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Jindal Securities (P) Ltd. Versus ITO, Ward- 13 (3) , New Delhi

2017 (10) TMI 594 - ITAT DELHI

Addition u/s 68 - unexplained cash credit - explanation to share capital and share premium receipts - Held that:- 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 has given certain details which according to the lower authorities are not sufficient to explain the share capital an .....

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therefore, he could not have rejected the entire share application money received by the assessee 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 gro .....

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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 Assessing Officer observed from the details filed by the assessee that the assessee company during the year has received share application money of ₹ 65,00,000/- and share premium of ₹ 64,35,00,000/- as premium by issue of 6,50,00 .....

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chasing shares at premium of both the above companies i.e. ₹ 32,50,00,000/- of Aman Finvest (P) Ltd. and ₹ 32,50,00,000/- of Supreme Portfolio (P) Ltd. during the year under consideration. He, therefore, asked the assessee company to furnish the specific details regarding share capital/ share premium through query no.3 vide questionnaire dated 07.01.2015 which reads as under :- It is noticed that during the year company has issued share to the tune of ₹ 32,50,000/- to M/s Supre .....

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. In response to the same, the assessee company vide its reply dated 02.02.2015 submitted the details, which has been reproduced by the Assessing Officer in the body of the assessment order and which reads as under :- The assessee company has issued share to group companies. In the financial year relevant to the assessment year, there was no method prescribed to calculate share premium. The value of share is arrived on estimate basis and was a commercial decision. 5. The Assessing Officer therea .....

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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 as .....

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and M/s Supreme Portfolio Pvt. Ltd. regarding the transactions made with the assessee company during the year under assessment :- 1. Copy of Bank Statement from where funds have been given to above assessee company (M/s JSPL). 2. Source of funds raised for making investment in the above company. (M/s JSPL). Please provide complete chain details of funds received in your bank account giving Name/Address/PAN of the persons from whom the said funds have been received. 3. Name of the person, who of .....

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share certificate of the above company (M/s JSPL). 8. Please state what is the current status of these shares, whether these are still in your possession or have been sold? 9. In case the above certificates have been sold, please confirm with respect to your bank statement. Also give the name/address/PAN of the party to whom these shares of M/s JSPL have been sold. 10. Please provide the copy of ITR/Balance Sheet/Computation of Income for the A.Y. 2012-13 and the year in which the transaction me .....

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The book profit of M/s Aman Finvest 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 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 & dividen .....

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editworthiness as the money that came to their accounts seldom rest for a day or two and finds its destination immediately. These companies did not have their own profit making apparatus and have not done any business activity as a major part of the turnover is from dividend and interest income. According to the Assessing Officer, these are accommodation entries just to evade tax. On perusal of the bank statement and the flow chart filed by the investor companies, he noticed that an amount of &# .....

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issued 6,50,000 shares at ₹ 1,000/- per shares (face value of ₹ 10/- each at premium of ₹ 990/- per shares) against book value of ₹ 35.76. He also analyzed book profit of the assessee company before issue of shares at a premium i.e. on 31.03.2011 which is as under :- 1. Shar Holder s funds (in Rs.) Share Capital 1,75,00,000 Reserves Reserve and Surplus 4,50,80,227 Total 6,25,80,227 No. of shares 1750000 2. Profit/Loss of the company A.Y.-2011-12 6,16,440 A.Y.-2012-13 7,60 .....

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eads 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 wh .....

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9 570894 1980303 6,16,440 0.35 22630 2012-13 3521769 710819 4232588 7,60,176 0.32 68160 2013-14 1304196 346191 1650387 3,86,196 0.16 69650 2014-15 1704365 153320 1857685 5,03,898 0.21 514220 In view of the above, the net-worth of Earning Per Share is only 0.32 during the year. Major net income after claiming expenses constitutes interest and dividend income which are nothing to do with the business objectives of the assessee company. c. Now it is very difficult to digest as to why subscriber/ in .....

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of section 68 and came to the conclusion that the assessee in the instant case has failed to establish the genuineness and creditworthiness of the transactions. He observed that the transactions between the assessee company and its alleged 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. rep .....

