9911796707
TMI Blog2022 (12) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14:- 1. That in any view of the matter assessment as framed on income of Rs.2,61,36,540/- by order dated 28.03.2016 passed u/s 143(3) is bad both on the facts and in law. 2. That in any view of the matter no notice u/s 143 (2) was served on the assessee nor the assessee is aware about service of notice hence the assessment framed in absence of proper issue and service of notice u/s 143 (2) is void abinitio. 3. That in any view of the matter addition of Rs.1,10,00,700/- as made by the assessing officer u/s 56 (2) (viib) of the Act, and confirmed by CIT appeal is highly unjustified. 4. That in any view of the matter the addition of Rs.1,10,00,700/- as made by the assessing officer on account of difference in share premium amount are infact capital receipts and cannot be considered as income hence simply on presumption basis addition made is highly unjustified. simply on. 5 That in any view of matter the value of shares as determined by the assessing officer as per rule 11 UA of the I.T. rules at Rs.25.29/- per share was on the basis of self working as determined by assessing officer without mentioning the method of valuation and without giving any details/working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company did not furnish any reply or explanation to justify the charging of share premium on the equity shares issued by it. The assessee submitted position of equity shares held as on 31st March, 2012 as well as 31st March, 2013, and from perusal of the same., the AO observed that outstanding shares as on 31st March, 2012 was 62000 equity shares , which increased to Rs. 2,32,000/- as on 31st March, 2013. The AO gave fresh opportunity to the assessee to give requisite details of the amount received as premium on the equity shares issued and also to justify the same. The assesse in reply submitted that 1,70,000 equity shares have been issued during the year to 13 persons @ Rs. 90/- per equity share inclusive of premium of Rs. 80/- per equity share, totaling to Rs. 1,53,00,000/-. The assessee did not furnish any further details. As regards , justification on charging of share premium, the assessee submitted as under: "ISSUE OF FRESH SHARE CAPITAL During the A.Y. 2013-14 relevant to F.Y.2012-13 we have issued 170000 fresh equity shares of Rs. 10/- at a premium of Rs. 80/- per share i.e. Rs. 90/- per share , the details of which are as under: S. No. Name and Address of Sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 ("Act") with effect from April 1, 2012 to bring within the purview of taxation the premium received by a company (other than a company in which public are substantially interested" [1]), on the issue of its shares in excess of the "Fair Market Value" (FMV") of such shares. The FMV was to be the price (a) Arrived at as per the prescribed method OR (b) as may be substantiated to the assessing officer based on the value of the company at the time of issue of the shares. Also, as per the existing clause (viia) of section 56(2), if the consideration paid for the acquisition of shares (of a closely held company) is lower than the FMV of the shares, the delta is treated as income of the company or firm that acquires such shares. Rule 11U and Rule11UA of the Income-Tax Rules, 1962('IT Rules'), amongst other things, prescribed the Net Asset Value Method (based on Balance Sheet values) for arriving at the FMV for the purpose of this clause (viia). NET ASSET VALUE OF SHARES OF COMPANY AS ON 31.03.2012 (BASED ON AUDITED BALANCE SHEET AS ON 31.03.2012) Nos. of shares Amount(Rs.) Net worth of company As on 31.03.2012 As on 31.03.2012 Issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies who have subscribed to the share capital for the assessee company, for establishing creditworthiness of the shareholders as well as genuineness of the transaction, as under: Sr. No. Name of the Companies Address as submitted by the assessee company 1 AprajitaVanijya Private Limited Chunaraipara Colony, Post-Nawabganj, Kolkata-743144 2 Sandal Wood Commercial Pvt. Ltd. Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 3 Zigzag Vanijya Private Limited Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 4 ShradhaVintrade Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 5 Champion Vintrade Private Limited 50-2, Cabin Road, Golghar Ward No. 15, Jagaddal, Kolkata-743125 The AO observed that all the aforesaid notices came back undelivered with remarks 'Not Known' from the postal authorities. The assessee was confronted by AO with the envelops coming back from postal authorities. The AO requested assessee to produce Directors of the said investing companies .In response , the assessee submitted that these notices came back due to change of address of registered offices of these company, and the assesse furnished new addresses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... too at significantly high premium which is neither justified nor in accordance with its Fair Market Value, despite the fact that the assessee has not been conducting any business activity as is evident from its Profit & Loss Account which shows total revenue from running of Gitti business at Rs. 2,75,500/-. The AO observed that notices sent to the investing companies have been returned back undelivered . The AO observed that on being confronted , the assessee came up with new addresses of these investing companies, and out of 5 notices sent at new addresses furnished by assessee, two notices have been served while the balance three notices have been received back undelivered. The AO observed that this is despite the fact that Director of the assessee company in his sworn statement has claimed that these investing companies were aware of the assessee's business and had met him personally at Kanpur at least on two occasions, one during 2012 and other in the year 2015. The AO observed that in spite of his close acquaintances it was surprising to note that these companies did not come to the help of the assessee company by furnishing information in respect of their alleged investment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO also observed that the confirmation letter given by the said company is unsigned , and even the Director of the assessee company in his statement could not identify the name of the Director of the said company and stated that the Director of the investing company was not known to him. The AO further observed that the copy of the bank account statement shows regular flow of funds in the form of transfer entries with each debit preceded by corresponding credit entry or through transfer entries from one company to the other. The AO also observed that in the Director Report of the said investing company , it is stated that its performance is not satisfactory .Further, the Auditor has stated in its report that the company has incurred cash loss of Rs. 7,844/- and accumulated loss was Rs. 15,364/- . Thus, the AO observed that essential's of creditworthiness of the investors have not been established putting genuineness of transactions with it in doubt. The AO observed that similar is the case of Sandal Wood Commercial Private Limited , which too has not furnished its ITR for ay: 2013-14 , and even the copy of ITR for ay: 2011-12 which was furnished shows that it incurred a loss o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately