TMI Blog2016 (4) TMI 1228X X X X Extracts X X X X X X X X Extracts X X X X ..... he same handwriting, there was no serial numbers in share application form, the acknowledgment of receipt of share application forms were not given to the share subscribers by the assessee and these are not usual conduct of the carrying on of business. We are of the considered view that the Revenue has rightly made the addition received as share subscription as unexplained cash credit u/s. 68 - Decided against assessee. - I .T.A. No. 1835/Mum/2014, And I.T.A. No. 1836/Mum/2014 - - - Dated:- 24-4-2016 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER, AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Kirit Sheth For The Revenue : Shri A.K. Srivastava,CIT DR Shri Sunil Kumar Agarwal,JCIT ORDER PER RAMIT KOCHAR, Accountant Member These two appeals filed by the assessee company for the assessment years 2006-07 and 2007-08 are directed against two separate appellate orders of the learned Commissioner of Income Tax (Appeals)- 40, Mumbai (Hereinafter called the CIT(A) ) both dated 24th February, 2014, the appellate proceedings before the learned CIT(A) arising from the two separate assessment orders dated 14.12.2009 and 18.12.2009 respectively passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocuments found and impounded during the survey action are as under:- Annexure A-1 Pages 1 to 216 impounded from R. No.47. 2nd Floor. Bhupen Chamber, Dalal Street, Fort, Mumbai -1. This file contains the documents such as acknowledgement of the return filed, copy of the bank passbook, blank transfer forms and blank stamped receipts given by the share subscribers of the assessee company. The share subscription credited in the books of accounts of the assessee in the names of the various persons is mere accommodation entries obtained by payment of the equivalent amount of cash + other charges and hence the same is bogus in nature. The documentary evidence in this file confirms the findings. 3. Annexure A-2 containing Pages 1 to 104 This file contains the copies of share application forms and undated letter from the share subscriber of the assessee in respect of share subscription credited in the books of accounts of the assessee during the F.Yrs. 2005-06 and 2006-07. It was observed that all the share application forms are filled in with common handwriting, all the share applicants have merely signed the application form, no application number is given in any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the assessee company. The said Suresh V Faria also confessed in reply to question no. 13 in the statement recorded that the share subscriptions are only accommodation entries. On being asked about who managed the cash for obtaining the accommodation entries in guise of share subscriptions, Sh Suresh V. Faria replied that he does not know anything and that all the affairs are looked after by Mr. Vinod K Faria. The A.O. observed that the whole and sole key person of the business activities of the assessee is Sh Vinod K Faria. The statement of Shri Vinod K. Faria were recorded u/s 131/132(4) of the Act on various dates in which he admitted that the share subscription for the assessee was bogus and they were mere accommodation entries and his confession regarding the accommodation entries of share subscription is clear from the following answer to the question No. 23 in his statement recorded on 31st May, 2008 u/s. 132(4) of the Act:- Q. 23 I am drawing your attention to the documents No. A-l to A- 4 impounded during the course of survey u/s 133A at Room No. 47, 2nd, Floor, Bhupen Chambers, Fort, Mumbai 400 001. These files contain the blank receipts obtained from the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was bogus and were mere accommodation entries. Further, Shri Suresh V. Faria, another Director in his statement recorded u/s 131 of the Act in reply to question No. 13 has confirmed that the share subscription were bogus and they were mere accommodation entries. Another Director Shri Parag A. Nisar in his statement recorded on 18th June, 2008 u/s 131 of the Act admitted that all the day-to-day business activities were done by Shri Vinod K. Faria and he was not aware of the nature of the business of the assessee. The assessee did not gave any replies to the documents impounded on the grounds that they were not impounded from the premises of the assessee. Thus, the A.O. made addition of ₹ 1.60 crores as unexplained cash credit u/s 68 of the Act on the grounds that the assessee has introduced bogus share subscription of ₹ 1.60 crores in its books of accounts which the assessee could not explain either during the survey or post survey enquiries. The main Director of the assessee Sh. Vinod K Faria has ultimately confessed that the share subscription is mere accommodation entries, and accordingly additions of ₹ 1.60 crores were made by the AO to the income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare premium. The assessee submitted that as far as the assessee is concerned, the share subscription transaction is genuine and the assessee is not able to comment whether Mr Vinod K Faria or anyone else had provided unaccounted funds to the shareholders for them to subscribe to the share capital of the assessee company. The assessee