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TMI Blog2025 (1) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... K.M. Roy, Accountant, Member For the Assessee : Shri Kishore P. Dewani For the Revenue : Shri Sandipkumar Salunke ORDER PER K.M. ROY, A.M. Captioned appeal by the Revenue is against the impugned order dated 15/05/2014, passed by the learned Commissioner of Income Tax (Appeals) III, Nagpur, [ learned CIT(A) ], for the assessment year 2010 11. The following grounds have been raised by the Revenue: 1) On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in ignoring the outcome of the independent enquiries conducted by the Assessing Officer, with regard to the creditworthiness of the 12 companies which had invested in M/s. Lupin Commodities Pvt. Ltd., which in turn had been invested in the assessee company, as share capital and share application money. The enquiries revealed that all the 12 companies are paper companies having meager income or loss, which were started 6 to 12 months prior to investment in M/s. Lupin Commodities Pvt. Ltd., which is a closely held company of Uttamchand Jain and his family members. 2) On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in ignoring the fact that the DDIT (Inv.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to the assessee company were seized. Accordingly, proceedings under section 153C of the Act were initiated and a notice was issued to the assessee on 12/03/2012 which was dully served on 30/04/2012. The assessee filed the return of income on 02/01/2013, declaring the total income of Rs. 2,10,57,110. The Assessing Officer has observed in assessment order that assessee had raised the capital by issue of Share Application and Share Premium. A total of Rs. 5,38,00,000, has been received as Share Application money and Share Premium by assessee from corporate entity M/s. Lupine Commodities Pvt. Ltd., which is a Kolkata based company. The Assessing Officer asked the assessee to prove the identity, creditworthiness as well as genuineness of transactions from the said company. Though, assessee furnished the detailed submissions during the assessment proceedings to the Assessing Officer, however, the Assessing Officer was not satisfied about the same and accordingly he treated the same as unexplained credits and held that assessee has routed its unaccounted money in the guise of share application and share premium. The Assessing Officer accordingly made addition of Rs. 538 lakh to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Wing of Income Tax Department at Kolkata pursuance to enquiry made at the instance of A.O. Details of payment made to assessee company and Audited Financial statement along with Acknowledgement of Income Tax Return were also submitted before Investigation Wing by Corporate share applicant. i) Summons to M/s. Lupine Commodities Pvt. Ltd. under section 131 of Income Tax Act 1961 (P- 1) [Vol.- I]; and ii) Reply by M/s. Lupine Commodities Pvt. Ltd. in respect to summons issued (P- 2 3) [Vol.- I]. C) Share capital contribution made by M/s. Lupine Commodities Pvt. Ltd. is reflected as investment in balance sheet of such company. (P 27) [Vol.- I] D) A.O. has verified the transaction by obtaining the details from website of Ministry of Corporate Affairs. Details obtained corroborated the contribution of share capital and nothing adverse was noted found. (Para 7.5 of assessment order). E) A.O. has verified bank statement of corporate share holder and it was noted that there are no cash deposit in the bank account of corporate share holder. Nothing adverse can be considered from the details on record. (Para 7.5 of assessment order). F) The Hon ble Bombay High Court has concluded that prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hred of adverse evidence on record for which share capital addition can be made by A.O. Addition made by A.O. is without there being any adverse evidence on record is unjustified and unsustainable. J) It is settled proposition of law that assessee cannot be asked to explain source of the source. Reliance on: i) (2011) 330 ITR 298 (Del.) CIT vs. Dwarkadhish Investment (P) Ltd. ii) (2000) 245 ITR 160 (MP) CIT vs. Metachem iii) Hon ble High Court of Bombay in ITA No.1613 of 2014 in the case of M/s. Gagandeep Infrastructure Pvt. Ltd. vide order dated 20/03/2017 (P- 10 -16) [Vol.- II] iv) Hon ble Haryana High Court in ITA No.386 of 2010 (O M) in the case of M/s. K.C. Pipes Pvt. Ltd. vide order dated 02/08/2016 (P- 50 51) [Vol.- II] K) A.O. has made addition and same is not based on any incriminating evidence or material found in the course of search on Mahavir Global Coal Ltd. (MGCL). The present assessment is framed u/s 153C of I.T. Act 1961. Only addition made is in respect to Share Capital and that too not based on any incriminating material found during the course of search. Addition made not based on incriminating material unsustainable as A.O. has no jurisdiction to make such addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Wing of Income Tax Department at Kolkata. The aforesaid documentary evidence is not found to be incorrect in any manner and has not been adversely commented by the Assessing Officer in the assessment framed. Legal evidence obtained by the Assessing Officer in independent enquiry corroborates the transaction of receipt of share capital contribution by assessee company. It is seen from the financial statements that share capital contribution made by corporate share holder is Rs. 538 lakh during the year under consideration. The financial statements of corporate shareholder indicates that it had share capital and reserve surplus on the opening day of accounting year at Rs. 539 lakh. The financial statements for subsequent two years are also placed on record. The investment made in assessee company is properly reflected in financial