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2016 (10) TMI 219 - ITAT AHMEDABAD

2016 (10) TMI 219 - ITAT AHMEDABAD - TM - Unexplained share capital and premium received - addition u/s 68 - Held that:- Assessee is trying to assert again and again upon the PAN, IT returns, bank statement and confirmations of the impugned 5 parties but has nowhere tried to clarify or disclose the fact which has embedded in the financial statement of these 5 parties which speaks in itself that they are paper companies. Further if it has been genuine transaction and assessee company is asked to .....

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has been able to just prove the identity of the company but unable to prove the genuineness & creditworthiness of the impugned 5 parties. In the result, the sum of ₹ 3.5 crores has rightly been treated as unexplained money u/s 68 of the Act by the ld. Assessing Officer. We set aside the order of ld. CIT(A) and restore that of the Assessing Officer - Decided in favour of revenue - ITA No.1716/Ahd/2012 - Dated:- 18-8-2016 - Shri S. S. Godara, JM, and Shri Manish Borad, AM. For The Appellant .....

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f the Act, in respect of unexplained share capital and premium received by the Assessee. ii) On the facts and circumstances of the case, the id. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. iii) It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. 2. Briefly stated facts of the case are that assessee is a private limited company engaged in the business of purcha .....

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₹ 3.5 crores towards share capital along with share premium from following 5 companies each contributing ₹ 70 lacs towards 1,00,000 equity shares of ₹ 10/- each and share premium of ₹ 60/- per share:- i) Green Star Financial Service Pvt. Ltd., Ahmedabad. ii) Archer Financial Service Pvt. Ltd., Ahmedabad. iii) Suraj Corporate Service Pvt. Ltd., Ahmedabad. iv) Fly High Exports Pvt. Ltd., Kolkata. v) Oasis Cine Communication Ltd., Kolkata. Necessary details were called for t .....

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ssessee company having invested ₹ 70 lacs. In his statement given before DDIT (Inv), Ahmedabad, during investigation of another assessee, Mr. Jitendra Jain stated that Suraj Corporate Service Pvt. Ltd. is engaged in providing accommodation entries to the companies and is just a paper company. On the basis of this statement as well as after going through the financial documents of other 4 impugned parties ld. Assessing Officer was of the view that assessee has introduced its unaccounted mon .....

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al of the assessee was allowed in full by ld. CIT(A) who observed as under :- 2,2 I have carefully considered rival submissions. I have also perused various evidences filed by the appellant during assessment proceedings and the case laws relied upon by the appellant. The appellant has received share capital of ₹ 3,50,00,000/- from the following five companies :- 1. Green Star Financial Service Pvt. Ltd. ₹ 70,00,000/- 2. Archer Financial Service Pvt. Ltd. ₹ 70,00,000/- 3. Suraj .....

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ance sheet of subscribers. (4) Copy of bank statement of the subscribers. In these bank accounts the cheques issued by these persons are reflected. (5) Copy of audited balance sheet of the subscribers. The fact of these documents being part of assessment records are duly acknowledged by the A.O. in the assessment order itself. The above documents clearly establish the fact that all the share capital has been received from five companies who are regularly assessed to income-tax. The share capital .....

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the amount of subscription i.e. ₹ 70,00,000/-. The appellant has even furnished copies of Income-tax returns of subscribing companies. In my considered view, these documents conclusively proves the identity, genuineness of transaction and creditworthiness of the creditor in respect of the share capital received by the appellant. By filing these documents the appellant had discharged onus cast upon him by the provisions of section 68 of the I.T. Act. In view of above, I am of firm opinion t .....

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identity of the subscribing companies is established beyond doubt.' The A.O. has not doubted the identity of the subscribing companies. In view of these facts, addition of ₹ 3,50,00,000/- cannot be made u/s.68 of the I.T. Act. ' 2.4 I have also perused various case laws relied upon by the appellant. The case laws support the conclusions as discussed in the preceding paras. 2.5 It is further seen that in some cases the A.O. had doubted the source of deposits in the bank accounts of .....

