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2017 (10) TMI 594

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..... at the premium of ₹ 990/- per share. Thus the matter requires a re-visit to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate its case with evidence and the Assessing Officer is directed to decide the issue afresh as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes. - ITA No.1008/Del/2017 - - - Dated:- 11-10-2017 - SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The Appellant : Shri Tarandeep Singh, CA For The Respondent : Shri Naveen Chandra, CIT-DR ORDER PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 09.01.2017 passed by the CIT(A)-5, Delhi relating to assessment year 2012-13. 2. Facts of the case, in brief, are that the assessee is a private limited company engaged in the business of sale/ purchase of shares and investments. It filed its return of income on 28.09.2012 declaring total income of ₹ 68,160/-. During the course of assessment proceedings, the .....

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..... done by the company. 2. Furnish details of income Net Profit / (Loss) for the A.Y. 2012-13, 2013-14 and 2014-15. 3. Details of shareholders as on 31.03.2013 and 31.03.2014. 4. Related to share issued at premium to Aman Investment Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. i. Copy of share application filed by investors Aman Investment Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. ii. Copy of share transfer register iii. Copy of share holder register iv. Copy of share certificate issued to investors Aman Investment Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. v. Details of utilization of share premium amount in current assessment year as well as in subsequent years. vi. Copy of share certificate issued by Aman Investment Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. to the assessee company. vii. Business activities done by Aman Investment Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. as the assessee company has made heavy investment in both the companies. viii. Details of Profit received on the investment in shares of Aman Investment Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. during the A.Ys. 2012-13, 2013-14 2014-15. ix. F .....

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..... he basis of Financial is as under : A.Y. Total Turnover achieved Sale of share Interest dividend income Total Turnover Total Income EPS Claimed by the assessee 2011-12 150555 413314 563869 428495 0.43 2012-13 113560 408922 522482 418417 0.25 2. Investor- M/s Supreme Portfolio Pvt. Ltd. The book profit of M/s Supreme Portfolio Pvt. Ltd. on the basis of Financial is as under : A.Y. Total Turnover achieved Sale of share Interest dividend income Total Turnover Total Income EPS Claimed by the assessee 2011-12 286794 419003 708057 438287 0.44 2012-13 .....

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..... 196 A.Y.-2014-15 5,03,818 9. After analyzing the financial of the assessee company as well as explanation given by the assessee regarding issue of shares at a premium, the Assessing Officer observed that the issue of shares at high premium is not justified for most of the funds are introduced by the assessee company through its shareholders under the guise of the share premium. The relevant observation of the Assessing Officer at page 11 and 12 of the order on this issue reads as under :- a. The assessee company has very nominal business profit. It is only common sense that past performance should be given suitable weight age for the valuation of a company and its shares but the same has been totally ignored in the instant case. furthermore, no correspondence or any documentary evidence has been brought on record in the assessee company replies submitted in the course of the assessment proceedings to justify the so called bright future prospects of the company which would enhance the profitability and consequentially lead to higher valuation of the shares. b. To test the credibility of the valuation, an effor .....

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..... investors are unusual in nature and character. Relying on various decisions including the decisions of the Hon ble Supreme Court in the case of CIT vs. Durga Prasad More reported in 82 ITR 540, decision in the case of CIT vs. Sri Meenakshi Mills Pvt. Ltd. reported in 63 ITR 609, decision in the case of Workmen of Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. reported in 157 ITR 77 and various other decisions mentioned in the assessment order, the Assessing Officer held that the credit of ₹ 65,00,00,000/- (including share capital and share premium) are directly hit by provisions of section 68 of the I.T. Act. Since the assessee in the instant case has failed to discharge its onus, the Assessing Officer, therefore, made addition of ₹ 65,00,00,000/- to the total income of the assessee u/s 68 of the I.T. Act. 11. Before the CIT(A), it was explained that the relevant documents evidencing confirmation of loan of two amounts received from M/s Globe Fincap Ltd., the bank statement/PAN/ITR, annual accounts etc. of that party had been furnished to the Assessing Officer. The genesis of the share capital and premium in the books was explained to be circulat .....