u/s.56(2)(vii). The AO has added a sum of Rs. 1,51,20,000/- u/s.68 which is inclusive of premium charged and Rs. 1,10,00,700/- again received as premium separately. Thus there is double addition to the extent of Rs. 1,08,71,280/- one added u/s. 68 as part of share capital of Rs. 1,51,20,000/- and then again added separately u/s 56(2). Against the total amount received Rs. 1,53,00,000/- addition has been made of Rs. 2,61,20,700/-. "It is submitted at the very outset that the double addition made is contrary to the provisions of law. On the face of it the addition of Rs.1,10,00,700/- made u/s. 56(2)(iii) should be deleted. "The company had issued 1,70,000 equity shares of FV of Rs.10/- each at a premium of Rs.80/- per share. Thus the total amount received by the company inclusive of share premium is Rs.1,53,00,000/- from as many as 13 share applicants. "The total amount received by the company towards share capital and premium is only Rs.1,53,00,000/-. Consisting of Rs.17,00,000/- towards share capital and Rs.1,36,00,000/- as share premium. The AO has treated Rs.25.29 out of Rs.80.00 per share as reasonable value of the premium charged and has treated Rs.54.71 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares as only Rs. 25.29 per share. As against this, the assessee company had issued shares at Rs. 90 per share. In other words, the assessee company has received consideration for issue of shares which exceeds FMV of the shares by Rs. 64.71 per share. Rule 11UA of the Income Tax Rules specifies the method of calculating fair market value. The FMV of unquoted shares and securities other than unquoted equity shares shall be estimated to be the price it would fetch if sold in the open market on the valuation date and the assessee obtains a report from a Category I merchant banker or a Chartered Accountant in respect of such valuation. Thus, for valuation of unquoted shares and securities, other than equity shares there are no prescribed methods, which are laid down. This is left to the professional judgment of the valuer. As evident from the reply of the appellant submitted during the appellate proceedings, AR has failed to rebut the findings of AO given in the assessment order, it is held that AO has correctly held that the assessee company has brought in share capital in the name of different companies, purportedly, based at Kolkata that too at a significant premium without any justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share premium amount of Rs. 1,36,00,000/-. Confirmation from individual applicant has been filed. In view of the above, it is submitted, that the addition made by the AO may kindly be deleted. The appeal may kindly be allowed." 4d. The ld. CIT(A) dismissed the appeal of the assessee and confirmed the additions as was made by the AO to the income of the assessee, by holding as under: "Decision: "I have gone through the facts and the written submissions filed along with the details filed enclose therein. Appellant has taken share capital from 12 applicants, of which 05 are corporate, while the remaining 08 are individuals. Appellant submitted details of share applicants with name, address, number of shares applied for, with details of bank account, certificate of mode of payment of amount, PAN, Share application form, ITR, Final accounts of share applicants before the AO. A perusal of the paper book and submission of the appellant reveals that appellant did file enough evidence in order to discharge the initial burden of proof cast upon the appellant company u/s 68 of IT Act but did not file Form PAS-3 including list of allotee duly filed with ROC evidencing intimation of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 65/- per share without having any net worth. Similar is the case of another investor company, M/s. Vrindavan Commodity Pvt. Ltd. which subscribed to 40.32% of shares of the assessee company which too has now gone without trace. In contrast to this, it is pertinent to note that in its reply dated 21.12.2015; the assessee company has not shown any shareholding in the name of these companies i.e. M/s. Bajrangbali Vincom Pvt. Ltd. and M/s. Vrindavan Commodity Pvt. Ltd. It is very clear that the assessee company is in a habit of raising capital at a significant premium from Kolkata based companies which disappear without trace after subscribing to its share capital at a premium. This is followed by another round of funding after a few years, again at a premium, from companies, which on investigation is untraceable. Even in respect of the companies which have responded to the notices u/s 133(6), it is seen that the total income for the year under consideration is not commensurate with the level of investment made with the assessee company. For example, in the case of one M/s. Champion Vintrade Private Limited which has shown to have invested Rs.36,00,000/- in the shares of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which he has failed to do so. This onus has become even more vigorous following the insertion of proviso to Section 68 of the Income Tax Act, 1961 which has come into effect by the Finance Act 2012 w.e.f. 01.04.2013 i.e. A.Y. 2013- 14, the year under consideration which is cited above. Appellant has simply submitted during the appellate proceedings that the report received from DDIT-Kolkata is self-explanatory, which the AO has chosen to completely ignore and therefore the record file may kindly be called for, examined it would be find that the same is explained. I have gone through the report and find no anomaly with the inference drawn by the AO. This shows that the appellant has nothing to submit in the form of written submissions or any paper book in support of his contention. As held in the case of R. B. Mittal v. CIT 246 ITR 283 (AP) in an enquiry u/s 68,the rule of audi alteram partem has to be observed and the assessee must be given a fair and reasonable hearing to discharge the burden cast on him u/s 68of the Act. Further, it is settled law that in the matter of cash credit, the initial onus lies on the assessee to prove the genuineness of the transaction along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dresses of the various companies. Where the assessee does not furnish the new or current correct addresses, there is no duty on AO to bring any facts on record to show that conditions required u/s 68 are not satisfied but where appellant does, then AO need to bring more facts on record to show that conditions required u/s 68 are not satisfied as HELD in Sri Jagdish Saran Shuklavs Commissioner Of Income- Tax 1988 171 ITR 694 (All). In this case appellant has failed to prove the identity of the companies and genuineness of transactions and creditworthiness as required u/s 68 of the Act. As per the provisions of Section 68 of the Income Tax Act, 1961, an assessee has to discharge his onus of proof by proving three things: a) Identity of lender: b) Genuineness of transaction: and c) Credit worthiness of shareholder/lender. And till the assessee proves all three things, his onus is not discharged. In light of the above facts, the addition made by the AO on this account is sustainable. However, before proceeding ahead, appellant has raised an argument in the light of addition of Rs. 1,10,00,700/- made on account of share premium under Section 