -CIT Vs Victory Spinning Mills Ltd (50 taxmanh.com 416) (Mad HC) 5.13 I further find that the Hon'ble Jurisdictional High Court in the case of CIT vs Roseberry Mercantile (P) Ltd in ITAT No. 241 of 2010 dated 10.1.2011 had held as under:- On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies were non-existent, which is certainly not the case before the undersigned. In the decided case, certain investor companies failed to produce their bank statements proving the source for making investments in assessee-company. In the facts of the present case however not only have the shareholders furnished their bank statements and investment schedules to establish the source of funds but they have also furnished their respective sources of funds in response to notices issued by the AO u/s 133(6) of the Act. This factual distinction was noted and approved in the following judgments wherein the judicial forums deleted the addition of share application monies made by the AO u/s 68 of the Act. (i) Pr.CIT Vs Ami Industries India Ltd (271 Taxman 75) [Bom HC] 18. In the first appellate proceedings, it was held that assessee had produced sufficient evidence in support of proof of identity of the creditors and confirmation of transactions by many documents, such as, share application form etc. First appellate authority also noted that there was no requirement under section 68 of the Act to explain source of source. It was not necessary that share application money shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is, therefore, clearly distinguishable on facts of the present case. 23. Therefore, on a thorough consideration of the matter, we are of the view that the first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of the creditors, genuineness of the transactions and credit-worthiness of the creditors which finding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below.' (ii) Baba Bhootnath Trade Commerce Ltd (ITA No. 1914/K0I/2017) dated 01.04.2019 [ITAT Kolkata] 6.17. Finally the Id DR placed reliance on the recent decision of the Hon'ble Apex Court in the case of Principal CIT vs. NRA Iron Steel (P) Ltd reported in 103 taxmann.com 48 (SC) wherein the decision on addition made towards cash credit was rendered in favour of the revenue. We have gone through the said judgement and we find in that case, the Id AO had made extensive enquiries and from that he had found that some of the investor companies were non-exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the issue of application of Section 68 to the receipt of share subscription amounts, ail that the assessee was required to prove was the identity creditworthiness and genuineness of the transactions. Adequacyor inadequacy of share premium charged was not relevant consideration in deciding the application of Section 68 of the Act. In fact I find that the Hon ble Delhi High Court in its judgment in the case of CIT Vs Anshika Consultants Pvt Ltd (62 taxmann.com 192) considered whether in invoking Section 68 the AO was justified in considering the high premium charged as the relevant factor. In the said decision the High Court held as follows: Whether the assessee-company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed, the investigation report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary for the AO to bring on record irrefutable material or evidence which would prove that there was no valid issuance of the shares and for that reason the assessee had failed to prove identity creditworthiness of the shareholders and also failed to substantiate genuineness. If these touchstones are applied to the appellant s case then I find that the copies of PAN, income tax acknowledgements and service of notices at their addresses established the identity of all the share subscribers. In the balance sheets of the respective share subscribers the investments in assessee s share were recorded and each subscriber in its balance sheet had disclosed sufficiently large investible funds. The entries in balance sheet also established that apart from investment in shares of appellant, each share subscribing companies had made several other investments. The assessee had also filed copies of the bank statements of the respective share subscribing companies which established that the share subscription amounts were received through banking channel. The sources of making payment were also furnished and the entries in bank statements indicated that there was no deposit of cash prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company and in compliance to the said summon, Shri Arvind Agarwal director of the assessee company personally appeared before the AO and deposed on oath and furnished all the necessary documents as required by the AO. The Ld. A.R. submitted that the assessee has proved the identity, creditworthiness of the investors and genuineness of the transactions and AO has simply made addition on the ground that the share premium was bogus and very high without any justification and the director of the assessee company failed to produce the directors of the share applicants and thus made the addition without any basis. The Ld. A.R. submitted the issue of equity shares at a high premium is a management decision taken by the Board of Directors of the assessee company and since these transactions were done in AY 2009-10, therefore the mandate of section as brought by Finance Act, 2012 w.e.f 01.04.2013 by inserting Clause (viib) to Section 56(2) of the Act and therefore the same is applicable for AY 2013-14. The Ld. A.R. therefore submitted that all these were aspects examined in depth and the Ld. CIT(A) after appreciating all the facts and evidences on record qua share applicants and also af ..... 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