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ition 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 circulation of these loan amounts to create the notional net worth of .....

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al was to increase the net worth of the assessee and to avail finance at moderate interest rates and strengthen the business opportunities in the future. Alternatively, it was argued that at best if the Assessing Officer was not convinced of the genuineness of the loan transactions and creditworthiness of M/s Globe Fincap Ltd., he could have telescoped the credit entries by applying the peak credit theory particularly when all the debits and credits have taken place in the same day, the related .....

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lotment of shares of face value of ₹ 10/- per share at a premium of ₹ 990/- each was to following sister concerns: (a) Aman Finvest (P) Limited (AFPL) - 3,25,000/- shares of ₹ 1000/- (including share premium). (b) Supreme Portfolio (P) Limited (SPPL) - 3,25,000/- shares of ₹ 1000/- (including share premium) The above transaction of issuance and allotment of shares was carried out in the following manner :- Step 1 - A loan of ₹ 5 crores and ₹ 2,50 crore was rec .....

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nt 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 app .....

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page 58). Similarly loan of ₹ 2.5 cr was granted by GFL on 21st March 2012 and the same was returned back by the appellant on 22nd March 2012 (refer page 63). As submitted above since a regular funding account charged by GFL for the credit facility provide by it. For the month of November 2011 interest of ₹ 81,711/- was charged by GFL (refer page 59), similarly for the month of March 2012 interest of ₹ 90,119/- was charged by GFL (refer page 63). During the year under consider .....

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y of Audited Annual Accounts of GFL for financial year ending 31st March 2012 (copy enclosed at pages 78 to 111 of the paper book). Step 2 - The above loan amounts were thereafter circulated by the appellant through its sister concerns so as to create a notional net worth in its books of accounts. A flow chart depicting the flow of money has been noted by the AO in the impugned order at pages 7 to 10. In nutshell for every transaction involving inflow of ₹ 5 crores on 17th November 2011 an .....

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es from AFPL and SPPL in appellant s book of accounts and hence cumulatively Share Capital of ₹ 30 crores was issued by the appellant to these parties on this date. Similarly on 21st March 2012 and 22nd March 2012 vis-à-vis loan of ₹ 2.5 crores received by the appellant from GFL there were 14 transactions involving credit of ₹ 2.5 crores from AFPL and SPPL in appellants books of accounts and hence cumulatively Share Capital of ₹ 35 crores was issued by the appellan .....

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ed 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). &bul .....

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ack on 18th November 2011 and 22nd March 2012. Facts narrated above would demonstrate that the loan facility availed by the appellant from GFL carried an interest burden of 17% which was also borne by the appellant. 12. Relying on various decisions, it was argued that the addition made by the Assessing Officer should be deleted. 13. However, the ld. CIT(A) also was not satisfied with the explanation given by the assessee. He observed from the various details furnished by the assessee that the so .....

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dition, he noted that it needed to be examined by the Assessing Officer. He, therefore, called a remand report from the Assessing Officer with a direction either to conduct a further enquiry, as deemed fit, to substantiate his predecessor s view that the amount was assessable u/s 68 or otherwise furnish his comments on this aspect. The Assessing Officer in the remand report dated 07.11.2016 reiterated the view of his predecessor. The Addl. CIT s report dated 16.11.2016 also did not throw any fur .....

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erstand 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 .....

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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 justify the creation of share capital of ₹ 65 crores in the books prior to its repayment. He noted that the loan transactions are evidenced by confirmations of the creditor dated 20.8.2014 and supplemented by the bank statement with HDFC Bank, Surya Kiran Building, KG Marg, New Delhi, the ledger account of the a .....

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d. and M/s Supreme Portfolio Pvt. Ltd. was the amount originally credited in the books of the assessee. He observed from all the three bank accounts that the transactions in question have been undertaken in a circular form as depicted by the way of flow-chart at pages 7 to 10 of the assessment order. The loan amount of ₹ 5 crores received on 17.11.2011 has been entered in the books of the assessee, transferred to Aman Finvest P. Ltd. which in turn transferred it to Supreme Portfolio Pvt. L .....