56[2][viib] of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fulfilled like identity, genuineness and creditworthiness of the share applicant and vice versa i.e. if a receipt is not found taxable u/s 68 for the reason that the identity, genuineness and creditworthiness of the share applicant is proved but if the FMV of the shares did not justifies the share premium being taken by the appellant, the same amount received can be taxed u/s 56[2][viib]. These are deeming provisions to tax income though normally it may not have been taxed as capital receipt, where double addition is possible. In the light of above narration and express legal provisions, I hold that the sum of Rs. 1,51,20,000/- as credited by the assessee company in the garb of share capital in its books in the year under consideration represents the unexplained income of the assessee company and is liable to be brought to tax u/s 68 of the Income Tax Act, 1961 for the reason that the appellant has failed to satisfy the identity, genuineness and creditworthiness of the share applicant. Hence addition made by AO is confirmed. The grounds are dismissed The appeal is dismissed." 5. Still aggrieved ,the assessee has filed second appeal before tribunal. The Ld. Counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of equity share is provided , which is reproduced hereunder: Working: Particulars Amount (Rs.) Total Value of Assets as per Balance sheet as on 31st March, 2012 2,04,44,467 Less: Unamortised amount of deferred expenditure (shown in schedule 11: Other non-current Assets of the ABS- placed at (Page No. 21 of the Paper-book) 21,910 Less: Amount of Advances Income Tax Shown in schedule 16: Short term loans and advances of ABS placed at Page NO. 22 of the Paper Book 27,130 Book Value of Assets-'A' 2,03,95,427 L= book value of liabilities shown in the balance-sheet Working Particulars Amount (Rs.) Total Value of Liabilities as on 31st march, 2012 2,04,44,467 Less: Share Capital (as per Schedule 1 of ABS-placed at Page No. 18 of the Paper-book) 6,20,000 Less: Reserves and Surplus (as per Schedule 2 of ABS- Placed at Page No. 18 of the paper Book. 47,61,129 Less: amount representing provision for taxation (as per Schedule 7: Short term provisions of ABS - Page No. 19 of the Paper Book. 31,938 Book Value of Liabilities - 'L' 1,50,31,400 FMV=RS(2,03,95,427-1,50,31,400) X 10/share 6,20,000 =Rs. 53,46,027 X10 = Rs. 86.52/share (app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to 5 companies all based in Kolkatta are placed , and also to page 29-30/paper book where the details of 2000 equity shares to 8 individuals are placed. Thus, total equity shares aggregating to 170000 were issued by the assessee company during the year under consideration to 13 persons, out of which 168000 equity shares were issued to 5 Kolkatta based companies, while 2000 equity shares were issued to 8 individuals, all equity shares issued at a price of Rs. 90/- per equity share comprising face value of Rs. 10 per equity share and share premium of Rs. 80 per equity share, aggregating to total amount raised to the tune of Rs. 1,53,00,000/- . The additions u/s 68 read with Section 158BBE is made wrt 168000 equity shares issued to 5 corporate entities, while additions u/s 56(2)(viib) were made wrt to 170000 equity shares issued to all 13 investors i.e. 5 companies and 8 individuals. 5e. The Ld. Sr. DR submitted at this stage submitted that Rule 11UA was amended and it is only pre-amended rule which prescribed Fair Market Value method which shall be applicable , as the transactions happened in May/June 2012, and AO rightly applied the method prescribed under Section 56(2)(viib). It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed. Our attention was also drawn to Page No. 194 of the paper-book filed by department,wherein certificate issued by Champion Vintrade Pvt. Ltd.(which is unsigned) is placed, explaining source of making investment in the assessee company. Our attention was also drawn to Page No. 195 of the paper book filed by department, wherein the bank statement of Champion Vintrade Pvt. Ltd. is placed ,and it was submitted that the funds to the tune of Rs. 36 lacs were transferred from the bank account of Champion Vintrade Private Limited maintained with Indusind Bank. Our attention was also drawn by ld. Counsel for the assessee to page no. 103& 106 of the paper book filed by the Department ,wherein Director Report of the Champion Vintrade Private Limited is placed , as per which the profit for financial year was Rs. 7274.57 as against total income from operations of Rs. 1,16,611/- ,as against loss of Rs. 7874.51 in the financial year 2011-12 while total income from operations was Rs. Nil. Our attention was also drawn to Page No. 105 and 109 of the paper-book filed by department, and it was submitted that share capital of Champion Vintrade Private Limited was Rs. 12,46,500/- and Reserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made with respect to all the thirteen investing persons , viz. 5 corporate entities and 8 individuals. It was also submitted that double additions are not possible . The ld. Counsel for the assessee relied upon decision of Hon'ble Kerala High Court in the case of Sunrise Academy of Medical Specialties India Private Limited , reported in (2018) 409 ITR 109(Kerala HC) , and it was submitted that double addition is not possible. It was also submitted that only one addition can be sustained , if it is proved that transaction is genuine than only Section 56(2)(viib) will come into play , but if Section 68 gets attracted as the tax-payer is not able to satisfactorily explain the source of capital investment including share premium, the entire amount will get added u/s 68, and then in that scenario Section 56(2)(viib) will not get attracted , and it is only when explanation u/s 68 is satisfactory, the amount of sale consideration in excess of FMV in the case of company in which public is not substantially interested , will get added u/s 56(2)(viib) . 5g. The Ld. Sr. DR on the other hand, submitted that the additions have been made of Rs. 1,51,20,000/- under Section 68 of the 1961 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d duly responded. Our attention was drawn to page 187-189 of paper book filed by department, and it was submitted that these are the copies of envelop showing return by postal authorities in case of Aparajita Vanijya Private Limited, Zigzag Vanijya Private Limited and ShradhaVintrade Private Limited, wherein envelop's containing notices u/s 133(6) returned, while notices u/s 133(6) were served in the case of two investing companies namely M/s Champion Vintrade Private Limited and M/sSandal Wood Commercial Private Limited. Our attention was drawn to page 190-212 of the paper book filed by department, and it was submitted that replies filed by these 2 companies namely Champion Vintrade Private Limited and Sandal Wood Commercial Private Limited are placed. Our attention was drawn to page 169-170 of paper book, and it was submitted by ld. Sr. DR that the assessee has claimed tha tZigzag Vanijya Private Limited and ShradhaVintrade Private Limited, also filed reply before AO through speed post, but the said replies are not in the file of the AO. It was also submitted that the two investing companies which replied, their replies are identical. It was submitted by referring to page 168-170 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing