TMI Blog2015 (11) TMI 1455X X X X Extracts X X X X X X X X Extracts X X X X ..... part from issuance of the notices under Section 131 of the Act which were duly responded to. Detailed findings have been given by the ITAT in the present cases after a thorough examination of the records. These have been extracted hereinabove. The Court finds no reason to differ from the decision of the ITAT in its rejection of the very same contentions urged before the Court by the Revenue. In particular, the Court concurs with the ITAT that the mere fact that some of the investors have a common address is not a valid basis to doubt their identity or genuineness. Also, the fact that the shares of the Assessee were subsequently sold at a reduced price is indeed not germane to the question of the genuineness of the investment in the share capital of the Assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares.. Some of the investor companies for e.g., Quality Security Services Pvt. Ltd. (b) United Head Hunters Pvt. Ltd. and (iii) Wellset Pharma & Drugs Pvt. Ltd. have been shown to be filing returns and being assessed on a regular basis. Some of them have been shown to be in existence even before the incorporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the CIT-3. On the next date, i.e. 17th November 2015, Mr. Sawhney sought more time for that purpose. The Court was not inclined to grant further time for that purpose and decided to proceed on the basis of the documents already on record. 5. It appears from the covering letter dated 24th November 2014 of the ITO (Judicial) that cases concerning Five Vision were under the jurisdiction of the ACIT/DCIT, Circle-9 (1) [Pre restructured Cir.11 (1)]. The letter stated that it was not known whether a copy of the consolidated order of ITAT had been forwarded to the concerned CIT. Therefore, a letter was again being written to the CIT-III (Post restructured). However, as noticed earlier CIT-III had already received a copy of the order on 1st August 2014 itself. In any event, going by the earliest of the date stamps on the certified copy of the impugned order of the ITAT, it is seen that it was first received by the CIT (Judicial) on 10th June 2014. That should normally be taken to be the date of commencement of limitation for the purposes of Section 260A (2) (a) of the Act. On that basis, the appeal filed on 19th March 2015, with the supporting affidavit attested on 31st March 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprised 12 companies against whom the proceedings were initiated under Section 153C of the Act consequent upon the search. Table-III shareholders, comprised 74 companies whose identity and existence were not doubted since they were being regularly assessed to tax. 10. The case of the Revenue is that SVP Group of companies (in whose premises, and the residential premises of their Directors, searches were conducted) were engaged in the business of construction of residential, commercial and business complexes and also sale/purchase of lands. The further case of the Revenue was that the Group had been charging on-money on the sale of flats, shops etc. which was not accounted for in their regular books of accounts. The allegation was that on-money was taken in cash and in turn was routed back into the Group companies in the form of share application/unsecured loans, share capital etc. The unaccounted money routed through the said channel was reinvested in the purchase of further lands and for new projects. The share application money received in cash was also utilized for booking bogus expenses as site development charges for inflating the cost of construction to bring down pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee by the Assessing Officer ( AO ) on 15th September 2010 under Section 143 (2) of the Act. The jurisdiction of the case was shifted from Meerut to Ghaziabad on 13th October 2010. Again notices under Section 142 (1) of Act were issued to the Assessee for the AYs in question by the ACIT, Central Circle, Ghaziabad on 25th October 2010. For AY 2007-08, a further notice under Section 142 (1) was issued on 22nd November 2010 and for AYs 2008-09 and 2009-10 on 2nd December 2010. 15. As already noted, there were 20 companies belonging to Table-I. As far as Five Vision is concerned, the case of the Revenue was that 14 of these Table-I companies were its shareholders during AY 2007-08, contributing an aggregate of ₹ 1.33 crores. As far as Table-II is concerned, of the 12 companies therein, 9 were shareholders of Five Vision during 2007-08 contributing in the aggregate ₹ 87 lakhs. These are companies against whom information was gathered during the course of search although these companies themselves were not searched. Of the 74 companies in Table-III, 15 were stated to have contributed in the aggregate ₹ 2,36,47,500 to the share capital of Five Vision during the AY 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus shares that were initially issued by the SVP Group to the extent of ₹ 81.19 crores had been cheaply bought back for ₹ 10.38 crores and therefore the transactions were sham. (v) Thus the Assessee had failed to prove the identity, genuineness and creditworthiness of the said shareholders. Accordingly, the aforementioned sums shown as investments in its shares for the AYs in question were added to its income for those AYs. Proceedings before the CIT (A) 18. Aggrieved by the aforementioned assessment orders, the Assessee, Five Vision filed appeals before the Commissioner of Income Tax (Appeals) [ CIT (A) ]. The Assessee furnished some more documents on which remand report was called for by the CIT (A) from the AO. The remand report was submitted by the AO on 11th November 2011. A rejoinder and recapitulation note was submitted before the CIT (A) on 8th December 2011. A reply dated 21st December 2011 was also filed by the Assessee on the questions raised by the CIT (A) on 8th December 2011. Further responses were submitted on 7th and 10th February 2012 for questions raised on 3rd and 8th February 2012 respectively. 