relied upon various decisions of the Hon ble Courts and Tribunal which are listed in the appellate order dated 24-02-2014 of the ld. CIT(A) appearing in page 5 6 of his appellate order and contended that it is not possible for the assessee to earn such huge amount within a short time of 15 days i.e. from 17-03-2006(date of incorporation) to 31-03-2006(end of previous year relevant to the instant assessment year under appeal). It was submitted by the assessee that complete name, address and PAN of each subscriber who had subscribed to the equity capital of the company during the relevant previous year was furnished and requested the AO that independent enquiry may be made with the shareholders in order to determine genuineness of the transactions. The assessee submitted that the assessee company was incorporated on 17th March, 2006 and furnished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of business premises. 3. Source of income for purchase of shares of the assessee company and date of purchase of shares. 4. The copy of bank passbook/statement with making of payment made for purchase of shares. 5. The copies of Balance Sheet from the financial year in which loan advance and copy of Balance Sheet for the assessment year 2006-07 and 2007-08. 6. Xerox copies of share certificate issued by the assessee. 7. Copy of acknowledgment of return of income filed with the computation of income for assessment year 2006-07 and 2007-08. 8. The note explaining that how they have purchased shares of newly incorporated company at a premium of ₹ 30 per shares as against the face value of share of ₹ 10 per share. The hearing which was fixed for 11th November, 2013 shareholders to attend and submit details, none of the shareholder appeared before the AO and no details were filed. In the month ofDecember, 2013 some shareholders filed reply, the details are as under:- Ledger folio No. Name Address No.of shares Reply file A001 Vonod K. Faria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kalola AQUPK7634A 12,500 No A024 Drupad N. Bhatt HUF AADHD0055P 37,500 Yes A025 Geetesh Jadhav AKRPJI859P 22,500 No A026 Gopal P Bhanushali AGIPB7609L 26,250 No A027 Haresh P. Bhanushali AACPB6068P 25000 No A028 Jaswantrai J Ghatalia HUF AADHJ5530R 25,000 Yes A029 Kashavji Vershi Bhadra ALJPB2370A 31,250 No A030 Mahendra B Bhadra AFZPB4393P 34,375 Yes A031 Mathuradas B Bhadra AIYPB3294K 34,375 Yes A032 Mayur U Bhanishali AKTPB1741J 12,500 Yes A033 Morarji K Bhanushali HUF AAGHM8194P 25,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te issued by the assessee company, the transaction was held by the AO to be not genuine in remand proceedings. Accordingly, the remand report was submitted by the AO to the ld. CIT(A). The ld. CIT(A) observed from the remand report that despite several opportunities being provided to the assessee by the AO in remand proceedings, the assessee failed to produce the relevant details in respect of share subscribers and also failed to produce shareholders in person before the AO for examination. The learned CIT(A) observed that the A.O. had issued summons u/s 131 of the Act to the share subscribers but none of the share subscriber appeared before the A.O.in compliance to the summons issued u/s 131 of the Act which proved that the assessee failed to discharge its onus. A copy of the remand report was forwarded to the assessee for its comments whereby the assessee replied as under:- Sr No The learned A.O. s remarks/observations Our comments on A.O. s remarks/observation 1 As details filed on record seen that the assessee company was incorporated 17.3.2006 which was 15 days before the financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia quoted part of Shri Vinod Faria s recorded statement u/s 132(4) as follows: 1. As an authorized representative of all these entities, declare a income of ₹ 10.00 crore as additional income over and above to the regular income recorded in the books of accounts. (ii) During the remand proceedings, Shri Vinod Faria in his letter dated 7.11.2013, has stated as follows: Suresh Velji Rupshi Faria and Parag Amarshi Manshi Nishar in turn converted his transaction into cash for its block money profits. Contradictory assertions of Shri Vinod Faria about the true ownership of the so called unexplained share capital (i) in statement recorded u/s 132(4) and (ii) in the letter dated 7.11.2013 submitted by him during the course of remand proceedings. 6 A.O s silence on comparability of facts of the present case with that of three judicial pronouncements relied on by the appellant. The learned A.O. has not proved any comments on the three judicial pronouncements mentioned in para 4 of our letter dated 8.2.2010. The A.O. has not disputed that the facts of the present case are similar to the facts in the said three judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the Director that the entire share subscription of ₹ 5.50 crores (including ₹ 1.60 crorers in the current year) was bogus and purely accommodation entries. It was observed by the learned CIT(A) that Shri Vinod K Faria, in his statement had declared ₹ 10 crores as additional income over and above the regular income recorded in the books. The A.O. has made efforts whereby the assessee was asked to produce all the subscribers before him