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lso, addition cannot be made in the hands of the appellant company. In such a case, appropriate action will be to initiate proceedings in the case of subscribing companies. This way additions made in the income of the appellant of ₹ 3,50,00,000/-u/s.68 is uncalled for. 2,6 In view of above facts, addition of ₹ 3,50,00,000/- made by the A.O. u/s.68 of the I.T. Act is deleted. This ground of appeal is allowed. 4. Aggrieved, Revenue is now in appeal before the Tribunal. 5. Ld. DR suppor .....

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al and share premium of ₹ 3.5 crores has been received are just paper company which are engaged in providing accommodation entries. Ld. DR further referred to the bank statements, financial statements, balance sheets and profit and loss accounts of all those 5 concerns where there is huge transactions in the bank accounts but are having a meager sale and meager income which nowhere co-relates to the voluminous transactions passed through bank accounts. Ld. DR also referred the statement of .....

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e addition u/s 68 of the Act as the assessee has been unable to prove the genuineness, creditworthiness of the impugned transactions. 6. On the other hand, ld. AR relied on the order of ld. CIT(A) and submitted that assessee has proved beyond doubt the identity of the 5 parties by filing PAN, copies of IT Returns, names and addresses and further submitted to prove creditworthiness and genuineness of the transactions filed evidence towards payment through cheques, copy of bank statements, audited .....

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We have heard the rival contentions and perused the material placed before us and gone through the judgments, decisions cited by both the parties. The solitary grievance of the Revenue is against the order of ld. CIT(A) deleting the addition of ₹ 3.5 crores made u/s 68 of the Act towards share capital and share premium. We find that during the year under appeal ₹ 70 lacs each was contributed by following 5 parties totaling to ₹ 3.5 crores towards share capital and share premium .....

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. During the course of assessment proceedings itself in order to prove the identity, creditworthiness and genuineness of the transactions, assessee has filed PAN, copies of income-tax returns for Asst. Year 2009-10, confirmation regarding share purchases along with proof of payments through cheques, copies of bank accounts and audited balance sheets for Asst. Year 2009-10. We further find that summon was served u/s 131 to the following three parties based at Ahmedabad :- i) Green Star Financial .....

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mitted that he took leave on behalf of the director for attending in personal due to illness of director s father. We further find that Assessing Officer came across the statement of Mr. Jitendra Jain, one of the directors of Suraj Corporate Service Pvt. Ltd., Ahmedabad recorded by DDIT(Inv) on 21.9.2010, in case of another investigation, in the case of M/s B. R. Metals and Alloy (Gujarat) Ld., wherein it was stated by Mr. Jitendra Jain that the said company, Suraj Corporate Services Pvt. Ltd. p .....

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within last 6 years ? Pl. explain. Ans:22 I am the director within last 6 years in the following companies - 1. Surat Corporate Services Pvt. Ltd. 2. Grin BPO Services Pvt. Ltd. 3. Siddhi Vinayak Fincap Ltd. 4. Shelja Finlease Pvt. Ltd. 5. Radhe Finservice Pvt. Ltd. 6. Tirupati Shelters Ltd. 7. Honest Business Deal Pvt. Ltd. Q. 24. How much transactions of Suraj Corporate Services Pvt. Ltd. and Grin BPO Services with B. R. Metals and explain the nature of transaction ? Ans :24 During the F.Y.20 .....

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concerns and ultimately the money was invested in B.R. Metals & Alloys (Gujarat) Pvt. Ltd. through PNB by Suraj Corporate Services Pvt. Ltd. and Grin BPO Pvt. Ltd. as share capital and had received commission of 0.25% for making this arrangement. 11. We further find from going through the bank statement of one of the impugned party Fly High Exports Pvt. Ltd., Kolkata placed at pages 21 & 22 of CIT(A) s order that a large volume of transaction totaling in crores of rupees have passed thr .....

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e of Suraj Corporate Services Pvt. Ltd. when we refer to the bank statement placed on pages 14 & 15 of CIT(A) s order, we find that transactions worth crores of rupees have moved through bank balances at various points of time are more than ₹ 50 lacs whereas a meager amount of interest has been shown at ₹ 18,903/-. Similar type of financial datas are depicted in other two impugned parties namely - Archer Financial Service Pvt. Ltd. and Green Star Financial Service Pvt. Ltd. havin .....