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..... anger (BSE) and with whom appellant in maintaining a regular share trading account for doing transactions on NSE and BSE. Whenever there was shortfall of funds in the trading account of the appellant with GCML, GFL provided funding to the appellant. The appellant submitted following documentary evidences during the course of assessment proceeding for substantiating the genuineness of loan transaction and creditworthiness of GFL: Confirmation from GFL accepting grant of loan from its HDFC Current Account No.00030340030126 (refer page 47 of paper book) Copy of Bank statement of GFL wherein transactions of grant of above loan on 17th November 2011 and 21st March 2012 to the appellant and corresponding return of said loan by the appellant on 18th November 2011 and 22nd March 2012 is clearly reflected (refer page 48 and 49 of the paper book). Copy of ledger account of the appellant in the books of GFL for the period 01st April 2011 to 31st March 2012 (refer page 50 to 64 of paper book). A perusal of same would clearly depict that a loan of ₹ 5 cr was granted by GFL on 17th November 2011 and the same retuned back by the appellant on 18th November 2011 (refer .....

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..... unts and hence cumulatively Share Capital of ₹ 35 crores was issued by the appellant to these parties on this date. Although AFPL and SPPL are related concerns, yet in order to substantiate genuineness of above transactions involving notional share capital build up following documentary evidences were submitted by the appellant before AO during the course of assessment : Board Resolution dated 30th March 2012 for allotment of 3,25,000 share to AFPL and SPPL respectively (refer page 116 of paper book). Copy of Return of Allotment of Share Capital in Form 2 submitted to the Registrar of Companies on 06th April 2012 (refer pages 117 to 123 of paper book). Ledger account of Share Application Money Paid for Jindal Securities in the account books of AFPL and SPPL (refer pages 11 to 12 of paper book). Copy of income tax return of AFPL for AY 2012-13 (refer pages 13 of paper book). Copy of income tax return of SPPL for AY 2012-13 (refer pages 14 of paper book). Bank account statement of AFPL (refer pages 15 to 17 of paper book). Bank account statement of SPPL (refer pages 18 to 19 of paper book). Copy of Audited Annual A .....

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..... as failed to understand the mechanism adopted to build up what is admittedly notional share capital as per which there is virtually no fresh cash introduced in the bank. The Assessing Officer is completely silent on the genuineness of the transactions between the assessee and Global Fincap Pvt. Ltd. 14.1 Based on the argument of the assessee, remand report of the Assessing Officer and rejoinder to such remand report, the CIT(A) upheld the addition made by the Assessing Officer. While doing so, he observed that despite specific remand to the AO to comment on the aspect of the genuineness of the loans of ₹ 5 crores and ₹ 2.5 crores from M/s Globe Fincap Ltd. taken on 17.11.2011 and 21.3.2012 respectively, which were credited into the assessee s bank current account no.03392560001278 with HDFC Bank, Roop Nagar, from where the impugned two amounts were circulated to Aman Finvest Ltd. and Supreme Portfolio Pvt. Ltd. and received back and re-circulated and hence required to be examined in order to apply section 68, neither the AO nor the Addl.CIT have commented on this aspect except to state that the issue of loan taken or repaid is a different issue but the same does not .....

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..... al amount of ₹ 32.50 crores was received from Supreme Portfolio Pvt. Ltd. After the seventh occasion the assessee transferred ₹ 2.5 crores to Aman Finance Pvt. Ltd. which was received back and this transaction is repeated 6 times. The assessee received ₹ 15 crores from Aman Finance Pvt. Ltd. as share application money in this manner. Thereafter Aman Finvest Pvt. Ltd. and Supreme Portfolio Pvt. Ltd. circulated this money with each other on the same day so as to receive/invest in share application money within themselves until finally M/s Aman Finance Pvt. Ltd. paid ₹ 2.5 crores to the assessee. Thus, this ₹ 2.5 crores, coupled with the ₹ 15 crores referred to earlier and another ₹ 15 crores referred to herein above in the present para, the assessee received total amount Rs, 32.50 crores from Aman Finance Pvt. Ltd. as share application money in this manner. After these transactions, the amount was refunded to Globe Fincap Ltd. 17. Thus the facts are undisputed that the loan amount received from Globe Fincap Ltd. has been utilized by the assessee to make investments in sister concerns (herein after referred to as AFPL SPPL) and they in tu .....