companies. It was submitted that all these five companies are deactivated by MCA, while four companies except Champion Vintrade Private Limited were struck off by MCA. 5h. The ld. Counsel for the assessee at this stage raised preliminary objection under Rule 27 & 29 of ITAT Rules, 1963, with respect to filing of details by way of additional evidences by the department in page 425-426 of paper book. 5i. The ld. Sr. DR submitted that the assessee do not have any business activities , apart from raising share capital from these companies based at Kolkatta at huge share premium. The learned Sr. DR submitted that the assessee is engaged in money laundering activities , and there is no real business of the assessee company. It was submitted that all these investing companies were incorporated in the year 2010 and all the five investing companies have common Directors(page 419-423/paper book filed by department). Reference was drawn to page 426/paper book filed by department , and it was submitted by ld. Sr. DR that all these companies have meager paid up share capital while they raised huge share premium to issue their shares, while their income is very meagre. It was submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T v. NDR Promoters Private Limited, reported in (2019) 410 ITR 379(Del HC) c) NDR Promoters Private Limited v. PCIT, reported in (2019) 266 Taxman 93(SC) d) CIT v. Midas Golden Distilleries Private Limited , reported in (2021) 283 Taxman 395(Mad. HC) e) CIT v. Sadiq Sheikh (2021) 429 ITR 163(Bom. HC) f) Royal Rich Developers Private Limited v. PCIT , reported in (2019) 265 Taxman 99(Bom.) g) CIT v. Globus Securities & Finance Private Limited, reported in (2014) 264 CTR 481(Del) h) Shantananda Steels Private Limited v. ITO, reported in (2020) 182 ITD 434(Chennai-trib.) i) Pratik Syntex Private Limited v. ITO, reported in (2018) 94 taxmann.com 12(Mum-trib.) j) DCIT v. Lotus Logistics & Developers Limited , reported in (2022) 195 ITD 24(Mum-trib.) k) ITO v. Parsoli Motor Works Private Limited, reported in (2022) 193 ITD 585(Ahd.-trib) l) M.A. Projects Private Limited v. DCIT, reported in (2019) 109 taxmann.com 173(Del-trib.) m) ITO v. Synergy Finlease Private Limited, reported in (2019) 177 ITD 160(Del-trib.) n) Ayaana Comtrade Private Limited v. ITO, reported in (2019) 176 ITD 6 (Ahd.-trib.) o) ACIT v. Nakoda Fashion Private Limited, reported in (2018) 92 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 127(1) and 127(3) by ld. PCIT for transfer of jurisdiction in the case of the assessee, from ITO, Kanpur to ITO, Banda. The ld. counsel for the assessee submitted that there is no such requirement of explaining source of source of investment in share capital. The ld. Counsel for the assessee relied upon the judgment and order of Hon'ble Calcutta High Court in the case of PCIT v. Sreeleathers , reported in (2022) 448 ITR 332(Cal. HC). The ld. Counsel for the assessee has relied upon following decisions: a) Royal Rich Developers Private Limited v. DCIT , in ITA No. 1835 & 1836/Mum/2014, order dated 24.08.2016 b) Cinestaan Entertainment Private Limited v. ITO, in ITA no. 8113/Del/2018, order dated 27.05.2019 c) DCIT v. Archean Chemicals Industries Private Limited , in ITA no.1998 /Cheny/2019 & 723/Cheny/2020, order dated 22.06.2022 d) Hon'ble Madras High Court judgment and order in the case of CIT v. VVA Hotels Private Limited, (2020) 429 ITR 69(Mad. HC) e) Hon'ble Calcutta High Court judgment and order in the case of PCIT v. Sreeleathers , reported in (2022) 448 ITR 332(Cal. HC) f) Hon'ble Supreme Court judgment and order in the case of CIT v. P Mohanakala , reported in ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta-743144 28000 Bank RTGS 12.05.2012 25,20,000 4 ShradhaVintrade Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 28000 Bank RTGS 22.05.2012 25,20,000 5 Sandal Wood Commercial Pvt. Ltd. Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 44000 Bank RTGS 21.05.2012 09.06.2012 25,20,000 14,40,000 6 Ambika Prasad Tiwari S/o Ram PhalTiwari Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 7 Santosh Kumar S/o Mahadev Prasad, Gram Post-Imilia, Distt. Hamirpur 200 Cash 20.05.2012 18,000 8 Brajesh Kumar S/o Shiv Narain Gram Post- Imilia Distt- Hamirpur 200 Cash 20.05.2012 18,000 9 Suresh Kumar S/o Diwakar, Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 10 Smt. Priti Mishra D/o Suresh Kumar Mishra, 123/34, KBlock, Kidwai Nagar, Kanpur 400 Cash 20.05.2012 20.06.2012 18,000 18,000 11 Divakar S/o Ram Shankar, Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 12 Anupam S/o Suresh Kumar, Gram post- Imilia Distt- Hamirpur 200 Cash 20.05.2012 18,000 13 Smt. Pushpa D/o Shiv Shankar Gram Post- Imilia Distt-Ham ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised from 13 persons which included 5 corporate entities as well 8 individuals , while the assessee only raised aggregate amount of Rs. 1,53,00,000/- during the year under consideration, from issue of 170000 equity shares of face value of Rs. 10 each , issued at total price of Rs. 90 per equity share including share premium of Rs. 80 per equity share to these thirteen persons viz. 5 corporate entities and 8 individuals . The ld. CIT(A) dismissed the appeal filed by the assessee, confirming both the additions . We have elaborately culled out proceedings which were conducted before the AO and ld. CIT(A) in the preceding para's of this order. Before proceedings further , it will be profitable at this stage to reproduce the provisions of Section 68 and Section 56(2)(viib) as were applicable for relevant year under consideration. It is pertinent to mention that Section 68 was amended by Finance Act, 2012 w.e.f. 01.04.2013 wherein proviso was added to Section 68. Further Section 56(2)(viib) was inserted vide Finance Act, 2012 wef 01.04.2013 , which reads as under: "Cash credits. 68.Where any sum is found credited in the booksof an assessee maintained for any previous year, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b)"venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b)and clause (c) of Explanation 1 to clause (23FB)of section 10; It will be appropriate at this stage to refer to Memorandum and Notes on Clauses as is referred in Finance Bill, 2012, which reads as under: Memorandum SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME "Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , particularly, in cases where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head "Income from other sources". However, the said new clause shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. It is further proposed that the company receiving the consideration for issue of shares shall be provided an opportunity to substantiate its claim regarding the fair market value of the shares. