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2016 (6) TMI 837 - ITAT DELHI

2016 (6) TMI 837 - ITAT DELHI - TMI - Addition u/s 68 - increase in share capital - Held that:- The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of ₹ 2,50,00,000/-. In view of the above, t .....

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evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts 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 companie .....

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led 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 therefore Ld. CIT(A) has rightly deleted the addition - Decided in favour of assessee - ITA No. 2448/Del/2007 - Dated:- 15-6-2016 - Shri H. S. Sidhu, Judicial Mem .....

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tion of ₹ 27 crores made u/s 68 of the Income Tax Act, 1961 in respect of share capital. 3. The brief facts of the case are that the assessee s business was to provide consultancy service, and advice in India and abroad regarding the manufacturing commercial marketing, technical and managerial aspect of the business of electronics and communication hardware. The assessee filed its return of income on 02.12.2003 declaring loss of ₹ 6,43,754/-, however, income of ₹ 1,09,561/- has .....

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observed that no books of accounts were produced in spite of the repeated requisition / opportunities. The AO 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. AO 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 crores was treated .....

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₹ 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 add .....

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e parties and perused the relevant records, especially the orders of the authorities below. We find that Ld. First Appellate Authority has elaborately discussed the issue in dispute by considering the submissions of the Ld. Counsel of the assessee and adjudicated the same vide para no. 5 to 5.16 at pages 3 to 19 of his impugned order. For the sake of convenience, we are reproducing the relevant portion of the impugned order i.e. para no. 5 to 5.16 as under:- 5. The first substantive issue in thi .....

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#8377; 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/- 5.1 In respect of first category, shares were issued to four promoters as under: No. of shares i) M/s Avisha Credit Capital Limited 500000 ii) M/s Master Finlease Limited 500000 iii) Smt. Shubha 500000 iv) Smt. Angoori Devi 500000 2000000 During the course of assessm .....

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editworthiness 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 .....

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td. was dt.5-8-0-2002. However the agreement copy filed with the AO of M/s. Wisdom Publishing Pvt Ltd. was 3-8-2002. Moreover the agreements' were signed through their authorized representatives, were not signed by the witnesses and were not registered. The appellant company increased the authorized capital without obtaining permission from ROC. Hence the swap arrangement of shares were held as make believe arrangements and not genuine transactions. 5.3 In respect of third and last category, .....

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vt.ltd 18,85,000 1,50,00,000 5.4 Before the Assessing Officer, appellant filed confirmation letters of the aforesaid parties stating that the shares were allotted against-outstanding trade liabilities and no cash / cheque amount was paid by those creditors. 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 .....

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explained 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 also genuineness of transactions and creditworthiness of .....

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rained to file petition for additional evidence and if such evidences are taken into account, there is no warrant whatsoever for making impugned addition. 5.6 Petition for additional evidence was also forwarded to the AO in accordance with the provisions of Rule 46A of IT. Rules for his verification and comments. The Assessing Officer submitted his reports. The counter comment received were made available to the appellant, which has also filed its replies thereto. 5.7 Before I take the appeal, i .....

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lars of the shareholders, only in his first questionnaire dated 30- 05-2002. Confirmations of the shareholders were asked for the first time vide questionnaire dated 25-10-2005 but sent with notice dated 8.2-2006 It is incorrect on the part of AO to say that vide order sheet entry dated 17-03-2006, asked about the creditworthiness of all shareholders of ₹ 15 crores to whom shares were allotted against the credit balances only. Therefore, there was no justification for him to make any adver .....

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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 .....

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ve stated reason and also the same were found necessary to decide this appeal. 5.9 The main issue to be decided in this appeal is whether the onus u/s 68 of the Act in respect of fresh share capital was discharged by the appellant. It is seen 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 th .....

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channel, the assessee has only to prove the existence of the person in whose name share application is received - Additions could not be sustained where the existence of the investors is not doubted and the investment is not shown to have been made by somebody else - BARKHA SYNTHETICS LTD. VS. ASSTT. CIT 197 CTR 432 (RAJ) - Share application money - Assessee having proved genuineness of subscribers of share capital, addition under section 68 could not be made on the ground that it did not establ .....

