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TMI Blog2024 (12) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... . The facts relevant for the purpose of this appeal are as follows:- Upon a search and seizure as per Section 132 of the IT Act being conducted in the office premises of the respondent company as well as in the residence of family members and other business concerns etc., the Assessing Authority having doubted the sale transaction in respect of few companies, framed assessment under Section 153A/143 (3) of the IT Act and determined the assessed income of the respondent company for the annual year 2017-19. The Assessing Authority, doubted the genuineness of the transaction in respect of share capital received from M/s. Orchid Finlease Pvt. Ltd. amounting to Rs. 1,75,54,848/- and M/s. Shantidham Marketing Pvt. Ltd. amounting to Rs. 32,94,00,000/- and accordingly added Rs. 34,69,54,848/- to the income of the respondent company under Section 68 of the IT Act. Aggrieved by the aforesaid order of the Assessing Officer, the respondent preferred an appeal before the learned Commissioner of Income Tax (Appeals), Guwahati-2 (hereinafter referred to as the 'Appellate Authority') and the said Appellate Authority was pleased to delete the aforesaid addition made by the Assessing Authority by o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adris-Un-Niswan, reported in (1999) 6 SCC 343. (Apex Court) (2) Hamida & Ors. vs. Md. Khalil, reported in (2001) 5 SCC 30. (Apex Court) (3) Aradhna Oil Mills vs. Commissioner of Income Tax & Anr., reported in (2001) 252 ITR 607. (High Court of Madhya Pradesh) (4) Commissioner of Income Tax vs. Gom Industries Ltd., reported in (2007) 292 ITR 406. (High Court of Madhya Pradesh) (5) Commissioner of Income Tax vs. Antartica Investment Pvt. Ltd., reported in (2003) 262 ITR 493. (High Court of Delhi) (6) Principal Commissioner of Income Tax vs. Gaurav Bagaria, reported in (2023) 453 ITR 513. (High Court of Rajasthan) (7) Commissioner of Income Tax, New Delhi vs. Odeon Builders Pvt. Ltd., reported in (2020) 17 SCC 311. (Apex Court) (8) Commissioner of Income Tax, Orissa vs. Orissa Corporation (P) Ltd., reported in (1986) (Supp) SCC 110. (Apex Court) (9) Dhanalaxmi Steel Re-Rolling Mills vs. Commissioner of Income Tax, reported in (1997) 228 ITR 780. (High Court of Andhra Pradesh) (10) Commissioner of Income Tax vs. Baishnab Charan Mohanty, reported in (1995) 215 ITR 827. (High Court of Orissa) 6. We have given our prudent consideration to the arguments made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section." 8. Reading of the aforesaid provision, it is apparent that the appeal under Section 260A of the IT Act shall be maintainable only if it involves substantial question of law. It further appears that the provisions of second appeal as contained under Section 100 of Code of Civil Procedure, 1908 (hereinafter referred to as 'CPC'), is made applicable in respect of appeal filed under Section 260A of the IT Act. 9. Pertinent that this Court while admitting the appeal on 24.05.2023 formulated the following substantial questions of law:- (a) Whether the learned Tribunal erred in law in holding that assessee had discharged its burden of substantiation of the identity, creditworthiness and genuineness of the transactions involving receipt of share application monies? (b) Whether the learned Tribunal was justified in deleting the addition u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be a substantial question of law." This Court laid down the following test as proper test, for determining whether a question of law raised in the case is substantial" "The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law." 22. In Dy. Commnr. Hardoi v. Rama Krishna Narain (AIR 1953 SC 521) also it was held that a question of law of importance to the parties was a substantial question of law entitling the appellant to a certificate under (the then) Section 100 of the CPC. 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter, either ignoring or acting contrary to such legal principle. In the second type of cases, the substantial question of law arises not because the law is still debatable, but because the decision rendered on a material question, violates the settled position of law. (iii) The general rule is that High Court will not interfere with concurrent findings of the Courts below. But it is not an absolute rule. Some of the well recognized exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to 'decision based on no evidence', it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding." 11. The test as laid down by the Apex Court for determining whether a question of law raised in the case is substantial or not, thus is whether it is of general public importance or whether it directly and substantially affect the rights of the parties, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y furnishing the necessary details inter alia including the name, PAN, address of the share subscribers, details of share application monies received, shares allotted along with bank statements evidencing that all payments were received through banking channel. After going through the details submitted the AO had made verification/enquiries u/s 133(6) of the Act from the shareholders, who in response had filed copies of their Income-tax Acknowledgments, financial statements, bank statements, explanation regarding source of their funds, copies of assessment orders etc. in support of their identity, creditworthiness and genuineness of these transactions. Thus, the inference that flows from the aforesaid facts is that the initial burden imposed under section 68 of the Act stood discharged. The details filed by the assessee were cross