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TMI Blog2024 (9) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... ement was dubious and a smokescreen to camouflage the real transactions, as is rightly held by the Ld. AO and the Ld. CIT(A), therefore, the Ld. AO was justified in adding the amount to the income of the assessee as unexplained cash credits, which additions has been rightly confirmed by the Ld. CIT(A). Appeal of the assessee is dismissed. - Shri Rajpal Yadav, Vice President And Shri Rakesh Mishra, Accountant Member For the Appellant : Shri Ankit Jalan, Advocate For the Respondent : Shri Subhendu Datta, CIT, DR ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as the Ld. CIT(A) passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for AY 2012-13 vide Order No. ITBA/NFAC/S/250/2023-24/1057737637(1) dated 06.11.2023. 2. The grounds of appeal raised by the assessee are reproduced as under: 1. For that on the facts and circumstances of the case, the impugned order passed by the Ld. AO as well as the appellate order passed by the Ld. CIT(A), NFAC confirming the order of the Ld. AO is unjustifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs 1,04,40,000/- along with premium of Rs 16,96,60,000/- and received Rs 2,30,000/- as share application money pending for allotment of shares. The case was selected for scrutiny through CASS and the reason for selection was to examine large share premium received. The assessee company had claimed to have received share capital of Rs. 1,04,40,000/- (equity share of Rs. 1/- each), share application received pending allotment of Rs. 2,30,000/- and premium of Rs. 16,96,60,000/- totalling Rs. 18,03,30,000/- during the financial year relevant to the AY 2012-13. The Assessing Officer found it unusual that the subscribers would invest in shares of a newly incorporated company at such a huge premium. Accordingly, it was required to ascertain from the subscribers their genuineness of existence and their creditworthiness for making the investment. Response was earlier received to notice u/s 142(1) issued to the company and notices u/s 133(6) of the Act were also issued to the share applicants and replies were received but from the documents available on record, the identity and creditworthiness of the investors were not properly verifiable. Therefore, the Assessing Officer issued summons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bogus transaction as a genuine one, the Ld. AO concluded that this is nothing but a case where the assessee has introduced its own undisclosed funds in the garb of subscription by shareholders and as the identity as well as the creditworthiness of the shareholders could not be established by the assessee company, a sum of Rs. 18,03,30,000/- shown as share capital contribution in the books of the assessee was added u/s 68 of the Act. 5. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who decided the appeal on the basis of submission made by the assessee and the supporting documents. After discussing the facts of the case and relying upon several judicial pronouncements, he confirmed the addition made. Aggrieved with the order of the Ld. CIT(A), the assessee has filed this appeal before the Tribunal. 6. We have heard the rival submissions and also gone through the facts of the case and the written submissions filed. During the course of the appeal, the assessee filed copy of the orders of the coordinate benches of the Tribunal in the cases of Orthy Impex Pvt. Ltd. Vs. ITO, Ward 14(3), Kolkata, ITA No. 855/Kol/2023, AY 2014-15, dated 06.11.2023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, it is seen that out of total 21 allottees, 19 are individuals and the remaining two are the promotors of the appellant company, which themselves are companies. 7.3 On 05.12.2011, the individuals disagreed to be a part of the joint venture project and wanted to quit. Therefore, all the shares (70,30,000 in numbers) from the above-mentioned individuals were purchased by the promotor companies. Therefore, after purchase of the above equity shares from individuals the holding of the promotor companies at the end of the relevant year stood as below: 1) M/s. Amritvani Dealer Pvt. Ltd.: 50,000 shares subscribed at the time of incorporation of the appellant company, plus 4,00,000 shares as per allotment dated 02.11.2011, plus 46,00,000 shares purchased from the individual parties = Total 50,50,000 shares at the end of the year at face value of Re. 1/- per share. 2) M/s. Astvinayak Vanijya Pvt. Ltd.: 50,000 shares subscribed at the time of incorporation of the appellant company, plus 25,70,000 shares as per allotment dated 02.11.2011, plus 24,30,000 shares purchased from the individual parties = Total 50,50,000 shares at the end of the year at face value of Re. 1/- per share. 7.4 On 29.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited financial statement of the Financial Year have been enclosed as Annexure D to the written submission. 