TMI Blog2021 (10) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... fers no explanation about the nature and source thereof or the explanation furnished is found to be unsatisfactory, the sum so credited may be charged to Income-Tax as the income of the assessee of that previous year. A proviso has been inserted to the said section by Finance Act, 2012 w.e.f. 01/04/2013 to provide that where the assessee is a company and the sum so credited consists of share application money, share capital, share premium etc., the explanation furnished by the assessee shall be deemed to be not satisfactory unless the person in whose name such credit is recorded also offers an explanation about nature and source of sum so credited and such explanation is found to be satisfactory. By observing that the assessee in the present case, has been able to discharge the initial burden to establish the identity, creditworthiness and genuineness as regards the transactions concerning the allotment of shares. We find that in the case before us, the initial burden has similarly been discharged by the assessee - on the facts and circumstances, we hold that the impugned additions as made u/s 68 and consequential addition of estimated commission u/s 69C is not sustainable in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g resident corporate assessee is stated to be engaged in the business of trading, marketing, supplying etc. of dress material, garments etc. 2. The Ld. AR for assessee, drawing our attention to the factual position as well as documentary evidences submitted by the assessee before lower authorities, assailed the additions made by Ld. AO and as confirmed by Ld. CIT(A) in the impugned order. Reliance has been placed on various judicial pronouncements, the copies of which have been placed on record. The Ld. AR also referred to recent decision of Hon ble Bombay High Court in Pr. CIT V/s Ami Industries (India) Pvt. Ltd. (ITA No.1231 of 2017; 29/01/2020) for the submissions that the assessee was not required to prove the source of source in this year. The Ld. DR, on the other hand, submitted that the assessee could not prove the creditworthiness of the share applicants and therefore, the additions were rightly confirmed by Ld. CIT(A). Reliance has similarly been placed on certain judicial pronouncements, the copies of which have been placed on record. 3. We have carefully heard the rival submissions and perused relevant material on record. We have also deliberated upon various j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licants. The details and documentary evidences with respect to these remaining share applicants have subsequently been furnished vide replies dated 25/01/2016 14/03/2016. 4.3 However, vide notice dated 03/03/2016, the assessee was put to notice that summons issued u/s 131 to 18 share-applicants remained un-responded and none attended on given dates. Further, there was no business activity in corporate share-applicants and they merely reflected receipts by way of share capital and share premium. Further, notices issued u/s 133(6) to 10 share applicants were returned back un-served by postal authorities. Accordingly, the assessee was directed to produce the said parties failing which the amount received by way of share application money was to be treated as unexplained cash credit liable to be added to assessee s income. 4.4 The assessee, vide reply dated 15/03/2016, refuted the allegations by drawing attention to the documentary evidences filed by the assessee to substantiate the transactions. It was submitted that the assessee did not have legal power to enforce attendance of the applicants. Upon perusal of these documents, it could be seen that investments were made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity was not operating from the given address. This entity had meager profits but it had reserves of more than ₹ 3.92 Crores which would be quite abnormal. The directors of this entity were running various other concerns. The assessee could not produce the said party and therefore, the only conclusion that could be drawn was that the money was merely an accommodation entry. Similar findings were rendered with respect to other 2 corporate entities. Finally, the issue was summed up by Ld. AO as follows: - 5.8 All the above facts goes to prove that: all the individual parties from whom the assessee stated have received amounts towards share capital and share premium do not have creditworthiness to invest such huge amount The banking modus operandi of the individuals reveal similar pattern of deposits and subsequent transfer of money to assessee company not only in A.Y. 2009-10 but also in subsequent years ever since the incorporation of the assessee company. All the individual parties have account in the same bank where the assessee company has its own account. Analysis of bank accounts of the individuals particularly the cash deposits and cheques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l these entities were sufficient enough to make the investment in the assessee. The assessee also refuted the allegation of Ld. AO that there was cash deposit in the bank account before making investment by referring to the bank statements of each of the share applicants, upon perusal of which it was crystal clear that the investment were funded out of cheques deposited by investor in their respective bank accounts. The source of investment was also explained in the written submissions. Similar submissions were made for all the 29 non-corporate entities. Regarding Corporate