for examination both in assessment proceedings as well in remand proceedings but the assessee failed to produce the shareholders. Even summons u/s 131 of the Act were issued by the AO during remand proceedings to the shareholders directing them to appear in person before the AO but still no shareholder appeared before the AO. Certain documents like confirmations, income tax returns etc. of the shareholders were produced but that does not conclusively prove the genuineness of the transactions. It was observed by the learned CIT(A) that in the bank accounts of the subscribers, equivalent amounts have been deposited either in cash or through cheques or through draft etc either on the same day or a day before the payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) also observed that various incriminating material was found during the course of search/survey, in the form of blank signed share transfer forms indicating shares allotted in the names of these so called subscribers were already agreed to be transferred by them. Further, it was observed by learned CIT(A) that in the bank passbook of the share subscribers, there is deposit in the bank accounts of the subscribers just a few days before the investment in the shares indicating that these shareholders do not have financial capacity to make the investment. The share subscribers were not produced before the AO despite several opportunities being granted by the AO during the course of assessment and remand proceedings. Thus, the ld. CIT(A) held that the ratio of Hon ble Supreme Court decision is distinguishable on the facts of the present case. Similarly, the learned CIT(A) held that the case of CIT v. P K Noorjahan 237 ITR 570(SC) and Mitesh Rolling Mills Private Limited reported in 258 ITR 278(Guj) are distinguishable on facts and are not applicable to the facts of the present case. Thus, The learned CIT(A) upheld/confirmed the assessment order dated 14-12-2009 passed by the AO u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders whereby it was submitted that there is presumption regarding the book entries, it was not stated that evidence have been found that cash have been paid against share subscription. Our attention was also invited to question No. 18 at paper book page 12 whereby it was stated that furniture work was in progress at the premises being office at 2nd Floor, Bhupen Chambers,Dalal Street, Fort, Mumbai-23 from where the incriminating material was found. It was submitted that the said premises is not the office of the assessee as the office of the assessee is at Kalbadevi and the incriminating material were not seized from the assessee. The said office at 2nd Floor at Bhupen Chamber is of Mr Vinod K Faria and not of the assessee. It was submitted that assessee s premises were not searched and it cannot be presumed that documents belonged to the assessee. There is a presumption u/s 292C of the Act that the document belonged to the person searched from whose possession the documents are recovered but in the instant case no document is found from the possession of the assessee as the premises of the assessee was not searched. No business activity has been started by the assessee for the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Supreme Court in the case of CIT v. Bharat Engineering and Construction Co.,(1972) 83 ITR 187(SC), decision of Hon ble Supreme Court in the case of Roshan Di Hatti v. CIT (1977)107 ITR 938(SC) and decision of Hon ble Delhi High Court in the case of CIT v. Five Vision Promoters Private Limited in ITA no 234/2015 vide decision dated 27-11-2015 reported in (2016) 380 ITR 289(Delhi), whereby it submitted that when there is no other known source of income as the assessee never did any business, thus it cannot be brought to tax as undisclosed income as there is no possibility of having any income as the assessee never did any business. It was also submitted that if the existence of shareholder is not in doubt then the addition is to be made in the hands of the shareholders and not in the hands of the assessee company receiving the share subscription. The assessee also relied upon decision of Hon ble Supreme Court in the case of CIT v. Lovely Exports Private Limited 216 CTR 195(SC), dismissal of SLP by Hon ble Supreme Court in the case of CIT v. Divine Leasing and Finance Limited in civil appeal no CC 375 of 2008 vide orders dated 21-01-2008, decision of Hon ble Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in accepting bogus accommodation entries to channelize illegitimate money into the company. The ld. D.R. further relied on the orders of authorities below. The ld. DR relied upon the decision of ITAT, Kolkatta Tribunal in Subhalakshmi Vanijya Private Limited v. CIT reported in (2015) 60 taxmann.com 60(Kol. Trib) and decision of Hon ble Calcutta High Court in the case of Rajmandir Estates Private Limited v Pr. CIT reported in(2016) 70 taxmann.com 124(Cal.HC). 