7.6 It is further submitted by the assessee that the Ld. AO at the time of assessment enquired about the increase in the share capital. The appellant submitted complete details about the increase in share capital. The details of the shareholders were also submitted. All the details as required by the Ld. AO in his notice u/s 142(1) were submitted by the appellant. The Ld. AO had also issued notices u/s 133(6) of the Income Tax Act, 1961 to the shareholders to verify the transactions done by them. All the shareholders replied to the notice issued u/s 133(6) of the Income Tax Act, 1961 (Copies of the replies submitted by the shareholders have been attached as Annexure E) and confirmed the transaction carried out by them, so is claimed. It is also submitted that the Ld. AO did not find any infirmity in the submission made by the appellant and the subscriber companies. However, the Ld. A issued notice u/s 131 to the directors of the appellant company. The directors of the appellant company appeared before the Ld. AO; however, the Ld. AO did not accept their attendance and no h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ought to have done to ascertain the facts of the case. As the details of the share applicants could not be ascertained from the return of income and the director of the said company did not comply with the summons under section 131 of the Act, there was no other option left with the Ld. AO but to complete the assessment on the basis of information available on record. In the paper book filed, point wise submission was made. This was the first year of operation and addition of Rs. 18 crores has been made by passing a two-page order and addition has been made in one paragraph. As regards the premium charged at Rs. 499 per share on the face value of Rs. 1, the basis of calculation was as per the commercial practice and the amount of premium to be decided was at the liberty of the director, it was so submitted by the Ld. AR during the course of the appeal before us when queried in this regard. It was also stated that there is no bar in charging the premium under the Act. Rule 11UA of the I. T. Rules, 1962 is applicable for valuation. The Ld. AR also filed copies of orders in ITA No. 43/Kol/2021 and ITA No. 855/Kol/2023 wherein on similar issue, the appeal had been decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the Ld. AO at the time of assessment. It shall not be out of place to mention here that the Ld. AO failed to note the names of share subscribers, the shares allotted to them, whether premium was charged or not and the facts of the present case, which are different from the rampant practice that was going on. Merely relying on certain case laws, the assessment was completed in mechanical manner, in just three pages, making addition of Rs. 18,03,30,000/- to a newly incorporated company, in which also 1 page is copy of the letter issued by him and I page is only case laws. Your Honour, we would vehemently like to submit that such assessment made in mechanical manner, without application of mind, with a pre biased mind set is grossly incorrect, bad in law and not sustainable. 9. The assessee has reproduced the provisions of section 68 of the Act and goes on to submit that only in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income tax as the income of the assessee for that year. It is submitted vide written submission filed that the primary onus stands discharged to prove the identity, credit worthiness and genuineness of the share subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 1,00,00,000 4 Kingfisher Tradelink Pvt. Ltd. 11,50,61,435 1,00,00,000 5 Linkline Tradekink Pvt. Ltd. 550,89,223 3,00,00,000 6 Manikaran Sales Pvt. Ltd. 3,00,89,173 2,00,00,000 7 Originals Shoppers Pvt. Ltd. 4,50,91,748 1,00,00,000 8 Primeline Sales Pvt. Ltd. 11,00,58,707 1,00,00,000 9 Primesoft Tradecomm Pvt. Ltd. 15,50,57,765 2,00,00,000 10 Sairam Vincom Pvt. Ltd. 11,00,31,527 1,00,00,000 11 Sanyam Deal Trade Private Limited 10,51,10,414 1,00,00,000 12 Snowhill Agencies Private Limited 15,51,05,712 1,00,00,000 13 Starmark Mercantile Private Limited 3,50,92,073 2,00,00,000 14 Tigerhill Tradelink Private Limited 11,00,58,773 1,00,00,000 11. It is stated that from the perusal of the above table it is crystal clear that all the share subscribers were having sufficient financial strength to make the investment in the appellant company. The bank statement reflecting the transactions and source of funds were submitted before the lower authorities. The Ld. AO miserably failed to point out any defect in the documentary evidences submitted before him. There is no iota of material on record on how the amount can be treated as appellant's money. Raising of share capital cannot be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 138 taxmann.com 535 (Calcutta) vi. Income Tax Officer Vs. M/s. Goodluck Merchants (P) Ltd. (I.T.A. No. 1812/kol/2016 dated 16.11.2018) of ITAT Kolkata Bench 14. As regards the nonappearance of the directors of the appellant company, it is mentioned that the directors of the appellant company were called upon and not of the investor companies. It is stated that the directors visited but their presence was not noted. Further reliance has been placed upon several other judicial pronouncements which have also been considered. 15. We have considered the submissions made. At this stage, it would be relevant to refer to the order of the Ld. CIT(A), relevant paras of which are extracted as under with emphasis supplied wherever required: 7.1 I have carefully examined the action of the Ld. AO and the circumstances which led to the completion of the impugned assessment order. I observe that there has been non-compliance by the assessee at assessment stage. I have also carefully perused the statement of facts and grounds as made in the course of the appeal proceedings. It is not in dispute that the assessee-company have received share capital of Rs. 1,04,40,000/- (equity share of Rs. 1 each), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent from the assessment order, but none attended for personal hearing. In such a situation, the assertions of the appellant were to be disbelieved, as brought forth in the ratio emanating from the case decided by