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ng very meager income and low financial capacity to invest huge amounts in other companies share capital wherein the Co-ordinate Bench has held as under :- HELD Whether the provisions of section 68 can be attracted if share capital with premium is not properly explained by the assessee company? • As per section 68 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 source thereof or the exp .....

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tity of the creditor, capacity of the creditor and genuineness of the transactions. Onus under section 68 can be said to have been discharged only when the assessee proves identity and capacity of the creditor along with the genuineness of transaction to the satisfaction of the Assessing Officer. All the three constituents are required to be cumulatively satisfied. If one or more of them is absent, then the Assessing Officer can lawfully make addition.[Para 13.b.] • In case of a closely hel .....

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ssee fails to cumulatively prove to the satisfaction of the Assessing Officer, the identity and capacity of the shareholders along with the genuineness of the transactions there can be no escape from section 68.[Para 13.t] Whether insertion of proviso to section 68 by the Finance Act, 2012 with effect from 1-4-2013 empowering the Assessing Officer to examine the genuineness of the share capital in the case of a company in which public are not substantially interested, is prospective? • As p .....

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, in the absence of which, an addition under section 68 can be made in the hands of the company. If the amendment is accepted to be prospective, then it would mean precluding the Assessing Officer from examining the genuineness of transactions of receipt of share capital with premium under consideration and hence prohibiting him from making any addition under section 68 notwithstanding the same being non-genuine. In the oppugnation, if the amendment is held to be retrospective, then it would mea .....

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tion made to have retrospective operation Ordinarily the courts are required to gather the intention of the legislature from the overt language of the provision as to whether it has been made prospective or retrospective, and if retrospective, then from which date. However, some times what happens is that the substantive provision, as originally enacted or later amended, fails to clarify the intention of the legislature. In such a situation if subsequently some amendment is carried out to clarif .....

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that the clarificatory or explanatory provision introduced later to depict the real intention of the legislature is not specifically made retrospective by the statute. Notwithstanding the feet that such amendment to the substantive provision has been given prospective effect, the judicial or quasi-judicial authorities, on a challenge made to it, can justifiably hold such amendment to be retrospective. The justification behind giving retrospective effect to such amendment is to apply the real int .....

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hat the amendment has been given effect prospectively. The border line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand, the statute does not amend it retrospectively, then one has to dig out the intention of the Parliament .....

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ld extend to all the amounts credited in the books of account. A sum can be credited in the books of account, which would invariably either find its place either on the income side of the Profit and loss account or in the liability side of the balance sheet. Items credited to the Profit and loss account are themselves income and hence there can be no reason to make addition once again for them. Items appearing on the liability side of the balance sheet can be loans or share capital etc. Once the .....

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3/[1993] 69 Taxman 281 (Call Mimec (India) (P.) Ltd, v. Dy. C1T[2Q\3] 353 ITR 284/216 Taxman 157 (Mag.)/35 taxmann.com 319 (Cal.) and CIT v. Nivedan Vanijya Niyojan Ltd. [2003] 263 ITR 623/1 30 Taxman 153 (Cal.)a has specifically held that the three ingredients, viz, identity and capacity of creditor and genuineness of transaction are required to be satisfied even in case of issue of share capital by a closely held company. It shows that the intention of the legislature, as interpreted by the Hi .....

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onsidering that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. After going through the above parts of the Memorandum explaining provisions of the Finance Bill, there remains no doubt whatsoever that the onus has always been on the closely held companies to prove the issue of share capital etc. by the com .....

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e made in the hands of company even if such shareholders are bogus. As the amendment aims at clarifying the position of law which always existed, but was not properly construed in certain judgments, there can be no doubt about the same being retrospective in operation. [Para 13. ad.] Therefore, the amendment to section 68 by insertion of proviso is clarificatory and hence retrospective. The contrary arguments advanced by the assessee being devoid of any merit, are hereby jettisoned. [Para 13. ae .....

