TMI Blog2014 (10) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to the share capital and share premium. In order dated 18.03.2011 it was barely two days after the receipt of last reply the AO writes in the assessment order that “notice u/s 133(6) of the Act were issued to the share subscribers on test check basis the replies from their end are verified”. In this regard we agree with the ld. DR, the AO has shown undue haste in completing the assessment. There was no enquiry whatsoever by the AO rather the entire exercise was to make a perfunctory attempt to give a facade of enquiry – there was no cogent substance in the submission that prior to the introduction of proviso to section 68 and introduction of section 56(2)(viib) there was no requirement on the AO to enquire the genuineness of amount received as share capital and share premium - The receipt of any amount by whatever name called if the same is not genuine does fall under the ken of section 68 - there is no infirmity in the order passed by the CIT u/s 263 – Decision in Zigma Commodities Private Limited vs ITO [2014 (5) TMI 672 - CALCUTTA HIGH COURT] followed - Decided against assessee. - ITA No. 1607/Kol/2013 - - - Dated:- 24-10-2014 - Sri Shamim Yahya, AM And Sri G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee craves leave to add/alter any of the grounds of appeal before or at the time of hearing. 3. The brief facts of the case leading to the order passed u/s 263 of the Act are summarized as under :- The original return in this case was filed on 31.08.2009. In the said return the assessee has shown a current loss of ₹ 23,624/-. The company has not carried out any trading activity for the concerned assessment year. There was no income in the profit and loss account. Certain routine expenditures pertaining the filing fee, printing and stationery, auditors fee and compliance fee were debited to Profit and Loss account. As on the close of the previous year, the company had 10,000 equity shares of ₹ 10/- amounting to ₹ 100,000/-. During the year under consideration the company had issued 3,09,030 number of equity shares of ₹ 10/- each at a share premium of ₹ 490/- per share. Thus the share capital raised was ₹ 30,90,300 and the share premium raised was ₹ 15,14,24,700/-. Subsequent to the aforesaid filing of return assessee sent a letter to the AO. The said letter was undated. However the receipt at the income tax office showed the date as 17t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interalia submitted a list of share holders as on 31.03.2009 along with their PAN No. and addresses. The list included 21 shareholders. Out of the 21 shareholders AO issued notice u/s 133(6) of the Act to 9 of the share holders. Notice u/s 133(6) of the Act AO s requisition are as under :- During the course of scrutiny assessment proceedings in the case of M/s.Brindavan Commodities Pvt. Ltd. bearing PAN-AADCB3837E, it is found that you made investment in shares of M/s. Brindavan Commodities Pvt. Ltd. during the financial year 2008-09 relevant to Assessment Year 2009-10. It appears that you also paid premium. You are requested to furnish following information : 1. Your PAN 2. Your Income tax Assessing officer 3. A copy of the Final A/cs for the Financial year 2008-09 along with a photocopy of Acknowledgement of Return for the Assessment Year 2009-10. 4. Number of shares applied for and date(s) of Application. 5. Amount paid in application for Share Capital Share Premium 6. Mode of payment 7. Number of shares allotted and date of allotment 8. Photocopy of Bank statement as an evidence of showing transaction. 9. Sources of investment. The above inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @Rs.10/- thereby raising share capital of ₹ 30,90,300/- and share premium of ₹ 15,14,24,700/-. Notice u/s 133(6) was issued to different share subscribers on test check basis and replies form their end have been verified. AO further made note that there was no business transaction during the relevant period under assessee,. Hence ₹ 1200/- was disallowed. It was further mentioned that the assessee has voluntarily declared that it had received ₹ 50,000/- from one Sri Harish Josh as contractual fees but same was not taken in to the books of accounts. Hence ₹ 50,500/- was added to the total income of the assessee. 