the Hon'ble High Court of Madras by their order dated 24th April, 2017, in BR Petrochem (P) Ltd Vs ITO, Ward-1(1), Chennai reported in [2017] 81 taxmann.com424 [Mad]. The head notes in the said case are as under IT: Where assessee received share capital from various contributors, in view of fact that those contributors were persons of insignificant means and their creditworthiness to have made contributions had not been established, impugned addition made by authorities below in respect of amount in question under section 68 was to be confirmed. Similarly, in the case of CIT Vs. Nipun Builders Developers Pvt. Ltd. reported in [2013] 30 taxmann.com 292 (Delhi) the Hon ble High Court of Delhi has taken the view that where the assessee has failed to prove the identity and capacity of the subscriber companies to pay share application money, the amount so received was liable to be taxed under Sec 68 of the Income Tax Act, 1961 15.1 The Ld. CIT(A) has relied upon and elabora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity or income or assets. A close look at the return of income of subsequent years of the appellant show the following gross income: (i) A.Y 2113-14 other income Rs. 6,60,622/- (ii) A.Y. 2014-15 interest income Rs. 6,66,000/- (iii) A.Y.2015-16 interest income Rs. 7,47,921/-, (iv) A.Y. 2016-17 interest income Rs. 3,27,350/-, (v) A.Y 2017-18 profit on sale of investment Rs. 38,350/- Stock-in-trade (in respect of goods acquired for trading) 15,59,76,215/- when there is no purchase during the A.Y 2017-18. (vi) A.Y. 2018-19 the appellant has shown sale of shares of Rs. 13,64,94,893/- as revenue receipts when there is purchase of Rs. 2,75,000/- only and no purchase in the immediately preceding year. 7.8 The AO may examine the return of income for A.Y 2017-18 and A.Y 2018-19 in a separate proceeding as per the Act to find out the implication. Further from the return of income it is observed that there are no fixed assets of the assessee company. It appears that the company does not have any genuine business activities. The company does not have any assets base and is a company without any visible future prospect. This being the initial year of incorporation of the company no past recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous and dubious nature. In the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC), their Lordships laying down the significance of human probabilities held as under in a case where a party relied on self serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals. Similarly in the case of Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC), their Lordships held as under: In view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assesses of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case, there is prima facie, evidence against the assessee viz the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. In the case of Sajjan Das Sons vs. CIT (2003) 264 ITR 435 (Delhi), their Lordships of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducting assessment proceedings has to be left to the discretion of the assessing officer, and the same should be just, fair and should not cause any harassment to the assessee or third persons form whom confirmation or verification is required. The verification and investigation should be one with the least amount of intrusion, inconvenience or harassment especially to third parties, who may have entered into transactions with the assessee. The ultimate finding of the assessing officer should reflect due application or mind on the relevant facts and the decision should take into consideration the entire material, which is germane and which should not be ignored and exclude that which is irrelevant Certain facts or aspects may be neutral and should be noted These should not be ignored but they cannot become the bedrock or substratum of the conclusion. The provisions of Evidence Act are not applicable, but the assessing officer being a quasi-judicial authority, must take care and caution to ensure that the decision is reasonable and satisfies the canons of equity, fairness and justice. The evidence should be impartially and objectively analyzed to ensure that the adverse findings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n material which may not strictly speaking be accepted evidence in court of law. 7.12 The Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 at pages 545-547 made a reference to the test of human probabilities in the following fact situation :- It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real in a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals Otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favor then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. 7.13 It is a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suspicious and dubious transactions. The Ld. AO has therefore necessarily to consider the surrounding circumstances, which he indeed has done in a very meticulous and careful manner. In the case of Win Chadha Vs CIT (International Taxation) in ITA No.30888 3107/Del/2005, the Hon'ble Delhi ITAT B -Bench has observed, on 31.12.2010 as under: SUSPICIOUS AND DIBIOUS TRASANCTION HOW TO BE DEALT WITH: 6.11. The lax liability in the cases of suspicious transactions, is to be assessed on the basis of the material available on record, surrounding circumstances, human conduct preponderance of probabilities and nature of incriminating information/ evidence available with AO. 6.12. In the case of Sumati Dayal V. CIT (1995) 80 Taxman 89 (SC), the Hon'ble Supreme Court has dealt with the relevance of human