TMI Blog2017 (8) TMI 1303X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case as discussed above has rightly upheld the validity of initiation of reopening proceedings and the assessment framed in furtherance thereto. - Decided against assessee Addition on unexplained share capital including share premium - Held that:- The sources of capital introduced in these companies were established during the respective assessment proceedings. It is also pertinent to mention over here that out of total 6 investor companies, notices could not be served in case of 2 companies as they were not available on the given addresses and in case of 1 company notice could not be served as the premises was found locked on various days. The remaining 4 companies had responded and had filed their submissions. However, there is no dispute that in case of all the 6 investor companies, the assessee had filed primary documents and had accordingly discharged its initial onus to establish identity and creditworthiness of the investor companies and genuineness of the transaction as there is no dispute that all the transactions have been done through banking channels i.e. through account payee cheques and demand drafts. We thus find that the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objected by the assessee. 4. In support of the above objection, the ld. AR has basically reiterated submissions made in this regard before the ld. CIT (A). The main thrust of his argument is that initiation of reopening proceedings by the Assessing Officer was based on report filed by the Investigation Wing of the Department, which was never confronted to the assessee and there was no application of independent mind of the Assessing Officer for forming his reasons to believe for initiation of reopening proceedings. 5. The ld. AR submitted that a perusal of the assessment order and history of the assessment proceedings would show that various references have been made to the findings of various wings of the Investigation Unit, a copy of which has not been provided to the Appellant Company at any stage of the assessment proceedings even after written requests. Consequentially, the basic principles of natural justice which involve reasonable application of prescribed procedures with a view to promote natural justice and prevent its miscarriage have been derailed and sabotaged. As such a conclusion having a deep impact on the Appellant and conflicting with his consistent stand ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a return of income has been furnished by the assessee but no assessment has been done and it is noticed by the Assessing Officer that the assessee - has understand the income, or has claimed excessive loss, deduction, allowance or relief in the return; where an assessment has been made, but income chargeable to tax has been under assessed; or income chargeable to tax has been assessed at too low a rate; or income chargeable to tax has been made the subject of excessive relief under the 1961 Act; or excessive loss or depreciation allowance or any other allowance under the 1961 Act has been computed. 5.2 Thus Section 147 of the Income-tax Act, 1961 authorises and permits an Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. The expression escaped assessment clearly connotes a very basic postulate that the income for a particular assessment year went unnoticed by the Assessing Officer and because of it not being noticed by him for any reason, it escaped assessment. Accordingly there should be a complete and direct conclusion as to income escaping asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and due process of law laid down in the Companies Act, 1956 has not been denied. In fact, such a negation of its corporate existence is neither suggestible nor inferable either from the said statement or from the Office of the Registrar of Companies, the statutory regulatory body, in this regard. The conclusion has sought to be drawn on the basis of a statement of a person who had no locus standi in the Assessee Company, and accordingly was not authorized on its behalf. While again emphasizing the separate legal existence of the Assessee Company, it needs also to be understood that there is nothing in law to prohibit several companies having their Registered Offices at the same address or for companies to share common infrastructure and facilities so as to economize the costs. In addition, the fact that the Directors of the Company being employees of Bhushan Ltd, should also not lead to any adverse inference in as much as such an arrangement is again a matter of administrative and logistical convenience to ease operational matters. Such facts do not merely themselves lead to any evidence or suggestion, what to talk of conclusion, as to the Company being just a paper company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no substance in the contention of the ld. AR that assessee was not given opportunity to cross examine on the basis of whose submissions reported by the Investigation Wing of the Department reopening proceedings were initiated. 9. Having gone through the orders of the authorities below in view of the above submissions, we find that assessee was supplied with the reasons recorded and opportunity to raise objections thereto was given to him. It was availed as the assessee raised the objections against the validity of initiation of reopening proceedings and the Assessing Officer duly disposed off the said objections. The reason to believe was based on search operation in Bhushan Steel Group and survey at the assessee. We thus do not find substance in the contention of the ld. AR that initiation of reopening proceedings against the assessee was not valid. It is well established position of law that for initiation of reopening proceedings formation of reasons to belief is required to be based upon a prima facie view that taxable income has escaped assessment. Sufficiency of such belief cannot be questioned before the court of law. We thus do not find reason to interfere with the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating that original return of income filed earlier by it on 29.09.2009 vide receipt No. 95415871290909 may be treated as return filed in response thereto. 