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pany to produce shareholders before him for identification - On failure of assessee to produce shareholders, Assessing Officer made addition to income of assessee for said block period - Said addition was deleted by Tribunal - Whether when necessary material had been produced before Assessing Officer to establish identity of persons with their PAN/GIR numbers and other details, then it was not necessary for assessee to produce shareholders before Assessing Officer - Held, yes - Whether therefore .....

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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 add .....

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nd alone and is hereby deleted. 5.10 The aforesaid addition cannot be sustained for another legal premise also. Section 68 of the IT Act 1961 under which these additions have been made by the Assessing Officer reads as under: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactor .....

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treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of ₹ 27,00,00,000 made u/s. 68 of the IT Act, the amount of ₹ 25,00,OO,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth ₹ 15.00.00,000 were issued against the outstanding liabilities .....

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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 secti .....

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g 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. PB 53-54 is another letter to Ld. A.O. through which confirmations were filed. PB 56-63 are the confirmation from various shareholders in which shareholders confirmed to have made investments into the share capital of the appellant and have also disclosed their PAN Numbers. It is seen that confirmations placed at PB 56-63 cover .....

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ap of shares with M/s. Anupama Communication Pvt. Ltd., Wisdom Publishing Pvt. Ltd. M/s. Chankaya Overseas Pvt. Ltd. PB 70 is the confirmation from another shareholder namely Smt. Shubha confirming the investment made by her and disclosing her PAN no. PB 71 is acknowledgement of return of Smt. Shubha filed to Ld. A.O. to establish that she was incometax assessee. PB 72-73 is the copy of bank statement of Smt. Shubha. PB 74 is the bank statement of Mr. Vijay Jhindal. PB 75 is the confirmation fro .....

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of assessment. PB 79 is the statement of account of Smt. Angoori Devi in the books of M/s. Virasat Development & Builders Pvt. Ltd. showing the cheques issued on her behalf to the appellant. PB 80 is the bank statement of M/s. Virasat from where the cheques were issued to appellant. PB 81 is letter from the appellant to Smt. Angoori Devi acknowledging the receipt of share capital. PB 82 is an affidavit from Smt. Angoori Devi deposing all these facts. PB 83 is fresh confirmation from Smt. Sub .....

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ack 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 appe .....

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the work in progress in the balance sheet under head fixed assets. There is no tax implication of such transactions. 5.12 Appellant has also furnished the copies of agreements in respect of shares with the other three companies. Swapping of shares is a recognized standard Appellant has also furnished the copies of agreements in respect of swapping the commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the .....

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ery new shareholder. Further, presuming that the appellant is o required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Appellant has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third part .....

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egarding 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 prov .....

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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 507/508 (Delhi) 5. Jalan Timbers vs. (IT 223 ITR 11116 (Gau.) 6. Nemi Chand Kothari vs. CIT 264 ITR 254 (Gauhati) 5.16 Assessing Officer has made certain adverse observations in the assessment order which have been met by the appellant in its written submissions. I have considered the adverse observations made by AO and .....

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uce Smt. Angoori Devi and Smt. Shubha. But these were not produced. It is seen that vide letter dated 21.03.2006 placed at PB 77, It was submitted by the appellant to Assessing Officer that Smt. Angoori Devi is an Old Lady of 76 years and Smt. Shubha was unwell. Therefore, they were unable to attend and it was also requested to Ld. Assessing Officer to exempt their appearance before him for these reasons. The request of the assessee in my consideration was not unreasonable. When both the ladies .....

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₹ 30 Lacs and 20 lacs were credited in its account on 4.7.2003 and 5.7.2003. It is seen that M/s Virasat Developers and Builders Ltd. has not made any investment in the share capital of the appellant company in respect of these two amounts of ₹ 30 Lacs and ₹ 20 Lacs. Therefore, source of these two sums in their hands in my considered opinion, is immaterial to the case of the appellant. Investment was made by Smt. Angoori Devi by raising loan from M/s Virasat Developers and Buil .....

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eceived 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 Assess .....

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ds of these 2 ladies with the help of overwhelming evidence were very much established by the appellant and therefore absence of Balance sheet with their returns is of no Significance and at any rate, no adverse inference can be drawn against the appellant If these two ladles have not filed their balance sheets with the Department . E. Assessing Officer has mentioned at page 6 of Assessment order that in respect of Investment made by M/s Master Finlease Ltd. And M/s Avisha Credit Capital Ltd., t .....