9. In the rejoinder, the ld. Counsel submitted that all the documents as desired by the A.O. were filed before the authorities below to prove identity, genuineness and creditworthiness/capacity of share subscribers to subscribe to the share capital in the assessee company. No business activity have been conducted by the assessee and no income has been earned, hence no addition can be made in the hands of the assessee as in the absence of possibility of having any income from whatever sources, no addition can be sustained. The ld. Counsel submitted that amendment to provisions of Section 68 of the Act by Finance Act, 2012 is prospective in nature as can be seen from explanatory memorandum explaining rationale behind introdu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company who was looking after the affairs of the assessee company stated on oath in the statement recorded u/s 132(4) of the Act on 31st May, 2008 that these share subscription money of ₹ 1.60 crores received during the previous year relevant to the impugned assessment year is bogus and were merely accommodation entries. The said Director Sh. Vinod K. Faria while recording statement on oath u/s. 132(4) of the Act on 31-05-2008 surrendered ₹ 10 crores and offered the same as an additional income over and above the regular income recorded in the books of accounts. For the surrender of ₹ 10 crores, one of the grounds mentioned by Mr. Vinod K. Faria was that they will not be able to establish the genuineness of the share capital received by the assessee. The other Director Sh. Suresh V. Faria also stated on oath in the statement recorded on 18-06- 2008 u/s 131 of the Act that these share subscription are bogus and merely accommodation entries. During the course of proceedings before the AO as well before the learned CIT(A), the assessee has submitted that these are genuine share capital raised by the assessee and the assessee has produced the copies o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and creditworthiness/capacity of the share subscribers to make subscription towards share capital including share premium was doubted by the Revenue and it was held that the assessee had failed to discharge the burden cast on the assessee u/s 68 of the Act and accordingly additions were made to the income of the assessee. The said additions as made by the AO were confirmed by the learned CIT(A) vide his appellate order in the first appeal filed by the assessee. The share application forms were not properly filed up, acknowledgment of receipt of share application were not issued to the subscriber, share application forms were not serially numbered and the share application forms were filled in with the same handwriting. The blank transfer forms and blank receipts were obtained by the assessee in advance from all these share subscribers agreeing to sell/transfer the shares held by them. The assessee company did not issue share certificates to the share subscribers as no evidence of issuance of share certificate was brought on record. There is no business conducted by the assessee during the relevant previous year and also even till the assessment year 2011-12 which is evident fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of affairs revealed that they have otherwise insignificant assets other than investment in the assessee company. Section 68 of the Act cast onus on the assessee to satisfy the ingredients of Section 68 to establish the identity and creditworthiness of the creditors and to establish the genuineness of the transactions. Once assessee filed the basic details such as name and address of creditor, PAN, income tax return, confirmation and bank statement, the initial onus gets discharged. Since the Revenue has doubted the creditworthiness of the share subscribers and genuineness of the transaction as per the reasons cited and set out above, the onus shifts back to the assessee company to offer an explanation to the satisfaction of the AO as contemplated u/s 68 of the Act which could have been discharged by producing the shareholders before the AO so that truth behind the smokescreen could have been unraveled by the AO by interrogating them. In the absence of the same, the AO has the powers to make additions to the income as unexplained cash credit u/s. 68 of the Act. We have observed that the assessee is a newly incorporated company which is a closely held company having received huge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jettisoned. The assessee company has also contended that in the absence of any business and consequentially no income during previous year 2005-06, no income can be added in the hands of the assessee u/s 68 of the Act. We are of the considered view that Section 68 of the Act creates a legal fiction which cast obligation on the assessee to explain to the satisfaction of the AO about nature and source of credit in case any amount is found credited in the books of the assessee maintained for any previous year. This creates a legal fiction and in case the assessee did not offer explanation to the satisfaction of the AO as to the nature and source of credit of any amount found credited in the books of the assessee for any previous year by cumulatively satisfying the AO about the identity and creditworthiness of the creditor and about the genuineness of the transaction, the amount found credited in the books of the assessee shall be treated to be the income of the assessee as unexplained income under legal fiction created by Section 68 of the Act. The Section 68 of the Act created a legal fiction which does not require that the Revenue has to show the sources of the income