TMI Blog2016 (7) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... banks are instructed by RBI to collect photo, Address proof, PAN cards Photo ID etc. The A.O. is totally silent on these facts. Share holders filed their balance sheets along with list of investments where investment in assessee company is clearly shown in schedule of investment. In view of the above, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of share capital. The detailed findings recorded by CIT(A) have not been controverted by department by brining any positive material on record. Accordingly, we do not find any reason to interfere in the finding so recorded by CIT(A) resulting into deletion of addition made on account of share capital. - Decided in favour of assessee - ITA No.5332 to 5334/Mum/2014, Cross Objection No.40/Mum/2016 - - - Dated:- 8-6-2016 - SHRI R.C.SHARMA, AM AND SHRI RAMLAL NEGI, JM For The Revenue by : Shri S.K.Bepari For The Assessee : Shri N.R.Agrawal ORDER PER R.C.SHARMA (A.M): These are the appeals filed by the revenue against the order of CIT(A)-Mumbai, for the assessment year 2005-06 to 2007-08, in the matter of order passed u/s.143(3) r.w.s.147 of the I.T.Act. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share holders by the deputy director of Income-tax, investigation, Mumbai in response to which the replies were received enclosing the bank accounts held with ABN Amro Bank, Mumbai through which the transactions have taken place. The further enquiries reveal that the sources of funds for these 7 parties came from 2 other accounts held in the names of 'M/s S.S Securities' and 'M/s S.S Securities client account'. These accounts are operated by one Shri Sanjay Kumar Sarawgi, who is a member of Guwahati Stock Exchange with trade name M/s S.S Securities. The transfer of money to these two accounts is flowing from current account in the name of Shri R.K. Parekh, Proprietor M/s R.K.P. Securities. The A.O. also pointed out that the sums debited exactly matched with the sums credited in the bank account of Shri R.K Parekh Prop. R.K.P. Securities suggesting that the flow of money from one account to the other was only with a view to layer the unaccounted money of the assessee company. Summons issued to the Shri R.K. Parekh were returned unserved. The sources of fund to Mls R.K.P. Securities originate from three accounts in the names of (i) Mahalaxmi Commodity traders (ii) M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to furnish information regarding the basis for the determination of value of share premium. The AO. analyzed the returned income details of all the share holders and held that the income returned by the said share holders is disproportionate to the investments made, During the course of assessment proceedings it was submitted by the assessee that the share holders have sufficient reserves and surplus to invest in the assessee company. The AO. observed that the huge reserves and surplus is nothing but share application money and premium received from other companies. In view of the enquiries conducted by the Investigation Wing in Mumbai in coordination with the Investigation Wing at Guwahati and Kolkata as mentioned In paragraph Nos. 5.2 to 5.4 above, the AO. during the course of assessment proceedings granted opportunity to the assessee company to produce the shareholders for examination. It is mentioned in para 7.40 of the assessment order that the authorized representative of the assessee company Shri N R Agarwal, C.A produced the parties for verification. In the assessment order the names of the parties where the directors of the companies attended for examination is referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portance and it is the duty of the revenue authorities to be mindful of clues and coincidences and bring into them to logical conclusions otherwise clandestine tax evasion through shady economic deals will go undetected and therefore circumstantial evidence and appreciation thereof acquires great importance. In view of the above discussion the AO brought to tax the investment in shares as unexplained u/s 68 of the Act. 7. By the impugned order, the CIT(A) deleted the addition so made on account of share capital in all the 3 years under consideration after observing as under :- Decision: 7.0 In ground No. 1 the appellant contested addition u/s 68 of ₹ 1,22,00,000/- for A.Y. 2005-06, ₹ 1,95,00,000/1- for A.Y. 2006- 07 and ₹ 3,40,00,000/- for AY. 2007- on account of unexplained investment in share capital. The AO. brought on record the investigation carried by the Investigation Wing, Mumbai to show that the share capital in respect of 7 out of 30 share holders have been routed from one company to the other and since the fund has been flowing from one company to the other the AO came to the conclusion that the unaccounted income of the appellant company has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the assessment order the AO mentioned that the said decision is not applicable. One of the grounds on which the AO refused to accept the said decision is that it was rendered in a case relating to public limited company whereas the case of appellant is private limited company. In this regard it is clarified that the observation of the A.O. is not correct as the name Lovely Exports (P) Ltd. comprises acronym (P) Ltd., which means private limited company and the decision of Supreme Court was rendered only in the case of a private limited company and therefore I am of the view that the said decision is applicable in the case of appellant. The