conduct, preponderance of probabilities and surrounding circumstance, burden of proof and its shifting on the Department in cases of suspicious circumstances, by following observations ....It is, no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed by such evidence, as in the case of other evidence (2) the circumstances proved must be of a conclusive nature and not totally inconsistent with the circumstances or contradictory to other evidence. (3) although there should be no missing links in the case, yet it is not essential that every one of the links must appear on the surface of the evidence adduced, some of these links may have to be inferred from the proved facts: (4) in drawing those inferences or presumptions, the Authorities must have regard to the common course of natural events, to human conduct and their relation to the facts of the particular case (5) The circumstantial evidence can, with equal facility, be resorted to in proof of a fact in issue which arises in proceedings for the assessment of taxes both direct and indirect, circumstantial evidence can be made use of in order to prove or disprove a fact alleged or in issue. In fact, in whatever proceedings or context inferences are required to be drawn from the evidence or materials available or lacking, circumstantial evidence has its place to assist the process of arriving at the truth. 6.14. It will also be worthwhile to consider the nature of burden of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 AO, failure of which, would justify addition of the said amount to the income of the Assessee. 7.16 From the assessment order, it is observed that the appellant was provided ample opportunity and principle of natural justice was also observed. To establish identity and creditworthiness of the share applicants as well as genuineness of the transactions, summon u/s 131 of the Act was issued to the Director of the assessee company who was asked to produce the subscriber companies/individuals requesting for personal appearance which is undisputed. Thus, it is evident that the director merely filed few details which does not establish the identity and creditworthiness of the share applicants as well as genuineness of the transactions. The director did not appear for deposition which the Ld ought have taken to ascertain the fact of the case. As the details of the share applicants could not be ascertained from the return of Income and as the Director of the assessee company did not comply with the notice u/s 131 of the Act, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant paragraphs from the order of the Hon ble High Court are extracted and reproduced as under: 14. Before we examine the correctness of the decision rendered by the learned tribunal it will be beneficial to take note of a few decisions which have elabo-rately dealt with Section 68 of the Act and what are the parameters which are required to be established to prove the creditworthiness or the genuineness of a transaction. 15. Mr. Om Narayan Rai, learned senior standing counsel appearing for the departments submits that though the assessee might have established the identity and creditworthiness of the share applicants at the relevant time but the third and the most important ingredient namely genuineness of the trans-action has to be established and unless and until all the three factors are con-jointly established, the revenue was fully justified in invoking Section 68 of the Act. 16. In CIT v. N.R. Portfolio Private Limited [2014] 42 taxmann.com 339/264 CTR 258/222 Taxman 157 (Delhi) the substantial question of law which was framed for consideration is whether the tribunal was right in deleting the ad-ditions under Section 68 of the Act and whether the decision of the tribunal is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -assessee, did not give any share-dividend or interest to the said entry operators/subscribers. The profit motive normal in case of in-vestment, was entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining 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 eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deeper scrutiny. It would be incorrect to state that the onus to prove the genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Whether or not onus is discharged depends upon facts of each case. It depends on whether the two parties are related or known to each; the manner or mode by which the parties approached each other, whether the transaction was entered into through written documentation to protect the investment, whether the investor professes and was an angel investor, the quantum of money, creditworthiness of the recipient, the ob-ject 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 tanta-mount to satisfactory discharge of onus. The facts of the present case no-ticed above speak and are obvious. What is unmistakably visible and ap-parent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to prove not only the identity of the creditors but also the capacity of the creditors to advance money, and establish the genuineness of those trans-action. The initial onus of proof lies on the assessee. The decision in Roshan Di Hatti v. Commissioner of Income Tax (1977) 2 SCC 378 was referred to wherein it was held that if the assessee fails to discharge the onus by producing cogent evidence and explanation the assessing officer would be justified in making the addition back into the income 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 sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though there were judicial decisions covering some of the aspects. It