before bringin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company by depositing duly filled in application along with application money with the designated authorized recipients of the company stipulated in the prospectus such as bankers, brokers, under-writers, merchant bankers, company offices etc. These shareholders who are member of public are un-known persons to the company issuing shares and the company issuing shares have no control/mechanism to verify their creditworthiness etc. and the burden of proof in such cases is different, but there is another class of companies which are closely held companies in which public are not substantially interested who are mostly family controlled closely held companies and they raise their share capital from their family members, relatives and friends and in these companies since share capital is received from the close knit circles who are mostly known to the company/promoters, the onus as required u/s 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. The onus of widely held company could be discharged on the submissions of all the information contained in the statutory share application documents and on not being satisfied the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings has not given adequate and proper opportunity to the assessee to produce the shareholder but when adequate, proper and sufficient opportunity was afforded to the assessee in remand proceedings by the AO to produce the shareholders, the assessee failed to produce them despite sufficient, proper and adequate opportunity granted by the AO. The shareholder also did not appear before the AO even on being summoned by the AO directly u/s 131 of the Act. Section 68 of the Act has been amended by Finance Act, 2012 w.e.f. 01- 04-2013 whereby the onus is cast upon the assessee company to justify the sources of share subscription including share premium raised, to explain the source of the source of raising the share subscription. Thus, Section 68 of the Act has been amended by insertion of proviso casting the onus on the assessee company to explain the source of source of raising share subscription which has been held to be clarificatory in nature and hence retrospective by the decision of the Kolkata Tribunal in the case of Subhlakshmi Vanijya (P.) Ltd. (supra) wherein it was held as under by the Kolkatta Tribunal: 13.u. Now we espouse the next leg of the arguments of the ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twithstanding the same being non-genuine. In the oppugnation, if the amendment is held to be prospective, then it would mean that the AO would have all the powers to examine the genuineness of share capital and share premium received by the assessee company on the touchstone of section 68. If the assessee fails to satisfy him on the identity and capacity of the subscribers and genuineness of transactions, then addition will be called for u/s 68 of the Act. We, therefore, firstly need to decide as to whether the amendment to section 68 by way of insertion of proviso is retrospective or prospective? 13.x. It is settled rule of construction that every statute is prima facie prospective unless it is expressly or by necessary implication 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 subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was brought into force. Thus, it can be easily noticed that the retrospective effect to the amendment to Explanation 4 by the Finance Act, 2002 has been given by holding that the position even anterior to such amendment was the same inasmuch as the penalty was imposable even in the case of loss. The intention of the legislature was found to be imposing penalty in all such cases even prior to the amendment and that is how this amendment was held to be clarificatory and therefore, retrospective. 13.z. Similar is the position in the case of CIT v. Kanji Shivji Co. [2000] 242 ITR 124/108 Taxman 531 (SC). Explanation 2 to section 40(b) was introduced with effect from 1st April, 1985 providing that where an individual is a partner in a firm otherwise than as partner in representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of clause (b) to section 40. The Hon'ble Supreme Court in the case of Brij Mohan Das Laxman Das v. CIT [1997] 223 ITR 825/90 Taxman 41 held this insertion to be declaratory in nature and hence retrospective. In this case it was held that the interest paid by the firm to a partner on his ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision but clarified that the position was so since the introduction of the provision itself. In this class of clarificatory or explanatory amendments to the substantive provisions, the object is always to clarify the intention of the legislature as it was there at the time of insertion of the original provision. That is the reason for which the clarificatory amendments are always retrospective irrespective of the date from which effect has been given to them by the legislature. 