verified by the AO from the shareholder and no infirmity was pointed out in the same, except making a bald statement that the "source of source" of funds of the application monies was not properly explained. Having perused the orders impugned before us in light of the documents furnished by the shareholders, we find that the AO only looked with suspicious ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , M/s Orchid Finlease Pvt. Ltd. did not pay any fresh sum to the assessee company. From the documents available on record, it is noted that the assessee vide Board Resolution dated 04-05-2016 had exercised their right available under the loan agreement to convert the unsecured loan into equity shares. Having regard to the fair market value of the shares determined in accordance with Rule 11UA, the company allotted 4,04,761 equity shares at Rs.63 per share to this shareholder. Copy of the allotment letters issued by the assessee are found placed at Pages 1063 & 1064 of the Paperbook. Having regard to these facts, we therefore note that there was no fresh credit received by the assessee in the relevant AY 2017-18 from M/s Orchid Finlease Pvt. Ltd. It was a case where the unsecured loan has been converted into equity capital by way of journal entry. In absence of there being any fresh credit received during the relevant year, the provisions of Section 68 of the Act could not have been invoked or applied in AY 2017-18. For this, we find support in the decisions of the Hon'ble Calcutta High Court in the case of Jatia Investment &Company vs CIT (206 ITR 718) and Hon'ble Madhya Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had issued notice u/s 133(6) dated 27.11.2019 upon this shareholder requisitioning several details and inter alia requiring it to substantiate its source of funds out of which it paid the share application monies to the assessee. Perusal of their response reveals that the shareholder belongs to the UFM Group of companies (promoter of the assessee) and is engaged in the business of promoting and marketing of cement and trading of poly weave bags. The shareholder AAOCS2874F and CIN: a GST registered entity having PAN U51909 AS2010PTC012266, which regularly filed its return of income and is assessed under the jurisdiction of ITO, Ward 2(1), Kolkata. The shareholder had explained the strategic business objective behind infusion of share capital into the assessee company, for the reason that it was in the last leg of completion and commissioning of its cement plant. It is noted that the investment was made at the fair market value computed in terms of Rule 11UA of the Rules. Copy of the valuation report is found placed at Pages 1255 to 1264 of the paperbook. Therefore, the justification regarding share premium stands fulfilled. (ii) It is noted that during AY 2017-18, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposits from channel partners and/or sale of investment holdings, details of which along with name, PAN & address are found placed at Pages 1245 to 1254 of the paperbook. (iv) Shri Dudhewewala pointed out that M/s Shantidham MarketingPvt Ltd was an associate concern and that the director of the said shareholder company and the assessee were common. He invited our attention to the details of the directors of the shareholder, which is available at Page 1155 of the paper book, from which it is noted that Shri Vishal Jain, who is also the director of the assessee. Perusal of the statement of Shri Vishal Jain, which was recorded under oath by the AO on 28-11-2019, shows that the director had also affirmed the transactions between M/s Shantidham Marketing Pvt Ltd and the assessee and nothing adverse came out from his statement. When enquired about the source of funds of the shareholders, the Director stated that the shareholder was engaged in the business of marketing of clinkers and cement in North Bengal, Bhutan and Nepal and that the names, addresses and PANS of the payers had been provided to the AO so that the AO can make enquiries from the respective source of sources. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served on three investor- companies namely Clifton Securities Pvt. Ltd.- Mumbai, Lexus Infotech Ltd.-Mumbai, Nicco Securities Pvt. Ltd. Mumbai but no reply was received. (ii) The address with respect to a company namely Real Gold Trading Co. Pvt. Ltd.- Mumbai was not correct. (iii) The notice could not be served on two investor-companies, namely Hema Trading Co. Pvt. Ltd.-Mumbai,Eternity Multi Trade Pvt. Ltd.- Mumbai. (iv) Submissions from nine companies were received (Neha Cassetes Pvt. Ltd.-Kolkata, Warner Multimedia Ltd. Kolkata, Gopikar Supply Pvt. Ltd. Kolkata, Gromore Fund Management Ltd. Kolkata, Bayanwala Brothers Pvt. Ltd. Kolkata, Shivlaxmi Export Ltd. Kolkata, Natraj Vinimay Pvt. Ltd. Kolkata, Neelkanth Commodities Pvt. Ltd. Kolkata, Prominent Vyappar Pvt. Ltd. Kolkata), however, they had not given any reasons for paying such a huge premium. (v) The details of share purchased and the amount of premium were not specified by certain companies, namely Super Finance Ltd. Kolkata, Ganga Builders Ltd. Kolkata. Furthermore, these companies had not enclosed the bank statement. (vi) In addition to above, AO found that: a. Out of the four companies at Mumbai, tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. It has deprecated the practice of the High Court routinely interfering in pure findings of fact reached by the courts below without coming to the conclusion that the said finding of fact is either perverse or not based on material on record. 