another reason given by the A.O is that in the case of Lovely Exports (P) Ltd. no investigation was carried by the A.O. whereas in the case of the appellant company the investigation carried out shows that the unaccounted income of the appellant company has been layered through many companies whose existence is questionable. The A.O's reliance that no investigation was carried out by the A.O. in the case of Lovely Exports (P) Ltd. is not significant to the finding of the Supreme Court which simply held that in the case of alleged bogus sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanjay Kumar Sarawgi. Since Shri Sanjay Kumar Sarawgi is the member of Gawahati Stock Exchange, he must have been available for verification. If the source of funds in his case was doubted, then it is a matter of investigation in the case of Shri Sanjay Kumar Sarawgi and not in the case of appellant. As for as the appellant company is concerned, all the share holders have been produced before the AO. and they have admitted to be the genuine share holders and in support produced the return of income filed, bank statements and the balance sheet. The investigation which lead to the examination of source of source only raises doubts about the genuineness of the transaction in view of transfer of funds involving multiple companies, however, nothing has been established showing that the transfer of funds are mere accommodation entries and not genuine transfer of funds. The suspicion cannot replace evidence; therefore, the decision in the case of Pratiksha Mercantile (P) Ltd is distinguished. 7.4 The decision in the case of Beautex (I) P Ltd. 34 SOT 465 by ITAT Delhi is also not applicable to the facts of the appellant company. In the case of Beautex (I) P. Ltd. the assessee had not produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details or from their bankers so as to reach them. 7.5.3 The Delhi High Court (Full Bench) in the case of Sophia Finance Ltd 205 ITR 98 held that If the shareholders are identified and it is established that they have invested money in the purchase of shares then the amount received by the company would be regarded as a capital receipt and to that extent the observations in the case of Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), are correct but if, on the other hand, the assessed offers no explanation at all or the explanation offered is not satisfactory then the provision of section 68 may be invoked. 7.6 The legal proposition which comes out of the above decisions is that where the share holder is identified and the share holder confirms the investment in shares, then any assessment relating to such investment can only be made in the case of share holder himself or itself and not in the case of the assessee company, but, in a case where the share holder is not in existence or the assessee offers no explanation then the same will be brought to tax as unexplained share capital in the case of assessee company u/s.68 of the Act. This rule is equally applicable for both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account have come from M/s RPK Securities and in the bank account of M/s RPK Enterprises, funds have come from three concerns. After giving detailed finding with regard to identity of the shareholders, genuineness of the transaction as well as capacity of the shareholders to invest in the shares of the assessee company, the CIT(A) has deleted the addition. The detailed finding so recorded by CIT(A) are as per material on record. From the record we also found that in the case of assessee all share holders are produced before A.O., Most of them are assessed u/s 143(3), Six companies are listed in stock Exchange, M/s Hill Crest Pvt. Ltd. is part of well known builder group known by name of 'Monarch Builders'. One Mr. Ajay Gurtoo is a chartered accountant of 1976 batch who was working as senior Finance controller with Dubal Alluminium, Dubai, since last 30 years in a multinational Company earning salary of ₹ 25,00,0001- per month. The A.O. kept mum on these aspects. He went on enquiring about source of source and on and on but never enquired with the respective assessing officers when orders u/s.143(3) are produced before him. Hence, his observation that share holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Copy of share certificate was filed by share holders with AO. under proceedings u/s 131. Net worth of share holders were from 142 lacs to 50 Crores. The share holders are identified Covered by Bombay High Court in CIT v/s Creative World Telefilms Ltd 333 ITR 100 (Bombay.).Share holders have their bank accounts, S.S.Securities also have bank accounts, other creditors mentioned by AO. who gave funds to S.S.Securities also have bank accounts. No cash was deposited anywhere. Under KYC norms banks are instructed by RBI to collect photo, Address proof, PAN cards Photo ID etc. The A.O. is totally silent on these facts. Share holders filed their balance sheets along with list of investments where investment in assessee company is clearly shown in schedule of investment. 11. In view of the above, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of share capital. The detailed findings recorded by CIT(A) have not been controverted by department by brining any positive material on record. Accordingly, we do not find any reason to interfere in the finding so recorded by CIT(A) resulting into deletion of addition made on account of share capital. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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