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TMI Blog2023 (10) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... ransactions cannot be treated as bogus. Since the payments have been made from of funds available with them, the credit worthiness would also stand proved. We notice that the AO has observed that these subscribers are either showing loss or meager profits and such meager profits are not commensurate with the investments made by them. However, there is no bar under the law that a person could not make investments out of borrowed funds. In the instant case, it is not the case of the AO that the applicants did not have funds available with them for making investments in the assessee company. In fact, the said investments have been routed through the bank accounts of the assessee as well as the subscribers. Further, these investments are duly reflected in their books of account. We notice that the AO has mainly relied upon the report of investigation wing to come to the conclusion that the assessee has availed only accommodation entries. He has also referred to the non-reply of the notices issued by them and non-furnishing of details called for. But the fact would remain that the assessee has furnished the relevant details before the AO and all those details were earlier filed with eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments were completed in the hands of the assessee for the above said year under section 143(3) read with section 153A of the Act. 3. The Kolkata investigation wing of the department had reported that many paper companies are indulging in providing accommodation entries in the form of share capital/share premium to various beneficiaries. It was noticed by the department that the assessee s group has received share capital/share premium from such paper companies. The details of the share capital received by the assessee during the year under consideration herein are given below:- S. No. Name of Subscriber Capital Premium Total 1 Starpoint Dealers P Ltd 39,70,000 6,74,90,000 7,14,60,000 2 Morepan Merchant P Ltd 33,30,000 5,66,10,000 5,99,40,000 3 Zenstar Marketing P Ltd 44,40,000 7,54,80,000 7,99,20,000 Total 21,13,20,000 4. During the course of search proceedings, Shri Sumati Chand Gauti, one of the key persons of the group submitted in the statement recorded u/s 132(4) of the Act that he could not trace out certain companies/directors of those companies who has subscribed to the shares of the assessee group companies. Accordingly he expressed the view that he has no other option bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Share premium is a capital receipt and it has been received as per the private negotiations made between the assessee and share subscribers. It was further submitted that the Companies Act has put in restrictions with regard to the usage of share premium amount. Accordingly, it was contended that the addition u/s 68 could not be made. 8. The assessing officer did not accept the contentions of the assessee. The AO, after referring to various case laws, held that the share application money received by the assessee is unexplained. It is pertinent to note that M/s Starpoint dealers P Ltd and M/s Morpan Merchant P Ltd have invested the impugned amount in the assessee company, out of funds received by them from other group companies. The assessing officer had already assessed the funds received by the group concerns to the extent of Rs. 13.14 crores as their income u/s 68 of the Act in their respective hands. Since the above said two companies have invested a sum of Rs. 13,98,60,000/- in the assessee company, the AO assessed a sum of Rs. 13,14,00,000/- on protective basis u/s 68 of the Act and a sum of Rs. 50.00 lakhs on substantive basis. The AO also assessed the share capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, the Ld CIT (A) directed that the share capital of Rs. 7,14,60,000/- received from Starpoint Dealers P Ltd and Rs. 5,99,40,000/- received from M/s Morpan Merchant P Ltd be deleted. The relevant observations made by Ld CIT (A) are extracted below:- 5.59 Admittedly, the assessment of Starpoint Dealers Pvt Ltd and Morpan Merchant Pvt Ltd has been carried out together with this assessment. The unexplained credits appearing in these two companies during the entire block period has been treated as income of these companies in respective years. The appeal of these years was pending with this office and it is noted that in respect of the credit entries which relate to Kolkatta based jamakarchi companies, these additions have been confirmed at the first appellate level. In light of these facts, since the credits in the books of the appellant company are admittedly out of these sources, the protective addition made by the AO does not survive. The addition of Rs. 7,14,60,000 being credit from Starpoint Dealers Pvt Ltd and the credit of Rs. 5,99,40,000 being credit from Morpan Merchant Pvt Ltd is directed to be deleted. 12. In respect of addition of Rs. 7,99,20,000/- received from M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd (2019)(103 taxmann.com 48)(SC), has stressed upon the need to examine the creditworthiness of the investor companies in case of doubt about these companies. 