statement of corporate share holder. The financial statements clearly established creditworthiness of the corporate share holder to contribute the share capital contribution of Rs. 538 lakh. Bank statement of corporate shareholder is placed on record and no cash deposit is found in bank statement. The transaction of contribution of share capital is throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. ii) CIT v/s Value Capital Services (P) Ltd. [2008] 307 ITR 0334 (Del.) 7. In any case, what is clinching is the additional burden of the Revenue. It must show that even if the applicant does not have the means to make the investments, the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. This has not been done insofar as the present case is concerned and that has been noted by the Tribunal also. iii) Hon ble Bombay High Court order in ITA (L) No.2182 of 2009 in the case of M/s. Creative World Telefilms Ltd. (Earlier known as Link International Services Pvt. Ltd.) vide order dated 12/10/2009 2. The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the Apex Court in the case of CIT V/s. Lovely Exports (P) Ltd. reported in [2008] 216 CTR 195 (SC) wherein the Apex Court observed that if the share application money is received by the assessee company from alleged bogus shareholders, whose names ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in ITA No.386 of 2010 (O M) in the case of M/s. K.C. Pipes Pvt. Ltd. vide order dated 02/08/2016. (P- 50 51) (51) [Vol.- II] If the shareholders have acquired the money illegally, the respondent assessee cannot be held liable. There is nothing to show that the money belongs to the Company/assessee itself. The revenue must then proceed against the shareholders. vii) Hon ble Bombay High Court in Writ Petition No.3027 of 2015 in the case of Khubchandani Healthparks Pvt. Ltd. vide order dated 10/02/2016. (P- 52 60) (58, 59) [Vol.- II] We are of the view that the basis of the impugned Notice stands concluded by the decision of this Court in Vodafone India Services Ltd. Vs. CIT 368 ITR 01, wherein it has been held that the share premium being on the capital amount cannot be subjected to tax as income viii) CIT v/s Dwarkadhish Investment (P) Ltd. [2011] 330 ITR 298 (Del.) 8. In any matter, the onus of proof is not a static one. Though in s. 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN or income-tax assessment number and shows the genuine ness of transaction by showing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 68 of the Act. 18. In the first appellate proceedings, it was held that assessee had produced sufficient evidence in support of proof of identity of the creditors and confirmation of transactions by many documents, such as, share application form etc. First appellate authority also noted that there was no requirement under Section 68 of the Act to explain source of source. It was not necessary that share application money should be invested out of taxable income only. It may be brought out of borrowed funds. It was further held that non-responding to notice would not ipso facto mean that the creditors had no credit worthiness. In such circumstances, the first appellate authority held that where all material evidence in support of explanation of credits in terms of identity, genuineness of the transaction and credit-worthiness of the creditors were available, without any infirmity in such evidence and the explanation required under Section 68 of the Act having been discharged, Assessing Officer was not justified in making the additions. Therefore, the additions were deleted. 19. In appeal, Tribunal noted that before the Assessing Officer, assessee had submitted the following docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the source. (v) Assessing Officer has not brought any cogent material or evidence on record to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represent company's own income from undisclosed sources. Accordingly, no addition can be made u/s. 68 of the Act. In view of above reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same. 21. From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tribunal recorded that bank accounts of the creditors showed that the creditors had funds to make payments for share application money and in this regard, resolutions were also passed by the Board of Directors of the three creditors. Though, assessee was not required to prove source of the source, nonetheless, Tribunal took the view that Assessing Officer had made inquiries through the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir statements before Director of Income Tax (Investigations) had admitted that they were engaged in the business of providing accommodation entry through various companies controlled by them. Hon ble Delhi High Court has remanded the matter back to the file of Tribunal. It has been noted at Para 18 that Tribunal will also take into account facts and circumstances noted above but the observation made in this order will not be treated as conclusive and final. The facts in the case of assessee indicate that in an independent enquiry contribution of share was confirmed by the corporate share holder before Investigation Wing along with documentary evidence. The evidence brought on record in an independent enquiry has not been found to be incorrect or adversely commented in the assessment order. Thus nothing adverse can be drawn from the said decision in the case of assessee. The Tribunal, Delhi Bench, Delhi, has decided the appeal after remand order of Hon ble Delhi High Court vide order dated 07/12/2018. In the aforesaid judgment, the appeal filed by the Revenue has been dismissed on account of tax effect. In view of above nothing adverse remains in the judgment of Hon ble Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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