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..... 0,00,000/- made by the AO invoking provisions of section 68 of the Act. 3. That on facts and in law the CIT(A) erred in holding that appellant has not been able to establish creditworthiness of the share applicants i.eM/s AmanFinvest (P) Limited (AFPL) and M/s Supreme Portfolio (P) Limited (SPPL). 3.1 That on facts and in law the CIT(A) after accepting that the loan amount received from Globe Fincap Ltd (GFL) has been utilized by the appellant to make investments in sister concerns AFPL and SSPL and they in turn have utilized these amounts to invest in share capital of assessee company has erred in concluding that loan received from GFL is not connected to the receipt of share capital by the appellant. 4. That on facts and in law the CIT(A) erred in relying upon and invoking provision of Finance Act 2012 which are specifically applicable w.e.f. 01st April 2013 (i.e. from AY 2013-14 onwards) to the facts of instant case. 5. Without Prejudice, that on facts and in law the CIT(A) erred in not restricting the addition by applying Peak Credit Theory. The appellant craves leave to add, alter, modify, amend or withdraw any ground at any stage of the appeal. .....

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..... taxmann.com 272, copy of which is placed at page 197 201 of the Paper Book, he submitted that the Hon'ble High Court in the said decision has held that where the Revenue urged that assessee company received share application money from bogus shareholders, it was for revenue to proceed by reopening assessment of such shareholders and assessing them to tax and not to add same to assessee s income as unexplained cash credit. 25. Referring to the copy of assessment order passed by the Assessing Officer u/s 143(3) in the case of M/s Supreme Portfolio Private Limited for assessment year 2012-13, he submitted that the Assessing Officer in the body of the assessment order has not made any addition on account of such purchase of shares in the assessee company at huge premium. 26. Referring to the copy of the assessment order passed by the Assessing Officer u/s 143(3) in the case of M/s Aman Finvest Pvt. Ltd. for assessment year 2012-13, he submitted that the Assessing Officer in the body of the assessment order has not made any addition on account of investment in the shares with premium in the assessee company. 27. Referring to the provisions of section 68, he submitted that .....

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..... ns. As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessed them, irrespective of the colour or the nature of the sum received which is sought to be given by the assessed, the Income-tax Officer has the jurisdiction to enquire from the assessed the nature and source of the said amount. When an explanation in regard thereto is given by the assessed, then it 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 depositor, assuming he is identified, in order to determine whether that depositor is mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessed and it would be immaterial as to whether the amount so credited is given the .....

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..... ion of the ld. counsel for the assessee that he has explained the source of share application money invested in the assessee company by the two sister concerns and, therefore, the provisions of section 68 do not apply. It is also his submission that when the genuineness of the loan obtained from M/s Globe Fincap Ltd. has not been doubted and assessee has given money to the two sister concern who, in turn, have invested in the shares of the assessee company, it cannot be said that the purchase of share in the assessee company by the two sister concerns can be treated as unexplained cash credit. It is also his alternate argument that at least to the tune of ₹ 7.5 crore the source of which has been explained by the assessee during the course of assessment proceedings as well as appellate proceedings before the CIT(A), credit to that extent should have been given which the lower authorities have failed to do. 32. It is settled principle of law that for explaining any cash credit in the books of accounts of an assessee, the assessee is required to explain the identity and creditworthiness of the creditor and the genuineness of the transactions. In the instant case, the assessee .....

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