9. In the background of the aforesaid the ld. CIT issued notice u/s 263 of the Act dated 01.02.2013. In the said show cause notice it was stated that on examination of records it was found that 3,19,030 shares were issued by the said company at face value of ₹ 10/- at a premium of ₹ 490/- per share. In other words, the assessee raised a paid up share capital of ₹ 31.90 lacs with premium of ₹ 15.10 crores. It was further stated that on perusal of the assessment records it was found that requisite inquiries were not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single Director of the assessee company or of the subscribing companies. Further, the AO also did not cross verify the Income Tax acknowledgement, balance sheet etc. from the AOs of the subscribing companies. In recent years, it has become a common practice to introduce unaccounted money by way of share capital in dummy companies. The present assessee company is part of the large number of such cases in Kolkata as well as other parts of the country. The share capital is introduced by rotating the money to dummy companies which have been created solely for this purpose. The Directors of such companies are more often than not low paid employees such as peons, darbans, drivers or other persons of humble means. The modus operandi for introduction of unaccounted money as share capital is that unaccounted cash is deposited in the bank accounts of different persons/companies. After this the money is transferred by way of cheques to other companies and this is done 3 to 4 times using different companies and thus rotating the money into 3 to 4 layers. After 3 to 4 layers, the money reaches its intended destination and this company is then sold off to the group or person who will ultimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is now well settled that tax authorities are entitled to look into surrounding circumstances to find out the reality of a transaction by applying the test of human probability. Reference in this context is invited to the Apex Court decision in the case of CIT vs Durga Prasad More [82 ITR 540]. In this context, I would also like to draw attention to the jurisdictional High Court s decision in the case of CIT vs Precision Finance Pvt. Ltd. [208 ITR 465]. In that case, the Hon ble Judges observed that It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the ITO revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently the question of establishment of the genuineness of the transactions or the creditworthiness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various grounds challenging the jurisdiction assumed by the ld. CIT u/s 263 of the Act and the merits of order passed by him. The ld. Counsel of the assessee has filed a written submission and he submitted that he shall be relying upon the said written submission. In his submissions the ld. Counsel of the assessee has submitted that all the grounds taken in this appeal relate to the validity of order passed u/s 263 of the Act by the ld. CIT. That the main ground on which the ld. CIT passed u/ 263 of the Act was that requisite enquiries were not carried out. That in this connection it is the submission that the ld. AO had conducted enquiries regarding raising of share capital by issuing of notice to share subscribers. That such notice with replies of subscriber companies are contained in the paper book. That another objection of the ld. CIT was that notice was issued on test check basis. That it is submitted that out of 3,09,030 shares verification was done in respect of 27,050 shares by issuing of notice u/s 133(6) of the Act. That the AO made enquiry regarding the share capital by issuing notice u/s 142(1) of the Act. He subsequently sought information about share holders, their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Malabar Industrial Co.Ltd. vs CIT 243 ITR 83(SC) 2) Hon ble Apex Court in the case of CIT vs Max India Ltd. 295 ITR 282(SC) 3) Hon ble Punjab and Haryana High Court in the case of CIT vs Saluja Exim Ltd. 329 ITR 603 (P H) 11.2. It has further been submitted in the written submission that assuming, but not admitting that the Company has violated any law of land by issuing shares at a huge premium, it is submitted that so far as income tax assessments are concerned the same should be governed by provisions of IT Act, 1961and it is for the authorities under the respective statute to take action for such contravention. In this regard the assessee s counsel has placed reliance upon the decision of the Hon ble Apex Court in the case of Dr.T.A.Quereshi vs CIT 287 ITR 547 (SC) and ITAT Hyderabad in the case of R Viswanath vs ITO 59 SOT 22 (Hyderabad). It has further been submitted that the ld. CIT has relied upon the decision of Hon ble Delhi High Court in the case of CIT vs Nova Promoters and Fin Lease (P) LTd. 342 ITR 169 (Del). It is submitted that the case is distinguishable on facts. In this case :- 1. There was information from investigation wing about accommodat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO had issued notice to six shareholders but for 13 share holders there was no enquiry. The ld. DR submitted that actually no enquiry or examination or verification was done by the