entities, the assessee submitted that these entities had sufficient net worth to make the investment. On the basis of these submissions, the assessee submitted that it had demonstrated the fulfillment of primary ingredients of Sec.68 and therefore, no such additions could be made in the hands of the assessee. Regarding allegation of high premium, the assessee relied on the decision of Hon ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272] to submit that it was the prerogative of Board of Directors to decide the quantum of premium amount and the wisdom and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual share applicants) and 3 corporate entities viz. (i) M/s Priority Exports Pvt. Ltd.; (ii) M/s Safford Mercantile Pvt. Ltd.; (iii) M/s Jagdamba Complex Pvt. Ltd. 6.2 During the course of assessment proceedings, the assessee was directed to substantiate these transactions along with relevant documentary evidences. The assessee filed various replies, documentary evidences as well as net-worth statements of each of the share applicants which have been placed on page nos.49 to 468 of the paper-book. Upon perusal of the same, we find that the assessee furnished complete details of share-applicants along with their respective addresses and the amount received from each of them during the year. With respect to each of non-corporate entities, the assessee had furnished various documents which include Share Application Form, PAN Card, confirmation from share applicants regarding investment, relevant pages of bank passbook / statement, Income Tax Acknowledgement for the year, Statement of Income, Profit Loss A/c Balance Sheet as on 31/03/2009 and letter of allotment. In case of corporate share applicants, in addition, the assessee also supplied copies of Board Resolution, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rajapat 17 8,63,000/- 10,20,000/- 9,91,000/- 13 Jawanmal Prajapat- HUF 8 9,95,000/- 11,72,000/- 9,70,000/- 14 Keshav Gokul Nisar - HUF 8 9,97,000/- 11,73,000/- 9,50,000/- 15 Manuben K. Shah 9 25,65,000/- 27,19,000/- 19,45,000/- 16 Mitiksha B. Patel 8 999,000/- 11,64,000/- 8,75,000/- 17 Motilal D. Nisar 14 8,90,000/- 10,43,000/- 9,56,000/- 18 Pravin K. Dagha 24 8,84,000/- 10,47,000/- 9,24,000/- 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities were filing their Income Tax Returns since past several years ranging from 5 to 15 years. With respect to corporate entities, it is the observation of Ld. AO himself that the investments were sourced out of own capital and share premium account. Undisputedly, the share application money has been received through banking channels which is evident from bank statement of each of the applicants as placed on record. Upon perusal of bank statements, it could also be seen that the investments have been sourced by share applicants out of loan-refund granted by them previously and there are no immediate cash deposit before making investment in the assessee company. Nevertheless, the assessee has placed on record confirmation of transactions wherein all the applicants have confirmed the investment made in the assessee company. 6.3 On the basis of all these documentary evidences, it could be concluded that the assessee had duly discharged the onus of proving the identity of the investor entities, their respective creditworthiness and the genuineness of the transactions. One of the reasons to doubt these transactions is the observation of Ld. AO that notices issued u/s 133(6) as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013-14 and the same is not retrospective in nature as held by Hon ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272]. The said position has also been reiterated by Hon ble Bombay High Court in its recent decision tilted as Gaurav Triyugi Singh V/s ITO (ITA No.1750 of 207, dated 22/01/2020) which also consider its earlier decision of Pr.CIT V/s Veedhata Towers Pvt. Ltd. (2018 403 ITR 415). Therefore, the assessee was not even otherwise obligated to prove the source of source of share application money in this year. 6.6 The Hon ble Supreme Court in the case of Lovely Exports P. Ltd. [319 ITR 5], dismissing revenue s appeal, observed as under: - 2. Can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 3. Subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 13) by observing that the assessee, in the present case, has been able to discharge the initial burden to establish the identity, creditworthiness and genuineness as regards the transactions concerning the allotment of shares. We find that in the case before us, the initial burden has similarly been discharged by the assessee. 6.8 Therefore, on the facts and circumstances, we hold that the impugned additions as made u/s 68 and consequential addition of estimated commission u/s 69C is not sustainable in law. By deleting the same, we allow Ground Nos. 1 3 of the appeal which render ground no.2 merely academic in nature. The Ld. AO is directed to re-compute the income in terms of this order. The appeal stand allowed in terms of our above order. Assessment Years 2010-11 to 2012-13 7. It is admitted position that facts as well issues are identical in all these years. The assessment for AY 2010-11 has been framed u/s 143(3) r.w.s. 147 on 23/03/2016 wherein the share application money of ₹ 157.09 Lacs has been added to assessee s income u/s 68 along with estimated commission income of ₹ 1 Lacs u/s 69C. In AY 2011-12, the assessee has been saddle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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