TMI Blog2016 (6) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... of the third parties in the chain were also filed by the assessee. Thus the assessee has not only proved the creditworthiness of the said share holders but also proved the source of the source, for which though no onus lie on him. The Assessee has also furnished the copies of agreements in respect of swapping the shares with the other three companies. Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Ld. AR before the Ld. CIT(A). It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped. Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the assessee to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the assessee is unjustified and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rential basis to promoters against cheque. ₹ 2,00,00,000/- ii) Increase in share capital by allotment of one crore equity shares of ₹ 10/- each on preferential basis to 3 other companies under swap arrangement of shares. ₹ 10,00,00,000/- iii) Increase in share capital by allotment of 1.5 crores equity shares of ₹ 10/- each to eleven parties against their outstanding trade credit balances ₹ 15,00,00,000/- Total ₹ 27,00,00,000/- 3.1 Thereafter, the AO completed the assessment determining total income of ₹ 27,15,56,246/- and made the additions vide his order dated 31.3.2006 u/s. 143(3) of the Act. 4. Against the aforesaid assessment order, the assessee appealed before the Ld. CIT(A), who vide impugned order dated 01.3.2007 has allowed the appeal of the assessee and deleted the addition in dispute. 5. Aggrieved with the impugned order, the Revenue is in appeal before the Tribunal. 6. Ld. DR relied upon the order of the AO and reiterated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings, appellant filed the confirmation letters, bank accounts and income tax returns of the aforesaid four creditors showing that entire payments from where the amounts were paid by cheques to the appellant company on behalf of Smt. Shubha and Smt. Angoori Devi. However the Assessing Officer did not accept the creditworthiness of these two lady creditors for the reason that the income shown in their return of income did not justify their creditworthiness. AO also did not accept the creditworthiness of the other two creditor companies M/s. Avisha Credit Capital Limited and M/s. Master Finlease limited - for the reason that assessee did not produce their bank accounts and their complete accounts with appellant. 5.2 In respect of second category, shares were issued to three companies under swap arrangement of shares as under :- No. of shares i) M/s Anupama Communication Pvt. Ltd. 5000000 ii) M/s Wisdom Publishing Pvt. Ltd. 2500000 iii) M/s Chanakya Overseas Pvt. Ltd. 2500000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessing officer was not satisfied with the explanation and evidences filled by the appellant. According to him, the appellant has raised the share capital in respect of which though the assessee filed evidences but those evidences fail to establish the creditworthiness of the shareholders. Though assessing officer has raised several contentions in the assessment order but all those contentions point out to this aspect that the assessee has not established the creditworthiness of the shareholders. Assessing Officer relied on various case laws for the proposition that since appellant could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of ₹ 27,00,00,000/- is to be treated as unexplained cash credits u/s 68 of the IT Act. 5.5 During the appeal proceedings, the appellant has filed very comprehensive written submissions contending that the appellant has submitted all what was required and what was essential to discharge the burden cast u/s 68. Appellant filed a paper book too containing the evidences filed in assessment proceeding to drive home its view point that not only identity of the shareholder was proved but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n hands of M/s Virasat Developers and Builders Pvt. Ltd. which could not be filed before AO as nothing was asked by him during the course of assessment proceedings regarding the source of ₹ 50 lacs in the hands of M/s Virasat Developers Pvt. Ltd. It is further seen that the additional evidences are showing the source of ₹ 30 Lacs in the hands of Mr. Vijay Jhindal which were given to M/s Vital Communications Ltd. by him on behalf of Smt. Shubha. Further evidences are showing the bank statements of M/s Avisha Credit Capital Ltd. and source of funds in their hands. Petition contains the evidences showing the bank statements of M/s Master Finlease Ltd. and source of funds in their hands and further evidence to show the source of ₹ 20 lacs in the hands of M/s Master Finlease, Ltd. which was given to by M/s Master Finlease Ltd. Thus, when adequate opportunity of hearing was not given, it is incumbent for the appellate authority to admit the evidences. After considering all the facts and circumstances of the case and after considering the replies filed on behalf of the parties, additional evidences filed by the assessee are admitted for the above stated reason and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not necessary for assessee to produce shareholders before Assessing Officer - Held, yes - Whether therefore, Tribunal was justified in deleting addition made by Assessing Officer - Held, yes - CIT VS. MAKHNI TYAGI (P) LTD. 136 TAXMAN 641 (DELHI). - Cash credits - Share application