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was asked from the appellant by AO as is clear from Pg 6 of assessment order where in nothing has been mentioned by the Assessing Officer as to whether he did at all ask about these things in the assessment order. Therefore, there was no occasion for the appellant to furnish bank statement or any other document relating to these 2 companies who have filed very comprehensive confirmations of the investment made by them. However petition for additional evidence even the evidence of the source of f .....

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here is no reason for Assessing Officer's any objection in this regard. F. Assessing Officer has mentioned at Page 7 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 .....

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ssessing 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" but this, according to the appellant, was typographical error and was so explained orally to Ld Assessing Officer during the course of assessment proceeding too. It is worth not .....

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alone and or that such confirmations are bogus or sham. It is not necessary for the directors to sign all the papers and authorized persons usually sign. It is interesting to note that on the one hand Assessing Officer is saying that these have been signed by "authorized persons", there is then no room left for any grievance on that score. I. Assessing Officer has mentioned at page 10 of Assessment order that most of the share applications have not made any payment to the assessee in t .....

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ny sum of money. Fact of the matter in the present case is that there was enforceable liability against which instead of payments, the shares have been issued and allotted by the appellant in favour of these shareholders and there is nothing wrong in it. J. Assessing Officer has mentioned at page 12 of assessment order the copy of agreement between assessee company and M/s Wisdom Publishing Pvt. Ltd. shows that agreement is dated 5/8/02 whereas the copy of agreement obtained from the AO of M/s W .....

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td. 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 w .....

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filed with copy of bank statement with letter 20-9-2005 as is seen from the departmental assessment record. Thus, this contention of AO is incorrect. M AO has mentioned at page 3 of the assessment order that books of accounts were not produced. It is seen that appellant is a limited company whose accounts are audited both under Income Tax Act and under Companies Act for which maintenance of books of accounts are inevitable. According to the appellant. these were given to the AR Mr. D.P. Bansal .....

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rt of the appellant but a case of negligence on the part of AR due to medical reason. Otherwise, as explained by the appellant there was no purpose for not producing the books of accounts as none of the two additions has got any bearing on the books of accounts. I have considered the explanation supported with the medical reason. and I am convinced that it was a case of counsel's negligence due to the medical reason and in any case, this aspect has very little to do with the additions made h .....

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7; 27,00,00,000/- was made on account of unexplained cash credits uls 68 of IT Act. We note that before the Assessing Officer, assessee filed confirmation letters of the aforesaid parties stating that the shares were allotted against outstanding trade liabilities and no cash / cheque amount was paid by those creditors. The Assessing 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 t .....

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erein 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 b .....

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to the AO in accordance with the provisions of Rule 46A of IT Rules for his verification and comments. The Assessing Officer submitted his reports. The counter comment received were made available to the assessee, who has also filed its replies thereto. We find that the Ld. CIT(A) has considered the petition, reply of AO thereto and observed that from the two questionnaires dated 27.5.2005 and 25.10.2005 issued and order sheet entries as rightly contended by the asessee that AO never asked even .....

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y dated 17-03-2006, asked about the creditworthiness of all shareholders of ₹ 15 crores to whom shares were allotted against the credit balances only. Therefore, there was no justification for him to make any adverse observation in regard. The additional evidences are related with share capital of ₹ 2 Crore only and are the evidences to prove the source of funds in hands of M/s Virasat Developers and Builders Pvt. Ltd. which could not be filed before AO as nothing was asked by him du .....

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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 .....

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n it has been held that once identity of the shareholder is established, no addition on account of share capital can be made in the hands of the company-assessee. We find that moreover, following decisions lay down that addition of share capital cannot be made in the hands of the company assessee as was held by Hon'ble Delhi High Court in the case of CIT vs. Steller Investment Limited 192 ITR 287 which was later on affirmed in CIT vs. Steller Investment Limited 251 ITR 263(SC). Therefore, th .....

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er: - "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." 8.3.1 It is evident from the perusal of this provision that section 68 can be invoked only if any "sum&quo .....

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addition of ₹ 27,00,00,000 made u/s. 68 of the IT Act, the amount of ₹ 25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth ₹ 15,00,00,000 were issued against the outstanding liabilities i.e there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth ₹ .....

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ove 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 pu .....

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agreements in respect of shares with the other three companies. Swapping of shares is a recognized standard Assessee has also furnished the copies of agreements in respect of swapping the 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 agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publi .....

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uineness of transactions. Assessee has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts 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, .....

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