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years." Clause 22 of the Bill seeks to amend section 68 of the Income-tax Act relating to cash credits. "The existing provisions of the aforesaid section 68 provide that where any sum is found credited in the books of an assessee maintained for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares , which shall be brought to tax as income of the assessee vide Section 2(24)(xvi). In our considered view, Section 68 is an anti money laundering provisions as a measures to prevent generation and circulation of unaccounted money. It is applicable to all the taxpayers be it individual, firms, companies , AOP etc. as are included under the definition of 'person' u/s 2(31) , where cash credit is found credited in the books of an taxpayer and the taxpayer offers no explanation or an explanation offered by taxpayer is found not satisfactory by the AO, then by deeming fiction , the said cash credit is brought to tax as deemed income u/s 68. However, by amendment made by Finance Act, 2012, as applicable from ay: 2013-14, a proviso is inserted in Section 68 which stipulates that in the case of closely held companies where public is not substantially interested and where the tax-payer has raised share capital, share application money, share premium etc., the taxpayers being closely held company are required to explain source of source of said raising of share capital, share application money, share premium etc. . We are presently concerned with assessment year 2013-14 and new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly held companies in which public are not substantially interested who are mostly family controlled closely held companies and they raise their share capital from their family members, relatives and friends and in these companies since share capital is received from the close knit circles who are mostly known to the company/promoters, the onus as required u/s. 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. The onus of widely held company could be discharged on the submissions of all the information contained in the statutory share application documents and on not being satisfied the AO may proceed against the shareholders u/s. 69 of the Act instead of proceeding against the company, but in the closely held companies as in the instant case before us the share capital are mostly raised from family, close relatives and friends and the assessee is expected to know the share subscribers and the burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO as stipulated u/s 68 read with newly inserted proviso to Section 68, then in the case of closely held companies in which public are not substantially interested , the tests as laid down u/s 56(2)(viib) with respect to consideration being received from residents towards issue of shares in excess of FMV, shall arise. In our considered view, Section 56(2)(viib) which was placed in statute by Finance Act, 2012 wef 01.04.2013, as against Section 68 which was in statute since 1961, could be invoked only when the tests and satisfaction u/s 68 stood complied with. Thus , there cannot be double addition both on account of Section 68 as well Section 56(2)(viib), as both are mutually exclusive. The ld. Counsel for the assessee rightly relied upon the judgment and order of Hon'ble Kerala High Court in the case of Sunrise Academy of Medical Specialities (India) Private Limited(supra),is reproduced hereunder: "9. Any premium received by a Company on sale of shares, in excess of its face value, if the Company is not one in which the public has substantial interest, would be treated as income from other sources, as seen from Section 56(2) (viib) of the Act, which we do not think can be contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:" shall be considered as income from other sources. 13.ag. This provision mandates that where a closely held company receives any consideration for issue of shares in any previous year from any resident and the consideration received for issue of shares exceeds the face value of such shares, then the aggregate consideration received for such shares, as exceeds the fair market value of the shares, shall be chargeable to income-tax under the head "Income from other sources". A bare perusal of this provision makes it explicit that a new obligation has been put on the closely held companies which issue shares for a consideration greater than the fair market value of its shares. When the shares are so issued at a higher price, then such excess becomes income from other sources in the hands of the company. This amendment is obviously prospective as the position of law before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Section 56(2)(viib) shall get triggered, and the assessee being a closely held company in which the public is not substantially interested and having received consideration on issue of shares from residents, will be required to justify the consideration received on issue of shares vis-à-vis fair market value, and the excess shall be chargeable to tax. Thus, there cannot be double additions with respect to invocation of Section 68 and 56(2)(viib) simultaneously, as explained above. Coming back , now we will firstly see whether the assessee is able to satisfy the ingredients as are stipulated u/s 68. The AO has accepted issuance of 2000 equity shares of face value of Rs. 10 each , issued at Rs. 90 per equity shares inclusive of share premium of Rs. 80 per equity shares , aggregating to Rs. 1,80,000/- , issued by assessee to eight individuals and no addition were made by AO by invoking provisions of Section 68. The ld. CIT(A) also did not interfere with the assessment order passed by AO so far as 2000 equity shares issued by assessee to 8 individuals are concerned, and hence the same has attained finality . The dispute which is between the rival parties is as to addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain satisfactorily his knowledge about the affairs / business of these companies, as well Directors of these five investing companies. He could not explain as to even their current addresses and whereabouts of these five investing companies , all based at Kolkatta. It is incomprehensible that these 5 investing companies who invested in the assessee company in the year 2012 by making substantial investments to the tune of Rs. 1,51,20,000/- by subscribing to the 168000 equity shares of face value of Rs. 10 each at share premium of Rs. 80 per shares, would not have taken keen interest in the working of the assessee company in which they had made substantial investment's. These 5 investing companies held 168000 equity shares , while the total share capital post investments by all thirteen investors in May/June 2012, was to the tune of 232000 equity shares , and it is incomprehensible that these 5 companies who were holding 168000 equity shares , constituting 72.4% of equity shares being majority shareholders of the assessee company were not participating in the day to day affairs of the assessee company, and the existing Director of the assessee company namely Mr. Dinesh Kumar Mishra i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On perusal of the audited accounts , it transpires that the assessee income from operations were Rs. 2,75,600/- during the year under consideration, while the same was Rs. Nil for the year ended 31.03.2012. The assessee has also earned interest income of Rs. 5,17,956/- during the year under consideration , which was Rs. 5,40,947/- during preceding year. The interest expenses outgo during the year under consideration was Rs. 3,44,528/- (preceding year Rs. Nil) . The assessee has declared profit before tax of Rs. 15,836/- during year under consideration, while in preceding year the profit before tax was Rs. 15,664/- . Thus, it could be seen that there are meager income earned by the assessee. On the other hand , the assessee has issued equity shares of Rs. 10 each at share premium of Rs. 80 per equity shares , at issue price of Rs. 90 per share wherein Rs. 1,53,00,000/- was raised by the assessee company from thirteen investors , while there was no worthwhile business of the assessee. The assessee has claimed that its NAV was Rs. 87 per share , while computing the same based on audited financial statements for the year ended 31.03.2012. The assessee's share capital as on 31.03.