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TMI Blog2022 (2) TMI 1398X X X X Extracts X X X X X X X X Extracts X X X X ..... ts would bind only the parties to the decision itself and it is the ultimate decision that binds. Where facts are distinguishable, such as assessee has replied and clarified all the doubts like non-service of summons on the directors of the investing companies due to change of address, existence of the investing companies on the portals of MCA/ROC and with the Income Tax Department long after investment, providing DIN of directors of investing companies and their other particulars, providing reasons for charging huge premium, adequate creditworthiness on the basis of assets, source of immediate availability of funds for investment, etc., then this decision in NRA Iron Steel (P.) Ltd. (supra) cannot be applied as Admittedly, the assessee in the case on hand has sufficiently furnished the details of the parties As we are of the view that the assessee company has sufficiently discharged its onus cast under section 68 of the Act with respect identity of the investor companies, credit worthiness and genuineness of the transaction. Therefore we direct the AO to delete the addition made by him. Decided in favour of assessee. - Shri Waseem Ahmed, Accountant Member And Shri Siddhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the transactions, establishment of identity and creditworthiness of the share applicant. 5. The Appellant craves leave to add, alter, amend or modify any of the grounds of appeal on or before the date of hearing of appeal. 3. The only grievance of the assessee is that the learned CIT (A) erred in confirming the order of the AO in part instead of deleting the same in entirety on account of share capital premium of Rs. 1,95,00,000/- treating the same as unexplained cash credit under section 68 of the Act. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of commodity trading. The assessee in the year under consideration has issued 90500 shares to eight different companies based in Kolkata. The face value of the share was ₹10 per share and the premium on such share was at ₹ 990 per share aggregating to the value at ₹1000 per share. The details of the companies along with the shares subscribed by them stand as under: Sr. No. Name of Investor Face Value (Rs.) Premium (Rs.) Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndhania, Dines Kumar Aggarwal/ Shantilal Lunia and Ankit Bagri. ii. All the entry providers have admitted in the statement furnished under section 131 of the Act to be engaged in providing accommodation entries in lieu of commission. iii. There was the investigation carried out by DDIT (Inv.) wing of Kolkata to verify the existence of above-mentioned investors as well as shareholding companies of investors. The Inspector of Income Tax in his report has submitted that none of the company was found at the given address. Therefore, it was concluded that the investor companies and shareholders of the investor companies are nothing but paper companies. iv. All the investor companies as discussed above have shown nil/nominal income in their respective returns of income. v. On examination of the bank statements of all the investor companies, it was found that there is a pattern of depositing the cheque in the bank accounts which is immediately transferred to other companies. As such there was identical pattern of depositing the money and transferring the same immediately after leaving the negligible balance in the bank account of the investor companies. vi. The investor com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no fund received from High Construction Private Ltd as alleged by the AO. As such, the amount was received by PCJ Finvest Pvt Ltd from the partnership firm namely Hi-tech Construction which has declared the return of income at Rs. 3,91,28,458/- and having the turnover of Rs. 52 crores, thus the observation of the AO is contrary to the facts available on record. 4.7 The assessee with respect to M/s Divya Secfin Pvt Ltd. submitted that there was no whisper in the show cause notice issued by the AO alleging that there was any accommodation entry received by the assessee in the form of share capital. Thus, it can be inferred that there was no doubt raised by the AO under the provisions of section 68 of the Act with respect to the impugned company. 