TMI Blog2018 (1) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... was without any legal basis as there were no incriminating material found in search for assessment year under appeal. The issue is therefore, covered in favour of the assessee by Judgments of the jurisdictional High Court in the case of Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] and Meeta Gutgutia (2017 (5) TMI 1224 - DELHI HIGH COURT) - Decided in favour of assessee. Addition u/s 68 - assessee produced sufficient documentary evidence before A.O. to prove the ingredients of Section 68 of the I.T. Act. The A.O. however, did not make any further enquiry on the documents filed by the assessee. The A.O. thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the investor company and the assessee because investor was a foreign entity established in Mauritius. Even the reply received from Mauritius Revenue Authorities proved the identity of the investor, its creditworthiness and genuineness of the transaction. It is not reported if any, cash was found deposited in the account of the investor before making investment in assessee company - as assessee discharged its initial onus to prove the identity of the investor comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. We have heard the learned Representatives of both the parties and perused the material on record. All the matters are decided as under. ITA . No . 6103 / Del ./ 2016 C . O . No . 15 / Del ./ 2017 A . Y . 2007 - 2008 : in the case of M / s . Spectrum Coal Power Limited, New Delhi . 3. The Departmental Appeal as well as Cross Objection by assessee are directed against the order of the Ld. CIT(A)-27, New Delhi, dated 09.09.2016 for A.Y. 2007-2008. 4. Briefly, the facts of the case are that search, seizure and survey operations under section 132/133A of the I.T. Act were conducted on 12th April, 2012 in the case of the assessee along with other cases of Aryan Sainik Group at various residential and business premises. These cases were centralised. The first reference for exchange of information was made by Investigation Wing on 28th December, 2012 and the part information was received by the Pr. CIT, Central-II, New Delhi on 27th May, 2015 from FT TR CBDT, New Delhi. The A.O. issued notice under section 153A of the I.T. Act on 09th October, 2013 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon ble Delhi High Court in the case of CIT vs. Kabul Chawla 380 ITR 573 (Del.) and others. It was also submitted that assessee had filed return of income on 31st October, 2007 for assessment year under appeal declaring total income of ₹ 7.24 crores. The case was selected for scrutiny and notice under section 143(2) was issued to the assessee. The information was called for the assessment year from the assessee and assessment was completed vide order under section 143(3) dated 14.12.2009 wherein the A.O. made small additions on account of donation, disallowance of repair and maintenance of Road and disallowance of depreciation on plant and machinery with disallowance of late deposit of employees share to P.F. and after giving the deduction on account of depreciation and deduction under section 80G, income of assessee has been computed at ₹ 7.63 crores. The original assessment order was subject to appeals before Appellate Authorities. Thereafter, search action was undertaken on assessee company on 12th April, 2012 after completion of the assessment under section 143(3) as noted above. It was, therefore, submitted that the assessment order framed by A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT vs. Lovely Exports Pvt. Ltd., 216 CTR 195. It was submitted that the proviso to Section 68 was inserted into the Act w.e.f. 01.04.2013. The assessee also relied upon several decisions in support of the contention that since no incriminating material was found during the course of search that assessee received bogus share capita/premium, therefore, the addition is wholly unjustified. It was also submitted that on similar pattern, assessee issued shares to other parties which have not been doubted. The assessee also explained that assessee was incorporated on 1st January, 1996 and the turnover and net profit of the assessee has been substantial, from its year of incorporation till A.Y. 2014-2015 details of which are noted at page-28 of the appellate order. Assessee also explained that it is engaged in business of coal benefications and setting-up Thermal Power Generation Plants and it has set-up two coal benefication plants in the State of Chattisgarh and Orissa. The promoters have vast experience in this line and assessee company have been granted various credit facilities and many investors made investment in assessee company. The details of loans and bank guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly supported the identity and creditworthiness of the investors and genuineness of the trans actions . The AO could not look at the source of as well as the reasonability of share premium as the amendments to section 68 and section 56 ( 2 ) ( viib ) came into effect from asst year 2013 - 14 . Shares were issued at the same price to M / s STL as well as to other existing shareholders, and the determination of issue price was supported by a valuation report obtained from an independent firm of Chartered Accountants . The A . O . had acted merely on the basis of suspicion, conjecture and surmises . Therefore, the addition of Rs . 3,57,80,000 /- in A . Y . 2007 - 08 should kindly be deleted . 8. The Ld. CIT(A) considering the material on record in the light of submissions of both the parties, deleted the entire addition and his findings in para 8.4 of the impugned order at pages 80 to 113 are reproduced as under : 8 . 