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing companies who were holding more than 80% shares as on 31.03.2010 were completely missing , and instead the shareholding as on 31.03.2011 was stated to be as under: S.No. Name of Shareholder Shareholding as on 31.03.2011 1. Mr. Dinesh Kumar Mishra 5000 shares 2. Smt. Malti Mishra 5000 shares 3. Mrs. Ambika Prasad Tiwari 400 shares 4. Mr. Santosh Kumar 400 shares 5. Mr. Brajesh Kumar 200 shares 6. Mr. Suresh Kumar 200 shares 7. Smt. Priti Mishra 200 shares 8. Mr. Divakar 200 shares 9 Mr. Anupam 200 shares 10. Mrs. Pushpa 200 shares 11. Parihar Granite Private Limited 20000 shares 12. Anil Kumar Shukla 10000 shares 13. Dinesh Kumar Mishra 10000 shares 14. Ramesh Kumar Mishra 10000 shares Total 62000 shares Thus, it could be seen that the names of the three investing companies who invested more than 80% shareholding in assessee company in financial year 2009-10 are not reflected in the list of shareholders as at 31.03.2011. The three investing companies are not traceable. The assessee could not explain or substantiate why these companies are not reflected in the shareholding as on 31.03.2011. The evidence which could be and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and/or their nominees/relatives. That is why , we donot find the names of these three Kolkatta based companies who invested in 2009-10, in the list of shareholders as at 31.03.2011. These three Kolkatta based companies who invested around more than 80% shares in assessee company in 2009-10, which comes to 50000 shares out of total 62000 shares (80%+), and if we see the list of shareholders as at 31.03.2011 as per list above at S.No. 11-14 constituted 50000 equity shares which raises a presumption that these persons/entities got the shares transferred in their favour from these three investing companies based at Kolkatta at a subsequent date in financial year 2010-11. .The assessee is withholding evidence and presumption will be drawn against the assessee u/s114(g) of Indian Evidence Act, 1872. While when transfer of shares took place, all details /documents such as transfer deed executed by transferor as well transferee is filed with the company, the share certificates are filed for endorsement in favour of transferee , Board Resolutions are passed and transfer of shares is also subjected to transfer fee/stamp duty payable to Government which is computed based on valuation/con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted of Rs. 87 per share based on audited financial statement as at 31.03.2012 mainly constituted Reserves and Surplus which constituted shares issued at premium of Rs. 65 per share in financial year 2009-10 to these Kolkatta based three investing companies , who are not traceable. Thus , to contend that the assessee issued shares at a price of Rs. 90 per share inclusive of share premium of Rs. 80 per share in 2012-13 , because of its real estate project is preposterous, and valuation of its share based on NAV in 2012-13, constituted majorly share premium of Rs. 46,80,000/- raised in the year 2009-10 from three Kolkatta based companies who are untraceable. . Rather, the assessee is engaged in money laundering activities in concert with these Kolkatta based entities , to convert its unaccounted income /money by bringing it in its books by way of issuing shares at premium. The claim of the Revenue is that only two companies namely Champion Vintrade Private Limited and Sandal Wood Commercial Private Limited, responded to notices sent u/s 133(6), while in the case of other three investing companies , namely M/s Aparajita Vanijya Private Limited, Zigzag Vanijya Private Limited and M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000/- on 09th June, 2012 through RTGS, for making investment in the assessee company. This debit of Rs. 36,00,000/- is preceded by credit entry of Rs. 36,00,000/- on the same date . The balance prior to this credit was Rs. 19,976/- and the average balance maintained in this account was meager around Rs. 10,000. There are several credits in this account , which are succeeded by debits of the same amount on the very same day of credit , so that average balance maintained is merely around Rs. 10,000. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 as well also at 31.03.2013. The income from operations in the financial year 2012-13 was Rs. 1,16,611/- , while for financial year 2011-12 the same was Rs. Nil. It has declared post tax profit of Rs. 7,274.57 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was post tax loss of Rs. 7874.51. Thus, the company does not have any business apart from investments. This company has paid up share capital of Rs. 12,46,500 as at 31.03.2012 and also at 31.03.2013, while Reserves and Surplus were to the tune of Rs. 22,80,99,981.49 as at 31.03.2012 and Rs. 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GS sent on 12.05.2012 through Indusind Bank, Burra Bazar, Kolkatta, for subscribing to 28000 shares of Rs. 10 each at premium of Rs. 80 per share of the assessee company. The reply was claimed to be sent on 20.11.2015 to ITO, Kanpur, but on 19.11.2015, the jurisdiction of the case stood shifted from ITO, Kanpur to ITO, Banda. The revenue has denied to have received the said reply. The jurisdiction was shifted at the behest of assessee company. The assessee has enclosed reply of said company before ITO. The source of investment is shown to be advance received against sale of shares from M/s Shivdarshan Commodeal Private Limited to the tune of Rs. 15,00,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 21,20,000/- . The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 25,20,000 on 12th May, 2012 through RTGS, for making investment in the assessee company. This debit of Rs. 25,20,000/- is preceded by credit entry of Rs. 21,20,000/- and Rs. 4,00,000/- on the same date . The balance prior to this credit was Rs. 10,037/- and the average balance maintained in this account was meager Rs. 10,000/-. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares. Thus, the company did not consider investment majorly in quoted shares/Mutual Funds ,which are liquid and scope of growth is higher if investments are made in blue chip companies. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well preceding year, as the income of Rs. 16,07,507/- declared by it for year under consideration is from interest income . The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the company's performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. The name of the assessee was also struck off from Register of ROC/MCA. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 22,657.8 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was post tax profit of Rs. 8,728.27. Thus, the company does not have any business apart from investments and/or sale / purchase of share/MF . This company has paid up share capital of Rs. 20,46,500/- as at 31.03.2012 and also at 31.03.2013, while Reserves and Surplus were to the tune of Rs. 38,73,46,017.94 as at 31.03.2012 and Rs. 38,73,35,915.74 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. 