4.8 It was also contended by the assessee that the shares were issued by it at a premium which is based on the valuation report prepared by the registered valuer using the discounted cash flow method which has been recognized under the provisions of the Act. 4.9 It was also submitted that all the investor companies were holding the license of NBFC issued by the Reserve Bank of India. All the companies were having high net w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : i. The financial statements of these companies neither show any income by way of operation nor operating expenses such as rent, electricity, telephone, salary etc. Likewise, there was no fixed asset shown by these companies except the investments/loans advances in other companies. ii. There is negligible balance in the bank account of the investor companies despite having so much share capital. As such, the amount received by the investor companies against the issue of shares have been utilized by acquiring the shares of other companies on the same date. In the present case, the investor companies have acquired the shares in the assessee company at high premium. In simple words, the investor companies are showing receipt of money in the form of share capital premium which have been utilized for making the investment in the other companies at the same time. Thus, on perusal of the bank statement of the investor companies, there are appearing only incoming and outgoing entries leaving a negligible balance in their bank accounts. iii. The amount of share capital premium shown by the investor companies was received from the shell companies which were operated and manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the transaction cannot be held to have proved merely on the basis of transaction carried out through banking channel and legal compliance has been fully done. Indeed, a genuine transaction must be proved genuine from all perspective not merely on papers. As such genuineness of transaction should pass the human probability test, commercial prudence and surrounding facts circumstances and these test has not been passed or explained fully. Thus the assessee failed to prove the genuineness of transaction also. 4.20 Likewise, the credit worthiness of the investor companies cannot be held to have proved merely on the basis that these companies have huge amount of share capital and reserve. As such, the credit worthiness does not depend upon the facts of having capital and reserve in the books of account but same depends on: - Availability of sufficient cash at the time of investment at its disposal. - Having income in commensurate to the investment made. - Sources of money in the hand of investors and their genuineness. - Commercial prudence of investment. 4.21 The assessee failed to establish credit worthiness of the investors companies based on the parameters a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fresh report should be sought for and provided for rebuttal. 6.3 Allegation that the investor companies are shell/ paper company are also contrary to facts, as all these companies are registered with RBI as NBFC and having high value of net worth. Further, the investment made by those companies in the share capital of the assessee company is very negligible in comparison to their net worth which ranges between 0.25% to 2% only. 7. The learned CIT(A) after considering the submission of the assessee accepted the additional evidences and sought detailed enquiry report with respect to identity, genuineness and credit worthiness of the investors from DDIT(Inv) Unit- 3(3) Kolkata. The learned CIT(A) on the basis of report form DDIT(Inv) Unit-3(3) Kolkata and after considering fact in totality was pleased to allow partial relief to the assessee by observing as under: 9. From the perusal of the facts of the above remand report, it is clear that out of the above 8 companies, only PCJ Finvest and Seema Holdings are identified as Jama Kharchi companies by DDIT Investigation wing, Unit 3(3), Kolkata. No adverse finding has been given in case of first five investment companies by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Pvt. Ltd have been considered as Jama Kharchi companies in the data base of Investigation wing, Kolkata. Moreover, the investor company namely M/s. Pearl Tracom Pvt. Ltd. Has not been found at the given address. 10. In view of the above, report of the Investigation Wing, as well as the remand report given by the AO at Ahmedabad, the addition made on account of investment by the following companies is deleted. Sr. No Name and Address of Investors Amount (Rs.) 1 Shri Narayan Mercantiles Pvt. Ltd. 5/1, Clive Row, 4thFloor, Room No. 125, Kolkata-700001 2,75,00,000 2 Pragya Commodites Pvt. ltd. C-11, CIT Building, 30 C Mdan Chaterjee Lane, Kolkata-700007 1,30,00,000 3 Dewdrops Mecantiles Pvt. Ltd. C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata- 700007 2,05,00,000 4 Divya Secfin Pvt. Ltd.C-11, CIT Building, 30 C Madan Chaterjee Lane, Kolkata-700007 25,00000 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reports there is no comment on the creditworthiness of these companies or the genuineness of transactions. 3. The Id. CIT(A) has erred in law and facts on granting relief to the assessee by considering the facts of the reports of the DDIT(lnv). which were already available with the A.O. and same had been analyzed and discussed in the assessment order to show that these companies had shareholders as shell companies promoted by identified shell company operators, that these companies had no business operations and had used share capital and premium from such companies to invest in the assessee company, and that there was no justification to invest in the assessee company at a steep premium. 