13.ab. Armed with the above understanding of the retrospective or prospective effect, let us analyze whether or not the insertion of proviso to section 68 is clarificatory? We have noted above that for ruling out the application of section 68, the assessee must satisfy the AO as to the identity and capacity of the creditor in addition to the genuineness of transaction. When we advert to the language of section 68, it transpires that it refers to 'any sum credited' in the books of an assessee maintained for any previous year. The expression 'any sum credited' has not been specifically defined in the provision. Thus, it would extend to all the amounts credited in the books of account. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while recognizing 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. The courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as casting obligation on the closely held companies to explain the amount of share capital etc. credited in its books of account. When we read the Memorandum explaining the provisions of the Finance Bill, it becomes vivid that certain contrary judicial pronouncements created doubts about the onus of proof and the requirements of this section. Thus, the amendment makes it manifest that the intention of the legislature was always to cast obligation on the closely held companies to prove receipt of share capital etc. to the satisfaction of the AO and it was only with the aim of setting to naught certain contrary judgments which 'created doubts' about the onus of proof by holding that there was no requirement on the company to prove the share capital etc. and as such no addition could be 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. 13.ae. The about discussed judgments from the Hon'ble Summit Court holding a clarificatory substantive provision as retro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fair market value of its shares. When the shares are so issued at a higher price, then such excess becomes income from other sources in the hands of the company. This amendment is obviously prospective as the position of law before such amendment was different. Such share premium was always considered as a capital receipt not chargeable to tax. Since this insertion has increased the ambit of income of such companies henceforth for the first time, which was not the position hitherto, it ceases to be clarificatory and hence cannot be construed as retrospective. 13.ah. We fail to find out any parallel between the amendments made to section 68 and section 56(2)(viib) except for the fact that these provisions have been added by the Finance Act, 2012. A conjoint reading of proviso to section 68 and section 56(2)(viib) divulges that where a closely held company receives, inter alia, some amount as share premium whose genuineness is not proved by the assessee company or its source etc. is not proved by the shareholder to the satisfaction of the AO, then the entire amount including the fair market value of the shares, is chargeable to tax u/s 68 of the Act. If however, the genuineness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of share capital/premium from the angle of taxability. It was argued that the share premium can be charged to tax only in the circumstances given in section 56(2)(viib) and that too from the assessment year 2013-14. 13.aj. We are in full agreement with the ld. AR that the judgment in the case of Vodafone India Services (P.) Ltd.(supra) is an authority for the proposition that share capital/premium are capital receipts and cannot be charged to tax. We also fully endorse the argument about the introduction of section 56(2)(viib) w.e.f. assessment year 2013-14 which provides for charging share premium to tax in the circumstances and to the extent provided therein. However, it is significant to note that we are not concerned with the chargeability of share premium to tax in the present appeal. Here, the question is about the taxability or otherwise of such share capital/premium in terms of section 68. It is self evident that when the assessee fails to prove the identity and capacity of shareholders along with the genuineness of transactions, the amount of share capital, etc. is liable to be added u/s 68. It is only where share capital/ premium are genuinely received and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs during assessment proceedings are merely hollow words and such a plea is nothing but an attempt to thwart and delay justice. In any case adequate, proper and sufficient opportunity was given to the assessee to produce share subscriber in remand proceedings. The heavy onus was on the assessee to prove the genuineness of the transaction and the reasons for collecting the premium at ₹ 30/- per share as against the face value of the shares of ₹ 10 per share wherein the assessee company was merely a paper/shell company having no business/known project in hand. The assessee is not able to demonstrate the reasons and justification for charging of ₹ 30/- premium per share as against the face value of ₹ 10 per share and during the course of search and survey action on 30-05-2008 and post enquiries, the two Directors namely Mr Vinod K Faria and Suresh V Faria of the assessee company have admitted in statement recorded on oath that these share subscription entries are accommodation entries and are bogus transactions whereby cash is paid in lieu of share subscription. It is not shown and brought on record that these statements recorded on oath were retracted by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of high value things such as