13. In Ramanuja Naidu v. V. Kanniah Naidu this Court held: (SCC Headnote) 'It is now well settled that concurrent findings of fact of trial court and first appellate court cannot be interfered with by the High Court in exercise of its jurisdiction under Section 100 of Civil Procedure Code. The Single Judge of the High Court totally misconceived his jurisdiction in deciding the second appeal under Section 100 of the Code in the way he did.' 14. In Navaneethammal v. Arjuna Chetty this Court held: (SCC Headnote) 'Interference with the concurrent findings of the courts below by the High Court under Section 100 CPC müst be avoided unless warranted by compelling reasons. In any case, the High Court is not expected to reappreciate the evidence just to replace the findings of the lower courts. ... Even assuming that another view is possible on a reappreciation of the same evidence, that should not have been done by the High Court a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, of the view that the finding recorded by the appellate court on the issue of personal necessity cannot be sustained in law for want of sufficient evidence.' As can be seen from the para extracted above, the High Court thought that it could reappreciate the evidence and scrutinize the findings recorded by the first appellate court under Section 100 CPC. This approach is plainly erroneous and against law. The High Court was also wrong in saying that the plaintiff did not lead sufficient evidence to establish his bona fide requirement. As observed by the first appellate court and noted above already, there is evidence of the plaintiff, his nephew and the neighbour. The finding of fact recorded by the first appellate court based on evidence could not be interfered with by the High Court, that too in the absence of any substantial question of law that arose for consideration between the parties." 19. It is thus apparent that the High Court while exercising power under Section 100 CPC shall not re-appreciate the evidence and scrutinize the findings recorded by the First Appellate Tribunal. In the above case, the Apex Court has also held that the High Court shall not weigh t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her a particular transaction entered into by the assessee with a particular person is genuine essentially a question of fact and, therefore, once any finding on either way is recorded by the Tribunal, then the same is not liable to be interfered with by the High Court unless an error of law as contemplated under section 260A ibid, is pointed out. No such error is either pointed out or noticed. 8. In our opinion, thus, the appeal really does not involve any substantial question of law within the meaning of section 260A ibid. As observed supra, there is no question framed so as to enable this court to examine the entire transaction in question de novo on facts. Firstly, it is not legally possible in this appeal. Secondly, no question of law is framed to permit us to do that exercise. Thirdly, no perversity as such is pointed out in the impugned finding and, hence, this court cannot interfere in the impugned finding of fact recorded by the Tribunal." 22. What transpires from the above is that the High Court of Madhya Pradesh in the aforesaid cases has held that the Appellate Court under 260A of the IT Act cannot upset the finding of fact recorded by the Appellate Tribunal. 23. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce available. It is pertinent to note that it was not the case of the Assessing Officer that any amount found credited in the account of the two companies, has direct or indirect nexus with the assessee-company." 24. Reference is also made to the decision of the Division Bench of the Rajasthan High Court, Jaipur Bench in the case of Principal Commissioner of Income Tax (supra) wherein also the Division Bench has taken a similar view as that of the other High Courts as extracted herein above. Paragraph 4 of the said judgment is reproduced hereunder for ready reference: "4. We are of the view that the present appeal does not involve any substantial question of law. The learned Income-tax Appellate Tribunal has specifically held that the assessee has produced all the relevant documentary evidence to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidence produced by the assessee and therefore treating the transaction of purchase and sale as sham is not justified. Further, the learned Income-tax Appellate Tribunal has also relied upon the decision of the jurisdictional High Court titled as CIT v. Smt. Pooja Agarwal rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ially a question of fact and is not a substantial question of law. 28. Furthermore, as noted above, both the Appellate Authority and the Second Appellate Tribunal has recorded findings in respect of the genuineness of the transaction in question and the creditworthiness of the shareholders concerned based on evidences and materials placed by the assessee and hence, such finding once recorded by both the authorities on the basis of evidence, the same is not liable to be interfered with by the Third Appellate Court, unless an error of law as contemplated under Section 260A of the IT Act is made out. 29. Pertinent that the decision of the Apex Court in the case of Principal Commissioner of Income Tax (Central) 1 (supra) relied by the appellant to buttress the contention that the initial onus is on the assessee to establish genuineness of the transaction and creditworthiness of the investor as regards share capital and premium, the above decision being rendered in the context of the facts and circumstances of that case wherein pursuant to the detailed inquiry conducted by the Assessing Authority it was revealed that there was no material on record to prove or even remotely suggest th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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