5.62 In light of the various documents submitted by the appellant as discussed above and the fact that the credit arose out of the funds of Sumati Chand Gouti and M/s SCG Exports Pvt Ltd, the source of credit is found to be suitably explained. The amount credited in the books of the assessee cannot be treated as unexplained credit under such circumstances. As such, the AO is in error in making the addition under section 68 of the Act in this case. 5.63 The source of remaining amount received from Zenstar has not been explained. As such, the addition under section 68 of the Act to the extent of Rs. 50,00,000/- stands confirmed . Aggrieved by the decisions so rendered by Ld CIT(A), both the parties have filed these appeals. 13. We heard rival contentions and perused the record. In the instant case, the addition has been made u/s 68 of the Act, wherein cash credits, which are essentially share capital/share premium money received by the assessee, have been added. Sec. 68 enables assessment of such types of cash credits, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid investments have been routed through the bank accounts of the assessee as well as the subscribers. Further, these investments are duly reflected in their books of account. 15. We notice that the tax authorities have first relied upon the surrender made by Shri Sumati Chand Gouti and Shri Sanjay Dugar in the statement taken u/s 132(4) of the Act during the course of search. We noticed earlier that the assessee is contending that Shri Sanjay Dugar was not a director during the period in which the search has taken place and hence his statement will not bind the assessee. Be that as it may, we notice that both the parties have admitted during the course of search on the clear reasoning that they immediately did not have details with them. Accordingly, it was agreed to surrender the share capital received by them. After the conclusion of search, these persons have retracted the statements and furnished all the details relating to the share capital received by the assessees. It was also submitted that they have surrendered the income only under pressure. Thus, we notice that the evidences furnished by the assessee to prove the cash credits would outweigh the statements given by them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available. Hence, this shows that even the so called inquiry by the Assessing Officer was done in case of only one party for A.Y. 2009-10 and the veracity of which is itself in doubt. 18. We find ourselves in agreement with the submissions of the assessee s counsel. We note that except for the statement of the entry operator which was also retracted the addition made by the authorities below is devoid of cogent material. In this regard we note that in similar circumstances honourable Bombay High Court in the case of CIT Vs. Orchid Industries Pvt. Ltd. (ITA No. 1433 of 2014 dated 5.7.2017)(397 ITR 136) held as under :- The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they werenot traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. The Tribunal has considered that the Assessee has produced on record the documents to esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare premium to tax. Similarly, the CIT(A),on consideration of facts, found that Section 68 of the Act cannot be invoked, in view of the above, it was likely that the Revenue may have taken an informed decision not urge the issue of Section 68 of the Act before the Tribunal. High Court may also point out that decision of High Court in Major Metals Ltd. vs. Union of India, 359 ITR 450 proceeded on its own facts to uphold the invocation of Section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers re shares of the Assessee - Company were not creditworthy in as much as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000/- at premium of Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by High Court in its writ-jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. Nofinding in this case has been given by the Authorities that shareholder/share ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not sustainable. 19. The Hon ble Bombay High Court has held in the case of CIT vs. Orchid Industries (P) Ltd (397 ITR 136)(Bom) that the addition u/s 68 could not be made once the assessee had produced the documents to prove the cash credits. It was further held that non-appearance of the share subscriber before the AO will not change this position. It is also apt to refer to the decision rendered by Hon ble Bombay High Court in the case of PCIT vs. Paradise Inland Shipping (P) Ltd (2017)(84 taxmann.com 58)(Bom). In this case, it was allegation of the revenue that the assessee has received share application money from fictitious companies. The Hon ble jurisdictional High Court held as under:- 5. We have given our thoughtful considerations to the rival contentions of the learned Counsel and we have also gone through the records. The basic contention of the learned Counsel appearing for the Appellants revolves upon the stand taken by the Appellants whether the shareholders who have invested in the shares of the Respondents are fictitious or not. In this connection, the Respondents in support of their stand about the genuineness of the transaction entered into with such Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to come to any contrary evidence. Considering that the authorities have rendered the findings of facts based on documents which have not been disputed, we find that there are no substantial question of law which arises in the present Appeal for consideration. 8. The Apex Court in the case of Orissa Corpn. (P.) Ltd. (supra), has observed at Para 13 thus : 13. In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income- tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under S. 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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