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TMI Blog2024 (9) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted would normally paint a grim picture to any prudent investor, however, in this case it seems to have encouraged 11 entities to transfer huge sums of money by way of share premium. Considering the case laws cited the financial health of the assessee and the inadequate discharge of onus, we hold this case to be a fit case for application of Section 68 of the Act and thereby confirm the impugned addition. Appeal filed by the assessee is dismissed. - SRI RAJPAL YADAV, VICE-PRESIDENT AND SRI SANJAY AWASTHI, ACCOUNTANT MEMBER For the Assessee : None. For the Department : Subhendu Datta, CIT D/R. ORDER Per Sanjay Awasthi, Accountant Member: In this case the appellant filed return of income on 08.09.2012 declaring total loss of Rs. 10,893/-. In the first round, order u/s 143(3) of the Income Tax Act, 1961 (in short the 'Act') was passed on 24.02.2014 at a total income of Rs. 1,26,350/-. It is seen that this assessment order was set aside u/s 263 of the Act by the Pr. Commissioner of Income Tax-3, Kolkata [hereinafte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year as unexplained cash credit u/s. 68 when all the details and evidences were filed to prove the identity and creditworthiness of the party and genuineness of the transactions, the AO verified the same by issue of notice u/s 133(6), the onus that lay on the assessee was discharged and the AO simply made the addition on surmises suspicions without bringing any cogent material on record. 2. For that the Ld. CIT(A) erred in doubting the value of share premium amount determined by the assessee company for issue of shares when neither the provisions of section 56(2)(viib) came into force from the assessment year under consideration nor the source of source as required under the amended provisions of section 68. 3. For that on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming the order of the AO in adding back Rs. 50,00,00,000/- which was unjustified and not in accordance with law. 2. It is seen from the records that this case has been pending since long and on several previous hearing dates the appellant has filed applications for adjournments. It is seen that on 19.03.2024 a paper book running into 272 pages was filed mainly containing documents pertainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment Advice Filed Not filed (Share Allotment^ Advice) Copy of General Ledger Filed Filed (Copy of General Ledger) Copy of Declaration Filed Filed (Copy of Declaration) ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy of Notice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 06 i Documents of Eversafe Highrise Pvt. Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: Share Application Form Filed Not filed (Share Application Form) Share Allotment Advice Filed Not filed (Share Allotment Advice) Copy of General Ledger Filed Filed (Copy of General Ledger) Copy of Declaration Filed Filed (Copy of Declaration) ITR Acknowledgment for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23/12/2016 with Evidence of return from Income Tax Office (Envelop) Filed Not found in Assessment folder 10 i Documents of Northstar Dealcomm Pvt. Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: Share Application Form Filed Not filed (Share Application Form) Share Allotment Advice Filed Not filed (Share Allotment Advice) Copy of General Ledger Filed Filed (Copy of General Ledger) Copy of Declaration Filed Filed (Copy of Declaration) ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy ofNotice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 11 i Documents of Quantam Suppliers Pvt Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: Share Application Form Filed Not filed (Share Application Form) Share Allotment Advice Filed Not filed (Share Allotment Advice) Copy of General Ledger Filed Filed (Copy of General Ledger) Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he documents placed before us and since nobody has been attending on behalf of the assessee for past several hearings the averments of the appellant have been gleaned from the submissions before the ld. CIT(A) and whatever material has been filed through the paper book (supra). 3.1. Before the ld. CIT(A), it is seen that the assessee filed submissions regarding the satisfaction of the ld. AO in first round proceedings, where an exercise had been undertaken to gather information concerning the share capital subscribers through issuance of notices u/s 133(6) of the Act. It was submitted that necessary bank statements, balance sheet copies, assessment particulars, and other details were provided which eventually satisfied the then ld. AO (in first round assessment proceedings) regarding the genuineness of the transactions. it was also averred that in the second-round proceedings, very little time was given to the assessee to comply with the summons u/s 131 of the Act issued to the 11 share capital subscribers. Ultimately, it was asserted that the onus was discharged by the assessee for proving the impugned transactions and therefore, adverse inferences drawn were unjustified. 4. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 arrive at a decision. 37. Thus the CIT(A) was right in adopting a logical process of reasoning considering the totality of the facts and circumstances surrounding the allegations made against the assessee taking note of the minimum and proximate facts and circumstances surrounding the events on which charges are founded so as to reach a reasonable conclusion and rightly applied the test that a reasonable/prudent man would apply to arrive at a conclusion. On facts we are convinced to hold that the assessee has not established the capacity of the investors to advance moneys for purchase of above shares at a high premium. The credit worthiness of those investors companies is questionable and the explanation offered by the assessee, at any stretch of imagination cannot be construed to be a satisfactory explanation of the nature of the source. The assessee has miserably failed to establish genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, 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, the Assessing Officer made an independent and detailed enquiry, including survey of the so-called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9] The principles which emerge where sums of money are credited as Share Capital/Premium are: i. 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 Assessing Officer, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber, verify the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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] 162taxmann.com465 (Calcutta) has held that action u/s 68 of the Act was justified. 6. A close reading of the case laws cited (supra) reveals that mere filing of confirmations and the income tax details etc. are not enough to justify payment of monies as share premium when the financial aspects of the recipient company would not merit such investments under any kind of prudent consideration. In the present case while 4 out of 11 share applicants were not traceable on given addresses and one more did not respond to the summons, it is evident that even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted (supra) would normally paint a grim picture to any prudent investor, however, in this case it seems to have encourage ..... 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