moneys received by assessee company - Finding that identify of creditors had been established - Tribunal justified in deleting addition to income - Income Tax Act, 1961 s. 68 - CIT V. DOWN TOWN HOSPITAL PVT.LTD. 267 ITR 460 (ALL). CASH CREDIT - Share application money-assessee - company having proved the existence of two companies which had paid share application money to it through cheques, it had discharged its onus of proving the identity and creditworthiness of both the creditors as well as the genuineness of the transaction and therefore, no addition could be made under section 68 - Asstt, CIT vs Antarctica Investment (p) Ltd. (Del) 78 TTJ 257 Affirmed in CIT vs Antarctica Investment Pvt. Ltd. 262 ITR 493(Del) Achal Investment Ltd vs CIT 268 ITR 211 (Del). Moreover, following decisions lay down that addition of share capital cannot be made in the hands of the company- assessee as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said additions made u/s 68 cannot be sustained on the legal grounds itself as discussed above, I proceed to deal the addition on merit also. I have seen the evidences filed in the paper book and also the evidences filed with application under rule 46A and I find that the impugned addition could not be made under any circumstances as all the necessary ingredients of section 68 have been satisfactorily complied by the appellant. It is evident that the necessary ingredients of this section i.e. identity and capacity of the shareholders and genuineness of the transactions in respect of the impugned credits stood met by the appellant with the help of overwhelming evidences which are discussed hereunder.- PB 50-51 is letter to A.O. in which details of new shareholders were furnished. PB 52 is the details of shareholders with their PAN No. furnished to Ld. A.O. showing allotment of shares against money and against consideration. It is seen that all these shareholders are income tax assessee whose PAN Numbers were furnished to Ld .A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh confirmation from Smt. Subha. PB 84 is her bank statement where from the payment was made to the appellant. PB is a letter from Master Finlease Limited to Smt. Shubha confirming the loan giving to her. PB 85, 86 are the evidences of ₹ 30,00,000/- investment made by Smt. Shubha by raising loan from Mr. Vijay Jhindal. PB 89 is an affidavit from Smt. Shubha deposing all these facts. PB 88 is acknowledgement of share capital from appellant to Smt. Shubha. PB 91-92 are the confirmations from M/s. Cosmo and M/s. Troop Track showing their PAN No. and place of assessment. PB 93-107 are the confirmations and evidences of further share capital from the parties mentioned at PB 52 showing PAN Number and place of assessment. 5.11 During the appellate proceedings, AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the appellant company were also demonstrated during the appellate proceedings on 26-2-2007 by the director of the appellant company Mr. J.P.Madaan. There is no evidence brought on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference in the date of agreement is satisfactorily explained by the Id. AR. It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped. Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the appellant to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the appellant is unjustified and I therefore delete the addition of ₹ 27 crores. 5.15 It was rightly argued by the Ld. Counsel that onus to prove the source of the credits stood discharged in this case in terms of the following decisions with which I concur and there was thus no case for making any addition:- Sarogi Credit Corp. vs. CIT 103 ITR 344/345 (Pat.) I. Add!. CIT vs.Bahri Bros (P) Ltd. 154 ITR 244(Pat.) 2. CIT vs. Daulatram Rawatmal 87 ITR 349/350 (SC) 3. CIT VS. Ram Narain Goel 224 ITR 180 (P H) 4. Sona E1ec. Co. vs. (IT 152 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the bank account of M/s Virasat Developers and Builders was filed before Assessing Officer. It is seen that nothing was asked by the AO regarding the source of funds in the hands of M/s Virasat Developers and Builders Ltd. and thus there was no occasion to explain the source in the hands of M/s Virasat Developers and Builders Ltd. In fact, in petition for additional evidence even the source in the hands of M/s Virasat stands explained by way of funds received by them from M/s Flare Finance India Ltd. and M/s Perfect Car Scanner Pvt. Ltd. Therefore the adverse observations of Assessing Officer about the Bank account of M/s Virasat, was not warranted. C. Assessing Officer has mentioned at page No. 5 of Assessment order that though Loan confirmation for M/s Master Finlease Ltd. to Smt. Shubha states that loan of ₹ 20 Lacs has been given to her but this amount is not reflected in her bank statement. It is seen that this allegation of Assessing Officer is factually incorrect. PB 84 may be in this regard referred and it is seen that this amount of ₹ 20 Lacs is very much appearing in her bank statement filed before Assessing Officer. Therefore, such incorrect fact nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Assessment order that originally the appellant stated the sources of Investment made by 11 Shareholders was against the loans already given to the assessee and later on appellant changed the stand and explained the source out of the money payable against bills raised by these parties. Thus, according to Assessing Officer, there was