AO. AO has merely collected certain data and this cannot be equated to examination and enquiry. In this regard the ld. Counsel of the assessee placed reliance on the decision of Apex Court in the case of Rampyari Devi Sarogi vs CIT 67 ITR 84 (SC) for the proposition that when ITO made the assessments in undue hurry, assumption of jurisdiction u/s 263 of the Act was justified. The ld.DR further placed reliance upon the order of the Jurisdictional High Court in the writ petition of 2014 in the case of Zigma Commodities Private Ltd. and another vs ITO vide order dated 08.05.2014. The ld. DR submitted that in this case the Hon ble Jurisdictional High Court was ceased with identical matter and the matter was decided in favour of revenue. The ld. DR further submitted that the above decision in writ petition of the Hon ble High Court has also been confirmed by the Divisional Bench of the Hon ble High Court. 13. We have carefully considered the submissions and perused the records. We note that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.1. We further find that the above judgment of the Hon ble Jurisdictional High Court in the writ petition was also considered by the divisional bench of the High Court in G.A.No.1911 of 2014 in Zigma Commodities Pvt.Ltd vs ITO vide order dated 19th August, 2014. The Hon ble High Court had dismissed the petition appeal of the applicant. 13.2. Upon careful consideration of the above we find that there is cogency in the submission of the ld. DR that the above issue is similar to the one being considered by us in this appeal. As already dealt with herein above the Jurisdictional High Court has decided the issue against the assessee. Hence preliminary objections of the assessee against the assumption of jurisdiction by the ld. CIT stand dismissed. Now we examine the facts of the present case. 13.3. We note that the return of income was filed in this case on 31.08.2009. The assessee company had shown no trading activity. Only some routine expenditures were incurred. However, the assessee has issued equity shares of ₹ 10/- of ₹ 490/- per share. In this way the assessee has raised share capital of ₹ 30,90,300/- and share premium of ₹ 15,14,24,700/-. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OC fee and section 35D were discussed. On 17.03.2011. AO records that Shri Mahesh Sharma, AR appeared and provided books of accounts which were test checked. It is noteworthy that reopening was resorted for the reason that there is escapement of contractual income. In this regard assessee only submitted the name of a person and amount. This was accepted by the AO without any further enquiry. 13.5. From the above it is evident that after collecting some information the AO did not act any further. There is no whisper in the order sheet as to whether AO made any discussion or enquiry with regard to the share capital and share premium. In order dated 18.03.2011 it was barely two days after the receipt of last reply the AO writes in the assessment order that notice u/s 133(6) of the Act were issued to the share subscribers on test check basis the replies from their end are verified . In this regard we agree with the ld. DR, the AO has shown undue haste in completing the assessment. He has collected certain information but has not made any verification whatsoever. There is no enquiry regarding the issue as to what prompted the subscribers to pay huge share premium in purchasing the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09 dated 14th August, 2014 On a specific query from the Bench as to what has led to this sudden spurt in the 263 being initiated in the share application and share applicants of the various companies. It was the reply by the ld. CIT(DR) in the following words : Many of these companies are under investigation by the Ministry of Corporate Affairs as well as CBI, Enforcement Directorate SIT. In case of politically exposed person, the investigations are at a critical level and therefore the names of the entry operators cannot be divulged at this juncture. 13.9. Further more we note that the following observations in the decision of this Tribunal in the case of Bisakha Sales Pvt. Ltd. vs CIT-Kol-II,Kol vide ITA No.1493/Kol/2013 dated 19.09.2014 as under are also to be taken into account : There is another important aspect which should also be borne in mind in this case. These shares were received after paying huge premium by the allottees. These were subsequently transferred at face value or even at discount. This means that on transfer of shares the allottee did not receive any premium. This means that huge amount was received and paid as share premium with full knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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