14. The assessment was completed vide order dated 28-03-2013 at an income of ₹ 9,30,00,546/- wherein the Ld. Assessing Officer has proceeded to unjustifiably add back a sum of ₹ 9,30,00,000/- on account of alleged unexplained share capital received by the Appellant Company from various companies situated at Mumbai and Kolkata. The ld. CIT (Appeals) has deleted this addition, which has been questioned in the present appeal by the Revenue. 15. In support of the ground, the ld. Sr. DR has basically placed reliance on the assessment order with this contention that assessee has thoroughly failed to establish creditworthiness of the investor companies as well as genuineness of the transaction. Some of the parties were not found on the given address and some of them did not respond to the notices issued by the Assessing Officer to them nor the assessee has been able to produce them for verification before the Assessing Officer. In absence of compliance of these requirements the Assessing Officer was very much justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd 32/34, Bombay, chamber, 5 th Floor, Anandilal Paodar Marg, Dhobi Tolao, Mumbai-400002 40,00,000/- 11 Realgold Trading company Pvt Ltd BIG TREE BLDG., Chamber No. 6, 1st Floor, Marine Street, Mumbai-400002 50,00,000/- Total 9,30,00,000/- (2) The Assessing Officer in the course of assessment proceedings had desired the Appellant Company to furnish the details of the amount received and evidence in support of identity and creditworthiness of the parties and also the genuineness of the transaction of all the parties from whom the share capital and share premium had been received. In response, the Appellant Company vide letter dated 13.08.2012 filed with the Assessing Officer copies of bank accounts, confirmation and Income Tax Return acknowledgements from all the parties to establish the identity, genuineness and sources of transaction regarding share capital and share premium. The entire amount had been received by the Appellant Company through normal banking channels by account payee chequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -III(3), Kolkata also deputed Inspectors of Income Tax to serve the summons and conduct field enquiries. The results of the said enquiries are as follows :- Report from Mumbai S No. Name of the Shareholder Report as received in response to commission from Mumbai 1 Tridev Multitrade Pvt Ltd The address is of B L Agarwal and office of Amit Textiles. As per report of inspector dated 30.11.2011, no such person has ever resided in such premises- Report of Shri Ajay Kumar Inspector is enclosed as annexure (Annexure-20) 2 Eternity Multitrade Pvt Ltd The address was not found. Report of Shri Ajay Kumar Inspector is enclosed as annexure (Annexure-21) 3 Pentium Tech Pvt Ltd Party has responded to the summons and the details are annexed. Details annexed as Exhibit-E 4 Real gold Trading Company Pvt Ltd The address is office address of N Chandulal Co., CA. As per report of Inspector dated 30.11.2011, no such person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own income of ₹ 11,210 for A.Y 2009-10. 4 Ganga Builders Ltd Assessee made a submission through dak and submitted that the company has applied for shares of M/s Adamine Construction Pvt Ltd in FY 2008-09. The assessee has not specified for how many shares and at what premium. The assesssee has enclosed bank statement showing payment was made by cheque no 875658 dt 30.04.2008 for ₹ 45,00,000/- and cheque no 875659 dt 30.04.2008 for ₹ 50,00,000/- drawn on Deutsche Bank. The assessee has not enclosed the bank statement showing the source of fund for share application money. The company has shown total income of ₹ 5,850/- for A.Y 2009-10. 5 Bayanwala Brothers Pvt Ltd Assessee made a submission on 15.12.2011 through dak and submitted that the company has applied for 90,000 equity share of M/s Adamine Construction Pvt Ltd. each at a premium of ₹ 90/- each and allotted the same. The assessee has not given reason for paying such high premium. The assessee has enclosed bank statement showing payment was made by cheque no 675388 dt 02.05.2008 for ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of the investors and the genuineness of the transactions is in doubt and has accordingly treated share capital and share premium amounting to ₹ 9,30,00,000/- as unexplained and added this same to the taxable income of the Appellant Company u/s 68 of the Income tax Act, 1961. (7) The Assessing Officer in the course of assessment proceedings had desired the Appellant Company to furnish the details of the amount received and evidence in support of identity and creditworthiness of the applicants and also the genuineness of the transaction of all the parties situated at Mumbai and Kolkata from whom the share capital and share premium had been received. In response, the Appellant Company filed copies of confirmations, Income Tax Return acknowledgements and bank accounts from all the parties establishing the identity, genuineness and sources of transaction regarding share capital and share premium with the Assessing Officer. The entire share application money had been received by the Appellant Company through normal banking channels by account payee cheques/demand drafts. Furthermore, the said confirmations also clearly reveal the source of funds, particulars of the bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roof can be enjoined on it. In the instant case no case can be made out to doubt the genuineness, existence or identity of the investors and as such no cause exists for the invocation of S. 68. (11) An analysis of the provisions of Section 68 of the Income-tax Act, 1961 would make it clear that in order to discharge the onus, the Assessee must prove the following:- (i) identity of the creditor; (ii) capacity of the creditor to advance money; and (iii) genuineness of the transaction. (12) The question of the manner in which the onus u/s 68 has to be discharged is to be looked at with different perspectives and varying parameters in each different circumstance and no standards/guidelines can be lead out in this regard. (13) In the instant case there is no material on record to prove or even remotely suggest that the share application money received actually emanated for the