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stage that the amount was refunded to Globe Fincap Ltd. on the same day by the assessee. 16. Similarly, he observed that the second amount of ₹ 2.50 crores on receipt by the assessee on 21.03.2012 has been transferred to the account of Supreme Portfolio Pvt. Ltd. and received back as share application money and this transaction with Supreme Portfolio Pvt. Ltd. and received back has been repeated 7 times to create ₹ 17.50 crores as share application money paid to Supreme Portfolio Pvt .....

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lated 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 tra .....

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5 crores) or over two days (second loan tranche of ₹ 2.5 crores) and they are easily relatable through the bank statements. According to the CIT(A), the question that arises for consideration is whether the source of share capital received in the books of the assessee company can be said to be explained and whether the onus of proof laid down u/s 68 can be said to be discharged. He held that the assessee and the other two sister concerns have manipulated the loan amount in their books of a .....

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concerned which is the alternative argument of the assessee, he held that the facts of the present case do not mandate application as each and every amount received has been shown in the books of the assessee as share capital, which are proved to be non genuine and there is neither any borrowed funds nor any repayment thereof. The amounts received by way of share capital, have in fact, been invested in the share capital of AFPL & SSPL. Hence this argument of the assessee is also not acceptab .....

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) {hereinafter referred to as the CIT(A) } are void-ab-initio and bad in law. 2. That on facts and in law the CIT(A) erred in upholding addition of ₹ 65,00,00,000/- 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) a .....

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pplicable 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. 22. Ld. counsel for the assessee strongly objected to the order of ld. CIT(A). He submitted that the provisions of section 68 were amended w.e.f. assessment year 2013-14 w .....

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apital or share premium is applicable from assessment year 2013-14 and not applicable for the impugned assessment year. Referring to the decision of Hon ble Delhi High Court in the case of CIT vs. Anshika Consultants (P.) Ltd. reported in (2015) 62 taxmann.com 192, copy of which is placed at page 246 - 251 of the Paper Book, he submitted that the Hon'ble High Court in the said decision has held that where the assessee company issued shares at premium and provided various details of share app .....

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missed the appeal filed by the Revenue where the Tribunal had deleted the addition holding that the addition u/s 68 of the I.T. Act was not justified especially when the assessee had filed the details of Memorandum of Association, Articles of Association, Certificates of Incorporation, bank accounts indicating the source of payment, copy of confirmations, Income Tax particulars, audited balance sheets, Profit & Loss Account etc. The assessee are not genuine and, therefore, the Assessing Offi .....

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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 premi .....

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ained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. He submitted that the assessee in the instant case has explained not only the source but the source of the source thereof. 28. Referring to the decision of the Hon ble Delhi High Court in the case of .....

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fficer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessed of that previous year. Mr. Syali is right in contending that the aforesaid section merely codifies what was the state of law prior to its enactment. Even when the Indian Income-tax Act, 1922, was in force it had been held in all judicial pronouncements that if cash credits are found in the books of account of the assessed and no explanation about the nature and source thereof is given or the expl .....

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wn that in order to avoid payment of tax an amount may be credited in the books of account in such a manner which may not disclose its true nature or source thereof. For example, amounts may be credited in the books of account as if they represented sums received from different persons. 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 .....

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e 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 colour of a loan .....

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uthorities are not justified in making the addition. In his alternate contention, he submitted that the peak credit theory may be applied and at least the amount of ₹ 7,50,00,000/- which has been received by the assessee company through cheques and the source whereof has been duly explained the same should be accepted. 30. Ld. DR on the other hand heavily relied on the order of the CIT(A). He submitted that the ld. CIT(A) has given elaborate reasons while sustaining the addition which is s .....

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ons. Out of the same an amount of ₹ 5 crore was transferred to M/s Aman Finvest (P) Ltd. which, in turn, transferred it to M/s Supreme Portfolio (P) Ltd.. Thereafter, this company utilized the amount as share application money in the assessee company. This pattern followed a number of times and accordingly M/s Aman Finvest (P) Ltd. invested an amount of ₹ 32.50 crores as share application money along with premium in the assessee company. By following similar pattern M/s Supreme Portf .....

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ny 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 argu .....

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