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TMI Blog2024 (5) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... ry stand taken by the assessee to that of the stand taken by the CIT(A). In any event, the averment made by the assessee, before the CIT(A) at the first instance, stating that the notice was received after receiving the assessment order is a vague statement and appears to have not been established by producing documents before the CIT(A). Therefore, we have to necessary hold that there has been noncompliance of the summons issued under Section 131 of the Act. How the valuation was arrived at for charging a premium of Rs. 4990/- per share ? - The CIT(A) while examining the case of the assessee took note of the factual position which is not in dispute namely the assessee was a newly incorporated company and it was in the first year of its operation that to a broken year. The CIT(A) on examining the facts found that the assessee company had no track record or asset base for demanding astronomical high premium per share at Rs. 4990/- defying all commercial and financial prudence and logic. Further the CIT(A) on facts found that there was no noticeable business activity or book value/earnings per share which can justify the very high share premium. The assessee made investments in land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent JUDGMENT ( Judgment of the Court was delivered by T. S. Sivagnanam, CJ. ) 1. This appeal by the assessee filed under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated May 04, 2023 passed by the Income Tax Appellate Tribunal B Bench Kolkata in Income Tax Appeal (ITA) No. 456/Kol/2019 for the assessment year 2012-2013. The assessee has raised the following substantial questions of law for consideration:- (i) Whether the Tribunal can examine facts and/or issues which were not in contention before the Assessing Officer? (ii) Without prejudice to the aforesaid, whether the Tribunal ought to give the appellant an opportunity to file documents and submissions countering the issues raised by it and the failure to do the same renders the order of the Tribunal to be in gross violation of the principles of natural justice? (iii) Whether the identity and creditworthiness of subscribers to the share capital and the genuineness of the transaction be doubted on account of a non-compliance to a notice issued under section 131 of the Act, especially since the notice was received after the completion of the assessment, and without considering the other docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s companies along with the proof of photo identity and copy of bank statements of their compliance reflecting all transactions during the period 01.04.2011 to 31.03.2012 with complete narration and source of funds and right up on justification of large shares premium. The assessing officer records that there was no complaints from the directors of the assessee company in response to the summons issued under Section 131 of the Act and therefore the identity, genuineness and creditworthiness of the share applicant companies were not established because the primary issue regarding the due diligence done, the steps taken for protection of the funds and most importantly the reason for investment in a company with no track record and that to with such huge premium was not clarified. Further since the assessee did not furnish the details of the shareholders, and hence the identity of the shareholders was questionable. 4. The assessing officer observed that in the light of the preponderance of probability and normal human behaviour, it may be easily inferred that the entire transaction lacks substance. The assessee company has been recently incorporated without any proven track record and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received by the director after receiving the assessment order and therefore the assessee was denied proper opportunity of being heard. The CIT(A) by order dated 11.10.2018 dismissed the appeal filed by the assessee. Aggrieved by the same, the assessee preferred appeal to the learned tribunal. 8. Before the tribunal certain details were produced by the assessee contending that the first allotment shares were without premium on 30.03.2022. The second allotment was on 31.03.2012 with security premium to two companies. The assessee produced bank statement of the company and shares applications 1 to 5 received from five individuals. The second allotment made on 31.03.2012, share application forms, article and memorandum, audited balance sheet as on 31.03.2012 of M/s. Asthbhuja Mercantile Private Limited showing investments in the assessee company share application form and similar details of M/s. Maida Securities Limited showing investment in the assessee. Therefore the assessee contended that they have proved the genuineness of the amount received towards share application and premium, established the identity of the investors and the creditworthiness of the investors. 9. Further it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e share subscribers and erred in limiting their examination only to the facts that the previous year 2011-2012 was the year of commencement of business. Further it is submitted that the CIT(A) did not examine the facts and the documents which were placed before it rather the CIT(A) merely referred to several decisions and rejected the appeal. Thus, it is submitted that the entire matter may be remanded to the assessing officer for fresh consideration of all documents after affording adequate opportunity to the assessee. 11. Mr. Om Narayan Rai, learned Senior Standing Counsel appearing for the respondent submitted that the assessee was incorporated on 29.06.2011 and the assessment year under consideration is the very first year of the operation of the company which is a broken year considering the date of incorporation. The assessee filed return of income reporting a total income at NIL. The assessee raised a share capital of Rs. 3,66, 00,000/- comprising of share capital at Rs. 11,71,000/- and security premium of Rs. 3,54,29,000/-. The assessee did not comply with the summons issued under Section 131 of the Act. It is submitted that the assessee allotted shares to five individuals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were called which include the name, address, PAN and jurisdictional AO of all directors with copy of their personal returns of the said assessment year and also the list of shareholders with complete postal address along with Form 2 and Form 5. Despite the assessee responding to the said notice and submitting all the details, the assessing officer did not advert to the same. In this regard, the reply sent by the assessee to the notice under Section 142(1) annexed to the supplementary affidavit in page 47 was referred to stating that the details called for were fully furnished. The shareholder s response was also referred to which is annexed to the supplementary affidavit in page 13 and 14 and in pages 27 to 30. Therefore, it may be submitted that the matter may be remanded back to the authorities for consideration of all the documents after affording opportunity to the assessee. 16. We have elaborately heard the learned advocates for the parties and carefully perused the materials placed on record. 