was pointed out that even prior to the introduction of Section 68 in the statute book, the courts have held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered, in the opinion of the ITO, not satisfactory, the sum so credited would be charged to income tax as income of the assessee during the relevant previous year. That Section 68 was inserted in the Act only to provide statutory recognition to a principle which had been clearly adumbrated in judicial decisions. Section 68 thus only codified the law as it existed before 01.04.1962 and did not introduce any new principle or rule. 26. We also take note of the Finance Bill, 2012 which brought about certain amendments to the Act with effect from the assessment year 20132014 wherein under the heading Measures to Prevent Generation and Circulation of Unaccounted Money it was pointed out that the onus of satisfactory ex-plaining such credit remains on the person in whose books such sum is credited. If such person fails to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to a principle which had been clearly adumbrated in judicial decisions. Therefore, it was held that ratio laid down in the earlier judgments of the Hon'ble Supreme Court is equally applicable to the interpretation of Section 68 of the 1961 Act. Thus, we can very well refer to the objects behind amendment to Section 68 by Finance Bill, 2012 which has taken note of various decision of the court where the courts have drawn a distinction and emphasised that in case of private placement of shares the legal regime should be different from that which is followed in the case of a company seeking share capital from the public at large. 28. Having taking note of the above referred decisions and the legal principles if we revert back to the factual position in this case, we find that the CIT(A) has analysed the three principles which are required to be fulfilled namely identity, creditworthiness and genuineness of the transaction. It is not in dispute that the investors whose details we have referred in the earlier part of this judgment are all either group companies or having a common set of directors. Further the assessee has not been able to dislodge the factual findings recorded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions in the bank accounts of the five investor companies to that of the assessee's bank account. They have received cheques from somewhere and has immediately issued in favour of another company and the balance remaining in the account was very meagre the bank account has been operated solely for the purpose of rotating money. 29. With regard to the other investor namely Mubarak Cosmetics Private Limited on perusal of the bank statements, it was found that the said company had transactions with the assessee between 23.07.2011 to 28.07.2011 and the entire sum remitted to the assessee by Mubarak Cosmetics Private Limited had come from Gainwell Textrade Private Limited. The bank statements of HIL Engineering was also thoroughly examined more particularly the pattern of transaction and it was held that the only apparent purpose for which the bank accounts have been used is to receive money from one account and transfer it to another. With regard to the investor Pavapuri Mercantile Private Limited the bank statements revealed that the entire sums are remitted by Pawapuri Mer-cantile Private Limited to the assessee had come from Gainwell Textrade Private Limited. The analysis done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see nor its investors had followed the guidelines of RBI or ICAI or any other guidelines for deter-mining the rate of premium on their shares. Thus, the fixing of rate for premium is arbitrary and devoid of any financial or accounting rationale; the investors have not bothered to ensure protection of their investments; the investor com-pany do not have any business operations worth noticing yet they have raised huge capital through issue of shares at a premium and also made investments in shares of other companies at a premium even though the other companies like them, did not have any promising business activities. Thus, on analysing the data which was available it is seen that each of the companies have in-vested in each other and the investments have been made by rotating funds from one account to another. The assessee has not been able to explain why the investors companies had applied for shares in the assessee's company at a high premium even though the face value of the share was Rs. 10/- per share. The pattern of transaction clearly shows that these investors companies had raised capital by issue of shares at a very high premium and the transaction is repetitive. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Mr; Agarwala. One of the directors of HIL Engineering Private Limited is the brother-in-law of Mr. Agarwala and one of the Directors of Mubarak Cosmetics Private Limited is the wife of Mr. Agarwala. Thus, the facts clearly show that the doctrine of origin of origin has to be applied in the case on hand and this exercise has been rightly done by the CIT(A) by lifting the veil and enquiring into the real nature of the transaction. The pattern of remittances made to the five investor companies and immediately thereafter to the assessee company clearly shows that the shares subscriptions were collected as a part of pre-meditated plan which has been conceived by the assessee. 