4. The Id. CIT(A) has erred in law and on facts in not appreciating that mere payment by cheque does not render a cash credit as genuine under the parameters of section 68 of the Act, without establishing the creditworthiness of the credits and the genuineness of the transaction 9. The learned AR before us submitted that the assessee has filed all the details with respect to the shareholders during the assessment proceedings. Furthermore, some of the shareholders were subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to investigate the nature of investment also. (a) Confirm/deny the availability of the above parties of the stated addresses. (b) If present of any of the addressess i. Duration of their functioning from that premise. ii. Nature of the business. iii. Scale of business (Copy of the IT return may be obtained alongwith audit report, balance sheet.). V iv. Brief description of the office premises v. Principal persons of the company details of directors and their contact addresses. vi. Mode and quantum of investment. vii. Source of investment(s). 12.2 In response to such commission, the DDIT (Inv.) Unit-3(3) Kolkata vide letter no. DDIT(Inv.)/U-3(3)/Kol/Commission-131(1)(1d)/Jhawar/15-16/113 dated 11-04- 2016 has made the submission as detailed below: The desire report in respect of the companies entered in to alleged bogus share application money/ share premium in the case of M/s Jhawar Comtrade Pvt. Ltd. (PAN - AADCS3553N) for the assessment year 2012-13, Is furnished in the table given below: Sr. No. Name of the Company PAN Address ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred to this ward vide order u/s 127(2) of the I.T. Act passed by the Pr. Cll-1, Surat vide No SRT/Pr.CIT- 1/!TO(HQ)/NOC/PAN/2016-17 dated 11.11.2016. However, the case records have been received in the month of Feb-2017 In the above referred case CIT, Appeals-4, Surat has, scatted for the remand report vide letter No. SRT/CIT(A)-4/RE/JC/2015-16 cited 05.02.2016. The then Assessing Officer vide his letter No SRTA/vJ 1(1)(3)/Remand Report/JCPL/2015- 16 dated 15.02.2016 has requested for time for submitting the remand report. However, subsequently the case has been transferred to this office. In view of this and as per the personal directions given by Your Honor, the remand report in the above mentioned case is submitted by as under In this case the assessment was finalized by the then Assessing Officer at the total income of Rs. 9,77,97,7007- against the returned income of Rs. 6,97, TOO/- after making the addition of Rs. 9,05,00,000/- on account of bogus share application money u/s 68 of the I.T. Act. received from (he following companies. Sr. No Name and Address of Investors Amount (Rs.) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .01.2015 is enclosed). The DOIT, (Inv), Unit-3(3). Kolkata vide his letter No. DDIT (Inv)/U'3(3)/Kol/2014-15/Jhawar/Surat/736 dated 27.02.2015 has given the findings which have already been forwarded to the CIT(Appeals-4), Surat, vide letter No. SRT/Wd.1(1)(3)/Remand Report 'JCPL/201 '5-1 6 dated 02.03.2016 Another letter issuing commission u/s 131(1)(d) of the I.T. Act was issued by the then A.O vide letter No SRTA/Vd.1(1)(3)/131(1)(d)/JCPL/2015-16 dated 02.03.2016 (copy enclosed) to verify the genuineness of the investment made by the above mentioned eight investor companies. The DDIT (lnv)-Unit-3 (3), Kolkata vide his letter No. DDIT(lnv)/U- 3(3)/Kol/Commission-131(1)(d)/Jhawar/15-16/113 dated 11.04.2016 submitted the detailed inquiries conducted by in the above mentioned eight investors. (Copy enclosed). As evident from the report it is crystal clear that out of the eight investor companies namely the M/sPCJ Finvest Pvt. Ltd. and M/s Seema Holding Pvt. Ltd have been considered as Jamna Kharchi companies in the data base of investigation wing, Kolkata. Moreover, the investor company namely M/. Pearl Tracom Pvt. Ltd. Has not been found at the given address. 12.4 O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed above. 12.9 There was one of the company namely M/s Divya Secfin Pvt. Ltd. which was not issued any show cause notice by the AO during the assessment proceedings raising any doubt about the identity, genuineness and creditworthiness of the same. But we find that, the AO in the assessment framed under section 143(3) of the Act in the case of the assessee has treated the investment made by such company as bogus in nature without giving any opportunity to the assessee. However, despite that we find that the assessee itself has furnished the necessary details as detailed below: - Copy of share application form - Copy of bank statement of party - Copy of ITR-V and assessment order under section 143(3) - Copy of audited financial statements - Copy NBFC Registration certificate, PAN, MOA, AOA and Board Resolution - Copy of notarized affidavit. 