Appellant Company. In fact it may be reiterated that the share application money was received from independent legally incorporated companies through normal and regular banking channels which fact stands duly corroborated and confirmed by the confirmations bank statements and Income Tax Returns o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Commissioner of Income-Tax vs. Steller Investments Limited [(1991) 192 ITR 287 (Delhi)] wherein it has been clearly held that any increased capital is not assessable in the hands of the company. The relevant observations of the Learned Judges are as follows:- It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. (17) Subsequent to the above an appeal filed by the Department against the judgement/observations of the Supreme Court was also dismissed and the Hon ble Supreme Court did not find any reason to interfere with the order of the High Court in the case of CIT vs Steller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But if the Assessing Officer fails to unearth any wrong or illegal dealings, he cannot adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company . (19) Further Your Honor s kind attention is also invited to the decision of their Lordship of the Hon ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd [(2008) 216 CTR 195 (SC)] wherein the special leave petition filed by the Department against the order of the Delhi High Court has been dismissed with the following remarks:- We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the Assessee Company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgement . (20) The above decision of the Hon ble Supreme Court follows the earlier decision of the Hon ble Supreme Court in the case of Steller Investment Ltd, cited supra and further reinforces the arguments put forward for and on behalf of the Appellant Company. (21) In particular, with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, reliance is placed on the decision of the Delhi High Court in the case of CIT vs Kamdhenu Steel Alloys Limited and Others [(2012)206 Taxman 254(Delhi)] wherein the following has been held : 38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of landing entries. But, it is unfortunate that all this exercise is going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the cash deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability. 39. We may repeat what is often said, that a delicate balance has to be maintained while walking on the tight rope of sections 68 and 69 of the Act. On the one hand, no doubt, such kind of dubious practices are rampant, on the other hand, merely because there is an acknowledgement of such practices would not mean that in any of such cases coming before the Court, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site particulars to establish the identity of the share applicants in the confirmations, ITRs and bank statements already filed before the Assessing Officer. The various arguments advanced by the Learned Assessing Officer are frivolous and irrelevant and the onus enjoined upon the Appellant Company by the provisions of section 68 stands not only adequately but also completed satisfied. (27) Accordingly since it is clear that if the shareholders / share applicants are identified and it is established that they have invested money in the purchase of shares, no recourse can be made to the provisions of S 68. In the instant case the Appellant Company had provided all the requisite particulars to establish the identity of the share applicants in the confirmations already filed before the Assessing Officer. The ld. AR also placed reliance on the following decisions :- (i) CIT Vs. Gangeshwari Metal Pvt. Ltd. ITA. No. 597/2012 [judgement dated 21.01.2013 (Delhi High Court); (ii) Pr. CIT Vs. N. C. Cables Ltd. (2017) 391 ITR 11 (Del.); (iii) Pr. CIT Vs. Softline Creations P. Ltd. (2016) 387 ITR 636 (Del.); (iv) CIT Vs. Real Time Marketing P. Ltd. (2008) 306 ITR 35 (Del.); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been produced by the assessee to prove creditworthiness of the creditors and genuineness of share applications, failure to produce creditor is not material. In the case of CIT Vs. Winstral Petro Chemical P. Ltd. (supra) in the case of cash credits / share application money, the Hon ble jurisdictional High Court of Delhi on the issue of burden of proof, has been pleased to hold that initial burden is on assessee to prove identity of creditors, the burden then shifts to Revenue to prove that credits were not genuine. In that case while dismissing the appeal of the Revenue, the Hon ble High Court was pleased to hold that it had not been disputed that the share application money was received by the assessee company by way of account payee cheques through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN Cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications, had changed their addresses or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame premises. The submission of the assessee in this regard remained that there is no law that more than one company cannot have its Registered office at one address and that there is no law that companies cannot change their Registered offices. It was submitted that business raise capital and such capital is rotated in economy for increasing production and trade and for making more efficient use of capital. Companies change and, sometimes in quick succession. This is the normal formation of capital in any open economy and the process of capital formation cannot be taken to be representing only unaccounted funds or impeded. It was submitted that all the companies having Registered office at the premises undisputedly belonged to Bhushan Group. The sources of capital introduced in these companies were established during the respective assessment proceedings. It was further contended that no evidence was found during search to indicate introduction of cash in the form of share capital. It is also pertinent to mention over here that out of total 11 investor companies, notices could not be served in case of 3 companies as they were not available on the given addresses. The remaining 8 c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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