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s. N. Tarika Properties Investment in ITA No.2080 of 2010 Hon. Delhi High Court vide its judgment dated 28.11.2013 has held as under :- 31. We are of the considered opinion that the Assessee has not been able to discharge the initial onus and has not been able to establish the identity, creditworthiness of the share applicants and the genuineness of the transaction. The surrounding circumstances and inquiries made by the Assessing Officer were significant but the said finding though not disturbe .....

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ompanies it has been shown were carrying on effective and day to day business or were angle investors. f) The subscribers did not bother and ensure protection of their investment. 32. In view of the above, we are of the view that the Assessee has not discharged the onus satisfactorily and the additions made by the Assessing Officer was justified and sustainable and the order of the Tribunal ignoring and nor dealing with the factual findings recorded by the assessing officer is perverse . 33. The .....

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a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See :Parimisetti Seetharamamma (supra) at P. 5361. But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source the .....

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Maithan International (2015) 56 taxmann.com 283 (Calcutta), Hon. Calcutta High Court has held as under :- Held - • When payment by cheque did not establish the creditworthiness of the lender mere examination the pass bOOK or the bank statement or me letter of confirmation or the balance sheet of the lender was not enough. The inspector appointed by the Assessing Officer did not go beyond the aforesaid documents. Therefore, it cannot be disputed that the view formed by the Commissioner that .....

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assessee himself. Thus the Assessing Officer has failed to apply his mind to all aspects of the case is selfevident. Such non-application of mind constituted passing of an erroneous order which is also prejudicial to the interest of revenue. [Para 11] I• In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the bank pass book, profit and loss account and balance sheet of the creditors is not enough. .....

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and prejudicial to the interest of the revenue. When an order is erroneous, then the order is also deficient and in order to remedy the situation, power under section 263 has been given. Therefore, the view that the power could not have been exercised to allow the Assessing Officer to make up the deficiency is altogether an incorrect impression of the law. [Para 16] • It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his fu .....

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ble Apex Court in the case of Navodaya Castle (P) Ltd vs CIT reported in (2015) 56 taxmann.com 18 (SC) has held that mere filing of certificate of incorporation, PAN were not sufficient for the purpose of identification of subscriber company especially when there was material to show that subscriber was a paper company and not a genuine investor. 18. Examining the facts in the light of above judgments and decisions we observe that assessee is a private limited company which is not open to publi .....

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ment, looking to the quantum of share capital and premium invested by these 5 parties which is of a substantial percentage of the total share capital of the company it is surprising to note that none of them was able to appear before the Assessing Authority nor the assessee was able to bring any of them in person to prove the genuineness of transaction and creditworthiness of the investor towards share capital and share premium given these impugned 5 parties. More so we find that out of the 5 pa .....

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us is appearing in the balance sheet along equal amount of investment; but when the profits and loss account is looked into it seems complete dry as interest against investment running in crores the income shown is few thousand and so is the total turnover. Adding more to this in the statement given by one of the directors of Suraj Corporate Services Pvt. Ltd. it has been clearly accepted that Suraj Corporate Services Pvt. Ltd. is an accommodation entry provider and just a paper company. This mo .....

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urn and the gross turnover of the company is not having any direct connection with the voluminous bank transaction then such companies end up into a paper company. 19. From going through all the above judgments and decision, we find that along with evidences, surrounding circumstances, human probability and intentional acts are also to be taken note off while accepting the identity, creditworthiness and genuineness of the cash creditors which in this case is the share applicants. In the case bef .....

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uld have easily called upon the investors. The investors could have come along with all the financial documents and could have clarified about his intention to make investment in the equity shares of the company because every investor wants to earn income from investment in the form of dividend as well as expects appreciation in the valuation of shares with the growth of business. If this has been the situation, then there would have been no doubt on the genuineness of the transactions. On the c .....

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account payee cheque or the mere submission of confirmation letter by the share applicant is by itself, not enough to shift the onus to the Department although these facts may, along with other facts be relevant in establishing the genuineness of the transaction. As held by Hon. Supreme Court in the case of CIT vs. N. Tarika Properties Investment (2014) 51 taxmann.com 387(SC) that PAN cannot be treated as sufficient disclosure of identity of the person. PANs are allowed on the basis of applicati .....

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