33. The tribunal fell in error in holding that the CIT(A) has not pointed out any doubt or discrepancy with regard to the identity of the investors. The learned tribunal has posed a wrong question which has led to a wrong answer. The question is not whether the identity of the investor has to be established but the question was whether the investor had requisite creditworthiness and whether such creditworthiness was a make belief situation by means of a circular transaction and if the same had been establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en set out in the order passed by the CIT(A) in paragraph 2.1 of the order dated 28.11.2019. The finding rendered by the tribunal is probably taken from the written sub-missions made by the assessee before the tribunal giving certain facts and figures regarding the expanding of business activities of the assessee. The assessee in their submission contended that their business activity has in-creased considerably and for the purpose of expansion funds were required and therefore the assessee raised funds from various means, increment in share capital from associates being one of them. The fact clearly demonstrates that the source of the funds which have flown into the account of the assessee have substantially come from one company namely Gainwell Textrade Private Limited and the said company had contributed to the other companies and the funds transferred to those companies were transferred to the assessee company invariably on the same day leaving a bank balance which was almost negligible and the bank statements reveal that the prior to the inflow of the funds into those investing companies, the bank balance was negligible and after the transfer it was also negligible. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reasons, the revenue succeeds. 39. In the result the appeal is allowed, the order passed by the learned Tribu-nal is set aside and the order passed by the CIT(A) dated 28.11.2019 is re-stored and the substantial questions of law are answered in favour of the rev-enue. 11.1 Further, in another case of Principal Commissioner of Income-tax v. One Point Commercial (P.) Ltd. [2024] 161 taxmann.com 737 (Calcutta) also, it has also been held as under: The impugned order passed by the Tribunal has recorded that from the bare perusal of the documents placed, it is revealed that all the share applicants are income tax assessees, they are filing their income tax returns, share application form and allotment letter is available on record which were filed in response to the notice under section 133(6), share application money was made by account payee cheques, details of the bank accounts belonging to the share applicants and their bank statements have been furnished and all the share applicants are having substantial creditworthiness represented by their capital and reserves. Though such is the findings recorded by the Tribunal, it is not supported by facts. The Assessing Officer has held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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-wort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Bal Gopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162 taxmann.com 465 (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n established. Hence in view of the decision of the Hon ble Jurisdictional High Court in the case of PCIT v BST Infratech Ltd. (supra) and others and the discussion made out by the Ld. CIT(A) to demonstrate that the applicants are shell companies, there does not appear to be any justification to interfere with the order of the Ld. CIT(A) and his order is hereby confirmed and ground nos. 2 and 3 of the appeal are accordingly rejected. In the result, the appeal of the assessee is dismissed. 17. Thus, to sum up, it can be concluded that except for filing paper documents, which are in the nature of self-serving recitals but could not justify the genuineness of the transactions for investing in a newly formed company with no past history nor having any plausible business model, that too at a huge premium of Rs. 499/- for shares of the face value of Rs. 1, the assessee could not establish the genuineness of the transactions and the creditworthiness of the share applicants. The factors which militate against the assessee and question the genuineness of the entirely dubious and unjustified transactions for receipt of share capital along with huge share premium from corporate entities are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies for tax evasion and routing of unaccounted money through such companies have been discussed, which require a rethink on the views held in the past. x. The source of source or origin of the origin, which needed to be explained as the investors were known to the assessee being private limited companies, was not established. This was the first year of incorporation of the company yet the company could command huge premium during the second allotment of shares. xi. No supporting valuation report to justify the huge premium charged was produced and the premium was said to be the commercial decision of the directors but no comparable case was mentioned. No premium was charged for the shares issue mostly to individual shareholders, whose shares were bought back by the promoters, while huge premium was charged on the second allotment carried out within a span of 27 days only. The events which occurred in the meanwhile and which could justify the charging of premium on account of increased valuation of the company could not be informed. xii. The financial transactions do not have any plausible business model to support them. xiii. The commercial practice of charging premium has not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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