38,73,53,500/- as at 31.03.2012 and Rs. 38,73,20,740/- as well at 31.03.2013. Thus, as against share capital of Rs. 20,46,500/- consisting of 204650 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 38,73,35,915.74 translating into average share premium of Rs. 1892.67 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1903 per share keeping in view business of the said investing company . This company has majorly one asset which is investment in equity shares of other companies , which stood at Rs. 37,89,55,000 as at 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Limited to the tune of Rs. 25,20,000/- . It has passed a Board Resolution dated 21.07.2011 authorizing Mr. Arvind Pandit, Director to invest the fund of the company and to do all necessary documentation with respect thereto on behalf of the company. The investing company has not furnished its ITR for ay : 2013-14 , while ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 18,115/- . The income from operation in financial year 2010-11 was Rs. Nil. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 and also at 31.03.2013. The income from operations in the financial year 2012-13 was Rs. 4,36,471/- which is interest income , while for financial year 2011-12 there were no reported income . It has declared post tax profit of Rs. 6,578.02 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was loss of Rs. 8,798.72. Thus, the company does not have any business apart from investments .This company has paid up share capital of Rs. 20,03,000/- as at 31.03.2012 and also at 31.03.2013, while reserves and surplus were to the tune of Rs. 37,86,27,045.95 as at 31.03.2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee company. The source of investment is shown to be advance received against sale of shares from M/s Source Dealers Private Limited to the tune of Rs. 25,20,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 13,40,000/- and Rs. 50,000 each on 2 occasions received from Mrs. Panna Maheshwai on 23.05.2012 and 30.05.2012. The investing company has not furnished its ITR for ay : 2013-14 , but ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 16,192/-. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 39,60,000/- on 21.05.2012 and 09th June, 2012 through RTGS, for making investment in the assessee company. This debit amount in aggregate of Rs. 39,60,000/- is preceded by credit entry on the same date of the majorly amounts except Rs. 1,00,000/- which stood credited few days back . The balance prior to this credit was around Rs. 10,000/- and the average balance maintained in this account was meager around Rs. 10,000/-. There are several credits in this account , which are succeeded by debits of the same amount on the very same day of credit , so that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year as well preceding year, and it is stated in Directors Report that the Company's performance is not satisfactory. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta. Thus, based on the above discussions, we are of the considered view that all these five investing companies are shell/conduit companies having no business of its own , and are merely created to launder money in order to convert unaccounted money of the investing companies under the garb/shell of share capital/share premium to bring it into the books of the invested company under the farce shell of legitimate share capital and share premium , with an intent and view to defraud revenue and evade taxes. Thus, what is apparent is not real. Thus, we hold that the share capital including share premium raised by the assessee company, to the tune of Rs. 1,51,20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been, it was clearly open to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs." We would also like to usefully refer to the decision of Hon'ble Calcutta High Court in the case of Rajmandir Estates Private Limited v. PCIT, reported in (2016) 70 taxmann.com 124(Calcutta), wherein SLP filed against the said judgment and order of Hon'ble Calcutta High Court was dismissed by Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end the proceeds back to the owner as loans, gifts and etc., under invoicing the items exported to the real owner or etc. In some cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance. 3. Integration This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through "front" companies etc. The money may be invested in real estates, business and etc. The stages at which money-laundering could be easily detected are those where cash enters into the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatriated in the form of transfers." The role of the revenue authorities in tackling the menace of laundering black money was commented by the learned author as follows:- "It has to be kept in view that India has a problem of black economy, which is unacounted and many a time the holders of black money also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee were presented for collection. (f) 19 applicants of shares within a period of less than six months had money contributed to their share capital which in their turn they contributed to the share capital of the assessee. So that, the 19 companies which contributed to the share capital of the assessee in the name of assets were left merely with the share-scripts of the assessee. The other lot of 15 subscribers in substance had the share-scripts held by them substituted by the share-scripts of the assessee. (g) Though, Mr. Poddar made extensive submissions scanning the order under Section 263 in between the lines, he did not criticize the finding of the Commissioner that "the A.O. did not examine a single Director of the assessee company or of the subscribing company" which goes to show that correctness of this assertion is not in dispute. 24. From the aforesaid evidence the following, prima facie, inferences can safely be drawn:- (a) The promoter/directors of the assessee and their close relatives and friends had united with the common object of creating at least 20 (19+1) companies apparently having a large capital base, but, in fact these are mere paper companies h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." In the case of Sumati D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue." 27. In the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) the Tribunal had held as follows:- "The Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment order for 1960-61 was considered by itself, it could not be said that the assessment order was prejudicial to the interests of revenue. It was also observed that the factum of advance of initial capital, realization of amounts by sale of gold ornaments and the carrying on of the money-lending and speculative business had already been accepted and assessed in the previous years, that even in the year of assessment in question the Income-tax Officer had added Rs.1,499 to the disclosed income from speculative business and Rs.1,270 to the disclosed income from interest and made the assessment on a total income of Rs.9,037; as such it could not be said that the assessment was prejudicial to the interests of revenue and that at the most it could be said that the assessee could not have carried on any business at the addresses given by he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s question can only be answered after a thorough enquiry, directed by the CIT, is held. The assessee is interested in stalling that investigation on the plea that the order of the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. 