17. The law on the subject is fairly well settled, the assessee as to the burden of proof would include the proof of identity of the investor, the capacity of the investors to advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of a company which the assessing officer held to be not genuine and the companies had no creditworthiness and the identity had not been established, in the case of Principal Commissioner of Income Tax, (Central) - 2 Versus M/s. BST Infratech Limited ITAT 67 of 2024 dated 23.04.2024, the court took note of the various decisions on the point and it would be useful to the refer to the relevant paragraphs of the said judgment:- 16. In Commissioner of Income Tax Versus N.R. Portfolio Private Limited (2014) 42 Taxmann.com 339 (Del) the substantial question of law which was framed for consideration is whether the tribunal was right in deleting the additions under Section 68 of the Act and whether the decision of the tribunal is perverse. 17. With regard to the role of the assessing officer, the Hon ble Court held that the assessing officer is both an investigator and an adjudicator; when a fact is alleged and stated before the assessing officer by an assessee, he must and should examine and verify, when in doubt or when the assertion is debatable. Normally a factual assertion made should be accepted by the assessing officer unless for justification and reasons the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditworthiness and genuineness of the transactions. 19. The doctrine of Source of Source or Origin of Origin was explained in the following terms:- 24. We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty which an assessee may be faced with when asked to establish unimpeachable creditworthiness of the share subscribers. But this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of source of source' or origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the object and purpose for which payment/investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. The facts of the present case noticed above speak and are obvious. What is unmistakably visible and apparent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. 21. In Rajmandir Estates Private Limited Versus Principal Commissioner of Income Tax 2016 SCC Online Cal 1237 , one of the substantial questions of law which fell for consideration was whether the finding of the CIT(A) that unaccounted money was or could have been laundered as clean share capital by creating fa ade of paper work, routing the money through several bank accounts and getting the seal of statutory approval by getting the case re-opened under Section 147 suo motu and whether the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the assessee. 23. The decision in N.R. Portfolio Private Limited was quoted with approval wherein it has been held that creditworthiness or genuineness of a transaction regarding share application money depends on whether two parties are related or known to each other, or mode by which parties approached each other, whether a transaction is entered into through written documentation to protect investment or whether the investor was a angel investor, the quantum of money invested, the creditworthiness of the receipt, object and purposes for which payment/investment was made etc. The incorporation of a company and payment by banking channel etc. cannot in all cases tantamount to satisfactory discharge of onus. The principles which emerge were sums of money are credited as share capital/premium was summarised as follows:- 13.1. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. 13.2. The assessing officer is duty-bound to investigate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are at Rs. 4990/- defying all commercial and financial prudence and logic. Further the CIT(A) on facts found that there was no noticeable business activity or book value/earnings per share which can justify the very high share premium. The CIT(A) referred to various decisions with regard to the burden of proof on the assessee that he has to prove the identity and capacity of the subscriber company to pay share application money and it is not sufficient for the assessee to merely disclose address and the identities of the shareholders but the assessee has to show the genuineness of such individual and entities. Further the test of human probability has to be applied and it has to be examined as to the reason to invest in the shares of the assessee companies at such huge premiums. After noting the legal position, the appeal was dismissed. 26. One of the companies which had purchased shares at a premium of Rs. 4990/- per share namely Astbhuja Mercantile Private Limited appears be a company which does not have creditworthiness as could be seen from the director s report wherein it is stated that the company has earned a profit of Rs. 280/- against a profit of Rs. 130/- earned during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tch good sale price at high profits after its development. The learned tribunal referred to the objects of the companies as contained in the Memorandum of Association and found that there is no reference to the activities of development of land or dealing in land as claimed by the assessee and the main object is dealing with merchandise and articles of all kinds with no reference to dealing or development of the land. 29. The learned Senior Advocate appearing for the assessee would point out that in the objects incidental or ancillary to the attainment of the main objects, one of the objects is to acquire estate or interest whatsoever and to hold develop, plan etc. In any event, the assessee miserably failed to establish before the fact finding authority that they had infact, actively involved themselves in development of land and this is highly improbable as the assessee was incorporated only on 29.06.2011 and the assessment year under consideration namely 2012-2013 is the first year of operation of the company which is a broken year taking note of the date of incorporation. Thus, the charging of premium of premium of Rs. 4990/- is illogical and there is no basis for fixing such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion as the seller agreed to put the five individuals in possession after executing the sale deed and registering the sale in jurisdictional Sub Registrar s office. The sale transaction between the five individuals and the alleged land owners appears to have not taken place and out of the land owners who have stated to have signed the agreements for sale dated 22.07.2011, two of them are stated to have executed to a deed of conveyance in favour of the assessee dated 28.04.2014. In the Memorandum of Understanding dated 28.02.2012 which precedes the deed of conveyance, it is stated that the assessee will allot pari passu shares of Rs. 10/- each at par to the parties of the first part who are the five individuals which shall be in turn deemed to be the consideration to acquire the said interest in the land parcels. The effects of these documents were considered by the tribunal and it was not satisfied with the genuineness of the transaction more importantly noting that the assessee itself has claimed that there is no noticeable business activity during the year. Thus, the tribunal ultimately concluded that the assessee has failed to establish the basic ingredients required to be est ..... X X X X Extracts X X X X X X X X Extracts X X X X
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