19. The CIT (A) issued common directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sale of the shares subscribed was not germane to the question of the genuineness of the share capital amount received by the Assessees. Once the capital raised stood explained, the issue of disinvestment by the shareholder subsequently was a non-issue. The addition if at all was to be examined in the hands of the person purchasing the shares. (vii) There was no material to support the Revenue's case that the 'on-money' collected in cash was routed back into the SVP Group companies in the form of share application and later reinvested in purchase of further lands for new projects. (viii) There was no material to conclude that some of the investors were 'paper' companies. They had been regularly assessed to tax and had produced their books of accounts during their respective assessment proceedings to show that they had made the investment in question. This had been accepted by the CIT (A) in their assessments by deleting the additions made of the said sums to their income by the AO concerned by holding that the additions if at all should be made in the hands of the beneficiaries. In the appeals filed in those cases, the Revenue had contended that the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual and consistent with the well settled law explained by the Supreme Court and the High Courts in several decisions concerning Section 68 of the Act. Mr. Aggarwal pointed out that as regards the 38 shareholders who contributed share capital for AY 2007-08, a sum of ₹ 4,56,47,500, 14 belonged to Table-I, 9 to Table-II and 15 to Table-III. Evidence in respect of each of the 14 Table I companies was filed by the Assessee. This included, inter alia (i) copy of share application forms; (ii) copy of board resolution; (iii) copy of allotment letter confirming the allotment; (iv) confirmation in affidavit by the investor (v) copy of share certificate evidencing the allotment of shares; (vi) copy of income tax return ( ITR ) for the relevant AY; (vii) the relevant extracts of the copy of bank book; and (viii) copy of the letter with enclosures filed by the investor company addressed to AO in response to summons issued under Section 131 of the Act making direct enquiries. 24. Mr. Aggarwal pointed out that similar details were provided for 9 corporate shareholders belonging to Table-II who invested in Five Vision for AY 2007-08 and in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the amount credited in the books of the accounts of an Assessee. This could be any sum whether in the form of sale proceeds or receipt of share capital money. First, the AO is to enquire whether the alleged shareholders in fact exist or not. The truthfulness of the assertion by the Assessee regarding the nature and the source of the credit in its books of accounts can be examined by the AO. Where the identity of the shareholders stands established and it is shown that they had in fact invested money in the purchase of the Assessee's shares, then the amount received would be regarded as capital. Where the Assessee offers no explanation at all or the explanation offered is unsatisfactory, the provision of Section 68 may be invoked. 29. A Full Bench of this Court in CIT v. Sophia Finance Limited (supra) held in the context of Section 68 of the Act that: (i) The Assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber . (ii) If the relevant deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation from share applicants, their bank account details; and had shown payment through account payee cheques etc. In the circumstances, it was held that it could be said that the Assessee had discharged its initial onus and just because some of creditors/share applicants could not be found at the addresses given, would not give Revenue a right to invoke Section 68 without any additional material to support such a move. It was held likewise in Sarthak Securities Co. (P) Ltd. v. ITO 329 ITR 110. 33. In CIT v. Nipun Builders and Developers (2013) 350 ITR 407 (Del) it was held that the point at which the initial onus on the Assessee to prove the unexplained credit would stand discharged depends upon the facts and circumstances of each case. It was observed: Circumstances might require that there should be some evidence of positive nature to show that the said subscribers had made a genuine investment, acted as angel investors, after due diligence or for personal reasons. Thus, finding or a conclusion must be practicable, pragmatic and might in a given case take into account that the Assessee might find it difficult to unimpeachably establish creditworthiness of the sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n other entities whose source has not been explained by the Assessee. As noted by the ITAT in the assessment proceedings of the investor companies, the monies invested were sought to be added as income of those companies by the AOs. The said additions were deleted by the CIT (A) in their cases holding that the additions if at all should be made in the hands of the beneficiaries. The Revenue then filed appeals in the ITAT insisting on the additions being sustained. Thus there is no clarity in the stand of the Revenue in these cases. 38. Coming to the core issue concerning the identity, creditworthiness and genuineness of the investor companies, it is seen that as far as the Table I investors were concerned, only 9 were searched and in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the Assessee had discharged the primary onus of proving their creditworthiness and genuineness. They had responded to the summons issued to them. Directors of 14 of these companies appeared before the AO and produced their books of accounts. 39. In respect of four of the Table II companies, who invested ₹ 2 crores in the share capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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