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TMI Blog2024 (9) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... T KOLKATA] , Vardhman Chemtech (P.) Ltd. [ 2018 (10) TMI 1037 - PUNJAB AND HARYANA HIGH COURT] and ERA Infrastructure (India) Ltd. [ 2022 (7) TMI 1093 - DELHI HIGH COURT] the appellant deserves relief. Addition u/s 14A is directed to be deleted. Decided in favour of assessee. - SRI RAJPAL YADAV, VICE-PRESIDENT AND SRI SANJAY AWASTHI, ACCOUNTANT MEMBER For the Assessee : None. For the Department : B.K. Singh, Addl. CIT. ORDER Per Sanjay Awasthi, Accountant Member: In this case, the appellant company was incorporated in the FY 2011- 12 and filed its return of income on 23.12.2012 showing a total income of Rs. 289/-. The Assessing Officer (hereinafter referred to as ld. 'AO') focused on proving the genuineness of the share application money of Rs. 1,57,50,000/- , comprising of Rs. 17,825 shares of face value of Rs. 10/-, with a premium of Rs. 990/- each. Ld. AO also recorded the following finding with regard to the efforts made by him to establish the genuineness etc. of the impugned transaction as under: To verify the genuineness of the said transactions and to verify the identity and creditworthiness of the shareholders of the assessee company, notice u/s 131 of I.T. Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to confirm the addition made by the ld. AO. Also, regarding the disallowance of Rs. 9,647/-, the ld. CIT(A) confirmed the action of ld. AO. 1.3. Aggrieved with the action of the authorities below, the appellant has approached the ITAT through the following grounds of appeal: (1) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the action of Assessing Officer who considered share capital with premium aggregating to Rs. 1,57,50,000/- as unexplained cash credit u/s 68 of Income Tax Act, 1961. (2) That on the facts and in the circumstances of the case, Ld. CIT(A) erred in confirming the disallowance u/s 14A of the IT Act read with Rule 8D of IT Rules amounting to Rs. 9,647/-. (3) That the appellant craves leave to add, alter, adduce or amend any ground or grounds on or before the date of hearing of the appeal. 2. Before us, the appellant has filed written submissions dated 29.04.2024 along with a paper book comprising of 162 pages. This paper book would be referred extensively for dealing with this matter. 2.1. To appreciate the factual position, it would be necessary to capture the gist of arguments advanced by the appellant through the paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion moneys to the appellant during the financial years relevant to the Assessment Year under dispute. 21. The various documents including I.T. Return acknowledgement accounts with Balance Sheet, Bank Statement, etc. furnished on record have not been found to be false on enquiry. There is no adverse remark so far as various documentary evidences furnished on records are concerned. No independent enquiry was conducted by A.O. from the Assessing Officer of share applicant. The A.O. has not pointed as to how on the basis of evidences filed by the share applicant it can be concluded that ingredients of section 68 are not fulfilled. There is no finding that either the Assessee or the share applicant is Paper Company and not a genuine Investor. Hence the adverse comments are not maintainable. 22. It is submitted that there is not ground to draw adverse inference for non-appearance of Directors of allottee company since all possible evidences of the existence, creditworthiness and genuinity was furnished on record. There is nothing more for the Directors to state in this respect. Moreover the provisions of section 68, do not suggest any essential relation of the Director of share holder co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epose considerable faith in the commercial future of the assessee to trust them with huge sums of money. It was on a somewhat similar situation when the Hon'ble Jurisdictional High Court upheld the doubtful nature of share premium monies being given to companies having doubtful commercial credentials in the case of PCIT vs. BST Infratech Ltd. reported in [2024] 161 taxmann.com 668 (Calcutta). Hon'ble Calcutta High Court had occasion to observe that in the said case investors had no reason to invest huge amounts in business of that assessee and the entire transaction was done to circumvent the provisions of the Act. It has been held that the action of the assessing officer in treating such share application money u/s 68 of the Act as undisclosed cash credit was justified. The relevant portion from this order deserves to be extracted as under: 36. In Swati Bajaj, the court held that based on the foundational facts the department has adopted the concept of working backward leading to the assessee. The department would be well justified in considering the surrounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over and then ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the Assessing Officer must conduct an inquiry, and call for more details before invoking section 68. If the assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. [Para 8.2] With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. [Para 8.3] The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablished the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under section 68. [Para 12] The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the Assessing Officer, failure of which, would justify addition of the said amount to the income of the assessee. [Para 14] On the facts of the present case, clearly the assessee company - respondent failed to discharge the onus required under section 68, the Assessing Officer was justified in adding back the amounts to the assessee's income. [Para 15] 5.3. It is seen that in another case on somewhat similar facts, the Hon'ble Calcutta High Court in the case of BalGopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted in [2024] 161 taxmann.com 737 (Calcutta) on similar facts has given an order which will help in deciding this case conclusively. Certain portions deserve to be extracted from the said order as under: 4. The Assessing Officer while completing the assessment under Section 143(3) of the Act by order dated 24th March, 2015 held that the assessee has failed to prove anyone of the three ingredients which are required to be proved under Section 68 of the Act. Several decisions were referred to and the Assessing Officer concludes that there was no documents produced by the assessee to substantiate their claim. This order was affirmed by the Commissioner of Income Tax (Appeals)-9 [CIT(A)] by order dated 21st January, 2019 holding that merely furnishing documents in a routine way does not explain the source of creditworthiness of the party. Further, it has been held that the basis on which premium has been charged for the shares has not been explained; no efforts have been made with the help of financial statements to justify the quantum of share premium charged. The CIT(A) placed reliance on the decision of Kolkata Bench of the Tribunal in the case of ITO v. Blessings Commercial (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Interestingly, para 11 of the ITAT s case [ITA No. 473/Kol/2019, AY 2012-13] which has specifically not been approved in this order also deserves to be extracted. 11. From the perusal of the paper book and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and allotment letter is available on record which were filed in response to notice u/s 133(6), (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 2.6. It is clear that merely filing income tax details, share application form allotment letter, bank details and details about the creditworthiness of the share applicants is not enough to prove a transaction from the point of view of Section 68 of the Act. In this case also, the appellant is seen to have filed documents, by and large, as mentioned in para 11 of the ITAT s order (supra), but following the extracted portions from the case of M/s. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: - CIT v. Ashika Global Securities Ltd. [GA No. 2122 of 2014, dated 11-6- 2018] - Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi) - Pr. CIT v. IL FS Energy Development Co. (P.) Ltd. [2017] 84 taxmann.com 186/250 Taxman 174/399 ITR 483 (Delhi) - CIT v. Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116/223 Taxman 130/[2015] 372 ITR 97 (Guj.) - CIT v. Shivam Motors (P.) Ltd. [2015] 55 taxmann.com 262/230 Taxman 63 (All.) - Redington India Ltd. v. Addl. CIT [2017] 77 taxmann.com 257/392 ITR 633 (Mad.) 34. For the reasons set out above we therefore hold that the assessment order passed by the AO in which no disallowance u/s 14Aof the Act was made, could not said to be unsustainable in law because the course adopted by the AO while passing the order u/s 143(3) of the Act was not only permissible in law but the said course was in conformity with the view expressed by the jurisdictional high court. Accordingly the impugned order of the Ld. Pr. CIT with reference to the reasons set out in clause (c) of the SCN is held to be unsustainable and accordingly set aside. Ground Nos. 8 9 are therefore allowed. (ii ) Vardhman Chemtech (P.) Ltd.: Section 14A pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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