28. We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself which reads as follows:- "During the Financial Year the assessee company has issued 792737 No. of equity share with a face value of Rs.10/- along with a premium of Rs.390/-. Thereafter, Notices u/s. 133(6) of the I.T. Act, 1961 were also issued to verify the transactions of the assessee on test check basis. The case is disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, control and manage them." The persons behind the assessee company and the persons behind the subscribing companies were not interrogated which was essential to unearth the truth. Reference may also be made to the judgement of this Court in the case Active Traders (P.) Ltd. (supra). The question for consideration is whether in the presence of materials discussed above the Commissioner was justified in treating the assessment order erroneous and prejudicial to the interest of the revenue. That question in the facts and circumstances has to be answered in the affirmative. We find no substance in the submission that the order of the learned Tribunal is perverse, after examining all the submissions advanced by Mr. Poddar. 29. Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. The judgement in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspicion held that this was or could be a case of money laundering. We as a matter of fact have discussed this issue in great detail and need not reiterate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the assessing officer. It is true that the assessing offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies at huge valuation , which does not justify keeping in view their business affairs and background. The amounts are invested by these investing companies in unquoted shares of several private limited companies by these Kolkatta based investing companies, defying commercial prudence and expediency . No dividend was earned by these investing companies despite having investment portfolio of Rs. 22-40 crores. Meager amount of bank balance is maintained by these investing companies, and every debit in their bank account for making investing in target/client companies are preceded by the credit in bank account on the same day. They have not invested any amount in quoted/listed shares including Mutual Funds etc. wherein they can maximize their profits, defying commercial expediency and prudence. There are no other business carried out by these investing companies. The income earned by these investing companies are negligible /Nil , and business is not governed on the principles commercial expediency rather it is self destructive. So much so these companies become untraceable after few years or they are struck off from register of ROC/MCA. The AO not being satisfied with the replies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 10 each at share premium of Rs. 65 per share to three investing companies in the year 2009-10 ( year of incorporation of the assessee) , and incidentally these three companies held 80%+ shares in the share capital of the assessee company , but their names were not appearing in the list of shareholders as on 31.03.2011 filed by assessee before the AO, nor any explanation is forthcoming from assessee as to their exclusion from the list of shareholders as on 31.03.2011. Thus, it becomes all the more imperative to have complete paper trail of documentation as to how and to whom these shares held by three investing companies based at Kolkatta subscribed in 2009-10 got transferred and at what value, as the value reflected for transfer of these shares in 2010-11 will have bearing on the valuation of the company. Thus, based on the above discussions, we are of the considered view that all these five investing companies are shell/conduit companies having no business of its own , and are merely created to launder money in order to convert unaccounted money of the investing companies under the garb of share capital/share premium to bring it into the books of the invested company under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uble addition, for which we have given our decision in the preceding para of this order. However, we clarify that if at any stage , our decision in this order with respect to sustaining of additions to the tune of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE , is reversed by Hon'ble Superior Courts by holding the assessee is able to give satisfactory explanation which meets the requirement of Section 68 read with newly inserted proviso and the additions sustained u/s 68 read with Section 115BBE by us are deleted by Hon'ble Superior Courts , then in that situation Section 56(2)(viib) will get triggered and then issue of shares at premium by the assessee company is to be tested under the rigors of Section 56(2)(viib) to make additions, if so warranted. Thus, now what is remaining is the addition of Rs. 1,29,420/- made by AO u/s 56(2)(viib) of the 1961 Act, with respect to issue of 2000 equity shares of face value of Rs. 10 each at issue price of Rs. 90 per share inclusive of share premium of Rs. 80 per equity share to eight individuals as under: 1. Ambika Prasad Tiwari S/o Ram PhalTiwari Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 2. Santosh Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b)"venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b)and clause (c) of Explanation 1 to clause (23FB)of section 10; It will be appropriate at this stage to refer to Memorandum and Notes on Clauses as is referred in Finance Bill, 2012, which reads as under: Memorandum SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME "Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources". It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(viib) are provided in Rule 11UA of Income-tax Rules , 1962. There was amendment in Rule 11UA by Income-tax(Fifteenth Amendment Rules, 2012, w.e.f. 29.11.2012. The assessee has received consideration for issue of shares in May/June, 2012, but the date of allotment of shares is not furnished by the assessee . The AO has computed Fair Market Value of shares at Rs. 25.29 per equity shares, but the AO has not furnished any details/break-up of the working to arrive at FMV of Rs. 25.29 per equity shares. The assessee has worked out FMV of Rs. 87 per equity share. No valuation report is furnished by the assessee. The valuation as determined by the assessee of Rs. 87 is on NAV basis. The assessee raised in the year 2009-10 ( date of incorporation of the assessee 23.06.2009) share capital by issuing equity shares of Rs. 10 each at share premium of Rs. 65 per share , to three Kolkatta based investing companies, which held more than 80% of share capital of the assessee, but while submitting the list of shareholders as at 31.03.2011 , these three companies are not reflected as shareholders. The assessee has not given any explanation for the same. The assessee's valuation of Rs. 87 per share a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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