gold, precious stones, art works etc. and reselling the same through cheques or bank transfers etc. 2. Layering This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the audit trail. In this process a series of conversions or transactions are involved for moving the funds to places such as offshore financial centres operating in a liberal regulatory regime. Often front companies are formed to accomplish this task. These companies obscure the real owners of the money through the bank secrecy laws and attorney-client privilege. The techniques used for the purpose are to lend the proceeds back to the owner as loans, gifts and etc., under invoicing the items exported to the real owner or etc. In some cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance. 3. Integration This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through front companies etc. The money may be invested in real es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, number of allotment, number of shares allotted, share ledger folio, allotment register folio, application number, have all been kept blank. These particulars, Mr. Poddar, submitted should have been filled up by the assessee, but that has not been done. (d) Another significant fact admitted by the assessee in reply to the notice to show cause under Section 263 is that the shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends . (e) From the bank statements disclosed it appears that to have the cheques issued in favour of the asseessee honoured, matching amounts were credited to the accounts of the subscribers shortly before the cheques issued in favour of the assessee were presented for collection. (f) 19 applicants of shares within a period of less than six months had money contributed to their share capital which in their turn they contributed to the share capital of the assessee. So that, the 19 companies which contributed to the share capital of the assessee in the name of assets were left merely with the share-scripts of the assessee. The other lot of 15 subscribers in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney laundering also did not crop up for consideration in that case. The Prevention of Money Laundering Act, 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investment Ltd. was dismissed by the Apex Court, the question had cropped up in the case of Sophia Finance Ltd. (supra) wherein a special bench held as follows:- As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following conclusions:- ** ** ** It is noticed that all or some of the above conclusions are applicable to the appeals in this batch. 50 The appellant has disclosed a copy of the judgement delivered by the learned Tribunal in Subhalaxmi Vanijya (P.) Ltd. v. CIT. The learned Tribunal in paragraph 17.i. opined as follows:- All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of 'no enquiry' conducted by the AO, what to talk of charactering it as an 'inadequate enquiry'. In our considered opinion, the highly inadequate enquiry conducted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue. 27. In the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) the Tribunal had held as follows:- The Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. If so and we think it is so the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income- tax authorities is liable for the income thereof. The reasoning advanced by their Lordships in respect of an alleged revenue receipt is, according to us, equally applicable to an alleged capital receipt which, in fact, was received only in papers. The attempt of the assessee, it was apprehended in the case of Smt. Tara Devi Aggarwal (supra) was to assist someone else. An identical attempt is involved in this case. Who is the person sought to be assisted by the assessee? This question can only be answered after a thorough enquiry, directed by the CIT, is held. The assessee is interested in stalling that investigation on the plea that the order of the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. 28. We have indicated above the pieces of evidence which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sht alais Manu Sharma v. State (NCT of Delhi) reported in [2010] 6 SCC 1 paragraph 200 at page 80)' In the case of N.R. Portfolio (P.) Ltd. (supra) the following views were expressed:- What we perceive and regard as correct position of law is that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take the decisions, control and manage them. The persons behind the assessee company and the persons behind the subscribing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of Precision Finance (P.) Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that the ITO may even be justified in trying to ascertain the source of depositor . Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which was before the assessing officer which should have provoked him to make further investigation. The assessing officer d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may now turn to the case laws relied upon by the assessee company. The assessee company relied upon the following case laws: 1. CIT v. Smt. P. K. Noorjahan (1999) 237 ITR 570(SC)- In this case, the Hon ble Supreme Court has held that the AO is vested with discretionary powers as the word used in Section 69 of the Act is may and not shall and in case the assessee offers an explanation which is found not to be satisfactory by the AO, then the AO may treat the same as income of the assessee and discretion is vested with the AO and it is not that in each and every case the addition is to be made if the explanation is found to be not satisfactory by the AO. This discretion is to be exercised in a proper manner by the AO keeping in view the circumstances of the case. There is no quarrel with this proposition as in the instant case the AO was not satisfied with the explanation of the assessee as to the creditworthiness of the shareholder as well genuineness of the transaction and the AO wanted to interrogate the shareholder which attempt of the AO was thwarted by the assessee as the shereholders were neither produced by the assessee nor the shareholders appeared in pursuance to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal, the Supreme Court reversed the finding and held that though it was a finding of fact, the finding given by the Tribunal was such that no person acting judicially or properly instructed as to the relevant law could come to such a finding. The business carried on by the assessee at Lahore was reasonably large business though its extent could not be verified by any reliable material produced by the assessee. Therefore, utter improbability amounting almost to impossibility of the assessee having earned such a large amount as profit within a few months in the disturbed conditions which were then prevailing in India was a circumstance which ought to have been taken into account by the Tribunal. In the said decision, the Apex Court reiterated the principle that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld Act of 1922 where there was no equivalent provision Section 68 and 69 as are contained in Act of 1961 which creates legal fiction and secondly there was a finding of fact recorded by the Tribunal on peculiar facts of the case. In the instant case under appeal, the Directors of the assessee have admitted in statement recorded on oath that these share subscription is bogus and were merely accommodation entries wherein cash was given to obtain cheques from the share subscribers. 5. CIT v. Five Vision Promoters Private Limited (2016) 380 ITR 289(Del)- in this case it was held that mere facts that shareholders have common address was not a valid basis to doubt their identity and genuineness of the transaction. It was held that under section 68 of the Act, the Assessing Officer has jurisdiction to undertake enquiries with regard to the amount credited in the books of the account of an assessee. This could be any sum whether in the form of sale proceeds or receipt of share capital money. First, the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, there is also an admission by the Directors of the assessee company in their statement recorded on oath that these share subscription was merely an accommodation entries and cash was given in lieu of cheques received by the assessee company. The assessee company being a closely held company has not been able to establish the creditworthiness of the share subscriber as well genuineness of the transaction as to how huge amounts have been invested by persons of meager means and that too at a huge premium in a newly incorporated company having no worthwhile business / project in hand and having no netwoth of its own. Moreover, we have seen that Section 68 of the Act has been amended wherein the case of share subscription the company which is a company in which public is not substantially interested is required to explain source of the source of the amount received. 7.CIT v. Creative World Telefilms Limited (2011) 333 ITR 100(Bombay) This case was decided relying on Hon ble Apex Court decision in Lovely Exports Private Limited(supra) which we discussed in preceding para. 8. CIT v. Value Capital Services Private Limited (2008) 307 ITR 334(Del)- The Hon ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the share subscribers by the assessee and these are not usual conduct of the carrying on of business. Under these circumstances keeping in view of cumulative reasons and summation of our discussions as set out above, we are of the considered view that the Revenue has rightly made the addition of ₹ 1.60 crores received as share subscription as unexplained cash credit u/s. 68 of the Act which we sustained and we donot found any infirmity in the orders of the learned CIT(A) which we sustain/upheld. We order accordingly. 11. In the result, assessee s appeal in ITA No. 1835/Mum/2014 for the assessment year is dismissed. 12. Regarding the assessee s appeal in ITA No. 1836/Mum/2014 for the assessment year 2007-08, our above decision in ITA No. 1835/Mum/2014 for the assessment year 2006-07 shall apply mutatis mutandis to the assessee s appeal in ITA No. 1836/Mum/2014 wherein the facts are identical. 13. In the result, both the appeals filed by the assessee in ITA No. 1835/Mum/2014 for the assessment year 2006-07 and ITA No. 1836/Mum/2014 for the assessment year 2007-08 are dismissed. Order pronounced in the open court on 24th August, 2016. - - TaxTMI - TMITax - Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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