12.10 Further, the notice issued by the AO under section 133(6) was also duly replied by M/s Divya Secfin Pvt Ltd along with requisite details. Accordingly, we hold that no adverse inference can be drawn against the transaction carried out by the assessee with M/s Divya Secfin Pvt Ltd. in view of the fact that there w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted under section 131(1)(d) of the Act would not be binding on the AO/ CIT(A), since the matter of adequacy or otherwise is to be adjudged by the AO/CIT(A) himself and he cannot delegate this authority to the Commission officer. Furthermore, the AO/CIT(A) is to apply his own mind and cannot make such a report the sole basis of his assessment without application of his mind. 13.4 The Assessing Officer must also allow a reasonable opportunity to the assessee to point out any lacuna or inadequacy in the report submitted by the Commissioner. It is trite law that no person can be condemned without being heard. The powers conferred to the relevant authorities by section 131(1)(d) cannot be invoked if no defects are found in the books of account of the assessee. In the famous case of CIT v. Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar [1992] 64 Taxman 585 (Raj.), it was held as under: . . . Simply because the valuation report is of a higher amount, the books cannot be said to be unreliable unless by a deeper probe any defect is found in the maintenance of books of account.... (p. 589) 13.5 Coming to the case on hand, we note that the commission has been appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made detailed analysis of the balance sheet filed by the investor company which is reproduced on page 40 of the order of the AO. The question arises how is it possible to have the details of such company if such company had not been in existence. Therefore, we are of the view that no adverse inference can be drawn against the assessee. 13.9 With respect to the PCJ Finvest Pvt Ltd, we note that there was the assessment by the Income Tax Department under section 143(3) of the Act as evident from the submission of the assessee, which has not been controverted by the revenue. The relevant submission of the assessee reads as under: We furnish herewith copies of assessment order passed u/s 143(3) of the act in the cases of investor companies namely PRAGYA COMMODITIES PVT. LTD., DEWDROPS MERCANTILE PVT. LTD.. DIVYA SECFIN PVT LTD., and PCJ FINVEST PVT. LTD. By their respective AOs for A.Y. 2012-13. This fact alone proves the Identity, existence and genuineness of these investors. Their AOs have assessed them u/s 143(3) of the Act on the basis of their audited financial statements and have accepted their net worth. Investments made by them in appellant were out of their net worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestor for A.Y. 2013-14 is under scrutiny assessment and we enclosed herewith copy of the questionnaire cum notice u/s 142(1) received by the investor from his AO at the given address. These evidences clearly prove the identity, existence, genuineness and creditworthiness of the investor. Amount invested by this investor in appellant company is Rs. 25,00,000/-, 13.12 Considering all these material facts, the transaction of purchase of shares by Seema holding cannot be held as bogus merely on the basis that its name appearing in the list of Jama/Kharchi company maintained by DDIT(Inv) Kolkata. 13.13 Without prejudice to the above discussion with respect to all the investor companies, we note that under the provisions of section 68 of the Act as applicable for the year under consideration, the assessee has to justify the source of cash in its hands and he s not supposed to justify the source of source in the hands of the investor companies. Indeed, there was an amendment under the provisions of section 68 of the Act requiring the assessee (not being a company in which public are substantially interest) to justify the source of source in case amount credited in the form of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L A/Cs, it is evident that they have incurred required establishment expenses From the chart given below, it is evident that they have incurred the salary and other administrative expenses required for their business. 13.15 A company registered as NBFC with the RBI has to undergo for certain formalities as provided under section 45(1A) of RBI Act, which can be classified as under: - Have to provide complete identity, details of directors and shareholders - Director must have experience of finance, credit and banking business - Company must have detailed business plan for next 5 years - There must be capital of Rs. 2 crores which should be own fund of promoters/shareholder without comprising borrowings - Directors and shareholder must have clean credit history. In other words there should not be any default by them in repayment of loans or credit in past - The capital employed by the shareholders/promoters out of net own fund must have been taxed - All the compliance under law of the land has been duly complied with. 13.16 Once, a company registered as NBFC, then it has to make certain compliance on regular basis some of which are detailed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submission of the assessee reads as under: It may further be appreciated that, as per the statements provided alongwith the show-cause letter, none of the alleged entry operators (Mr.Dinesh Dhandhania. Mr.Rakesh agarwal, Mr.Ankit Bagri and Mr. Dinesh Agarwal) have admitted that any of our investor company (or its shareholders) are bogus. It is surprising that how the statement of such entry operators can be used against us, especially when such people are neither directors nor shareholders of our investor companies . Since such persons are unrelated to us or our investors, their admission or otherwise should have no bearing on the nature of our transactions. 