shifting of stand. I have considered this objection but find no merit in that because the ultimate fact of the matter is that Investors have confirmed the fact of investment made by them in the capital of the appellant company, Shares were issued against the credit balances appearing in the accounts of these parties/ persons and it is a matter of inference as to whether the credit balances lying in the books were in the nature of loan or not. Therefore, nothing turns on such observation of AO, as rightly contended by the appellant. G. Assessing Officer has mentioned at page 10 or Assessment order that equity shares were allotted to M/s Master Finlease Ltd. on 7/08/03 which according to Assessing Officer was not possible. I have seen the document and admittedly PB 94 which is the confirmation of Master Finlease Ltd. shows the date as 7/08/03 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement filed before Assessing Officer would show that this agreement was entered on 5.8.02 and was also signed on 5/8/02. In fact such agreement could not be signed prior to 5/8/02. A copy of this very agreement filed by M/s Wisdom Publishing Pvt. Ltd. in its assessment proceedings before its Assessing Officer appears to, bear the date on 3rd page of Agreement could be a typographical error which does not have a significant bearing on the present issue. Signing by witness or registration is not legally required and therefore observations of Assessing Officer on these aspects also do not carry any meaning. K. AO has mentioned at page 3 of the assessment order that vide order sheet entries dated 17-03- 2006, creditworthiness of the parties were asked but it is seen as noted by me above also that that he did not ask for this evidence in respect of all the shareholders but asked about the shareholders to whom share capital was allotted against the credit balance. Fact of the matter is that evidences were filed which would show that onus to establish the share capital was discharged. L. AO has mentioned at page 3 of the assessment order that bank statement was not produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer was not satisfied with the explanation and evidences filled by the assessee. According to AO, the assessee has raised the share capital in respect of which the assessee filed evidences, but as per the AO those evidences fail to establish the creditworthiness of the shareholders. Assessing Officer relied on various case laws for the proposition that since assessee could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of ₹ 27,00,00,000/- is to be treated as unexplained cash credits u/s 68 of the IT Act. However, during the appellate proceedings, the assessee has filed written submissions contending therein assessee submitted all what was required and what was essential to discharge the burden cast u/s 68. Assessee filed a Paper Book containing the evidences filed in assessment proceeding to drive home its view point that not only identity of the shareholder was proved but also genuineness of transactions and creditworthiness of the shareholders, and that all the shareholders are existing income tax assesses and thus identity in any case stood established and in such a case, addition cannot be made in the hands of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source of funds in their hands. Petition contains the evidences showing the bank statements of M/s Master Finlease Ltd. and source of funds in their hands and further evidence to show the source of ₹ 20 lacs in the hands of M/s Master Finlease, Ltd. which was given to by M/s Master Finlease Ltd. Ld. CIT(A) has rightly held that thus, when adequate opportunity of hearing was not given by the AO, it is incumbent for the appellate authority to admit the evidences. Hence, in view of the above, additional evidences filed by the assessee were rightly admitted by the Ld. CIT(A). 8.2 As regards the addition u/s. 68 it is observed that the A.O. has expressed his doubt only about the creditworthiness of the shareholders and the identity of the persons/ entities subscribing to the share capital was not doubted by the Assessing Officer and this fact is clear from the plain reading of the assessment order. In this behalf, we draw support from the decision of the Full Bench of Hon'ble Delhi High Court in case of CIT vs Sophiya Finance Limited 205 ITR 98 wherein it has been held that once identity of the shareholder is established, no addition on account of share capital can be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash/ cheque / draft. Hence, the addition made in respect of these share holders to the extent of ₹ 25,00,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said addition made u/s 68 cannot be sustained on the legal grounds itself as discussed above 8.4 We further note that during the appellate proceedings, the Assessee s AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the assessee company were also demonstrated during the appellate proceedings on 26-2-2007 by the Director of the aaseessee company Mr. J.P.Madaan. There is no evidence brought on record the show that such transactions of purchase of softwares were sham transactions to evade the taxes nor there can be any, since there is no advantage to the appellant company to enter into such sham transactions. Assessee had neither debited such expenses on purchase of softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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