14. From the above submissions, it is revealed that the activities of investor companies have nowhere been doubted by the authorities below. Indeed the AO in final finding has stated that statement of entry provider has been used as general information and therefore these information should be taken in generalized manner. Hence, it is not required to prove the connection of the assessee company with the investor companies. The relevant finding of the AO reads as under: 6.6 As regards relation between investo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court is extracted here under: The assessee took it that the affidavits of these parties were enough and neither the AAC, nor the ITO considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits. Under these circumstances it was not open to the revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits. 14.4 It is also a fact on records that notices under section 133(6) was issued upon all the companies by the AO which were duly complied with. In this regard, the submission of the assessee which, has nowhere been controverted by the authorities below, reads as under: We are informed that notice u/s.133(6) were issued by your good office in our investor companies at their given address, and sent by speed post. Our Investor companies have received such statutory notice u/s.133(6), at the given address, and given address, and have duly replied to the same. 14.5 Thus, once the response has been made against the notice issued under section 133 (6) of the Act, it is implied the existence of the company. In holding so we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. (iii) The notice could not be served on two investor-companies, namely Hema Trading Co. Pvt. Ltd.-Mumbai, Eternity Multi Trade Pvt. Ltd.-Mumbai. (iv) Submissions from nine companies were received ( Neha Cassetes Pvt. Ltd .- Kolkata, Warner Multimedia Ltd. Kolkata, Gopikar Supply Pvt. Ltd. Kolkata, Gromore Fund Management Ltd. Kolkata, Bayanwala Brothers Pvt. Ltd. Kolkata, Shivlaxmi Export Ltd. Kolkata, Natraj Vinimay Pvt. Ltd. Kolkata, Neelkanth Commodities Pvt. Ltd. Kolkata, Prominent Vyappar Pvt. Ltd. Kolkata), however, they had not given any reasons for paying such a huge premium. Furthermore, they had declared very low income in their respective returns of income. (v) The details of share purchased and the amount of premium were not specified by certain companies namely Super Finance Ltd. Kolkata, Ganga Builders Ltd. Kolkata. Furthermore, these companies had not enclosed the bank statement. (vi) In addition to above, ld. AO found that: a. Out of the four companies at Mumbai, two companies were found to be non-existent at the address furnished. b. With respect to the Kolkata companies, nobody appeared nor did they produce their bank statements to substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex court in the case of NRA steels (supra) are not applicable to the facts of the case. 14.11 It is also pertinent to note that various Hon ble court after considering the judgment of Hon ble Supreme Court in the case of NRA Steel (supra) has deleted the addition made by the AO under the provisions of section 68 of the Act. In this connection we draw support and guidance form the judgment of Hon ble Bombay High Court in case of PCIT vs. Ami Industries (India) (P.) Ltd. reported in 424 ITR 219 where it was held as under: 21. From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vest in the assessee company, and that there was no justification to invest in the assessee company at a steep premium. 4. The Id. CIT(A) has erred in law and on facts in not appreciating that mere payment by cheque does not render a .cash credit as genuine under the parameters of section 68 of the Act, without establishing the creditworthiness of the credits and the genuineness of the transaction 16. The only interconnected issue raised by the Revenue is that learned CIT(A) erred in deleting the addition to the extent of Rs. 7.1 crore made under section 68 of the Act. 17. At the outset we note issue raised by the Revenue has already been decided along with assessee s appeal in ITA No. 68/SRT/2017 vide paragraph number 12 to 14 of this order. We have decided the issue in favor of the assessee and against the revenue. For the detailed discussion, please refer the aforementioned para of this order. Hence ground of appeal of the Revenue is hereby dismissed. 17.1 In the result appeal of the Revenue is dismissed. 18. In the combined result appeal of the assessee is allowed and appeal of the Revenue is dismissed. Order pronounced in the Court on 28/02/2022 at Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X
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