4 . Finding : I have considered the written submissions of the appellant, assessment records, case laws and have gone through the assessment order passed u / s 143 ( 3 ) r . w . s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the AR has been evaluated and found to be correct . Shares were issued at the same price to 4 investors on 02 . 08 . 2006 . In the assessment order, the AO has questioned the credit worthiness, genuineness of share capital and premium charged only from M / s STL . However, the AO has not distinguished how the issuance of shares to M / s STL was any different from issuance of shares to any of the other investors . The assessment records were called for and the submissions made by the appellant were perused . It had been submitted vide various submissions that the appellant had issued 40,00,000 shares to 4 investors including M / s STL . The issuance of these shares to each of the 4 investors at the same price i . e . Rs . 25 per share is also reflected in Form 2 Return of Allotment submitted before this office . It is also noted that each of these 4 investors were existing shareholders of the appellant company, to whom shares had been allotted in the past . Based on perusal of the above facts and evidence submitted by the appellant, it is evident that shares were issued by the appellant to 4 investors including M / s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares having face value of Rs . 10 each at a premium of Rs . 4 per share . The Appellant had submitted requisite documentation and details with RBI in this regard . Based on submissions made by the appellant, it is also evident that the issuance of shares to multiple investors on 21 . 03 . 2005 and on 02 . 08 . 2006 including M / s STL was undertaken at the same price at which shares were issued to other investors . Thus, the appellant has never distinguished the price at which shares are issued to M / s STL from any other investor . It would also like to mention that the fact of these amounts having been received as Share Capital and Share Premium from M / s STL were duly disclosed by the Appellant in its Balance Sheets and ITRs related to AY 2000 - 01, 2004 - 05, 2005 - 06 and 2007 - 08 . The assessments for AY 2000 - 01, 2004 - 05, 2005 - 06 and 2007 - 08 were completed u / s 143 ( 3 ) of the I . T Act vide assessment orders dated 25 . 08 . 2009, 27 . 12 . 2006,28 . 12 . 2007 and 14 . 12 . 2000 respectively . As is apparent from the said assessment orders the matter of issue of Share Capital and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Confirmation Letter regarding the genuineness of the investors wherefrom receipt is shown . ( vi ) PAN particulars of the investee company ( vii ) Copy of Bank Statement showing relevant transactions ( viii ) Copy of Foreign Inward Remittance Certificate ( ix ) Source 'from where the investment amount had originated ( x ) Copy of Balance Sheets and Profit Loss Accounts for relevant periods ( xi ) Copy of Income Tax Returns and PAN details wherever required ( xii ) Copies of Board Resolutions ( xiii ) Copies of ROC's Records Besides the above details, documents and evidences, the Appellant had furnished very lucid explanations through the various submissions of its ARs that had fully explained the Identity and Creditworthiness of the Investors and established the Genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability of the amount of Share Premium charged by the Appellant Company ( III ) Questioning the Creditworthiness of M / s STL, Mauritius and genuineness of the transactions; and ( IV ) Judicial pronouncements supporting AO's contention of making addition u / s 56 r . w . s . 68 of the I . T . Act . The above objections of the AO are dealt with as under :- ( I ) Questioning the credentials of the Appellant Company To begin with, it appears that the AO has doubted the credentials of the Appellant Company . In his opinion the Appellant Company could not attract such amounts as Share Capital and Share Premium . The ARs have filed the following table showing turnover, net Profit, Net Worth and Dividend paid by the Appellant Company since incorporation till AY 2014 - 15 . A . Y . Turnover ( Rs .) Net Profit ( Rs .) Net Worth ( Rs .) Dividend ( Rs .) 1997 - 98 - - - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,39,63,30,559 11,66,98,649 2014 - 15 2,47,56,25,037 19,09,22,404 4,48,64,68,349 11,66,98,649 The Appellant was constructing an 11 MTPA coal washery on BOO basis for APGENCO, and neared completion of 7 . 5 MTPA washery for which commercial production was to be commenced soon . The appellant company also planned to set up a 2x25 MW thermal power plant adjacent to its washery at Korba, for which it had already procured the land and the necessary agreements / permissions for setting up of the power plant . The existing washery was designed using State of the Art Technology and during the year, was running 6th year of full scale operations, and did not need any new technology absorption . The appellant is engaged in the business of coal beneficiations and setting up of thermal power generation' plants . ' The appellant company set up two coal beneficiation plants at :- - Ratija ( in the State of Chhattisgarh} and - Kalinga ( in the State of Orissa ) The Ratija plant was commissioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extended loan facilities of over Rs . 420 Crores to the Appellant Company . A perusal of above facts and statistics leaves no doubt about the credentials of the Appellant Company . ( II ) Questioning the reasonability of amount of Share Premium charged by the Appellant Company Thereafter, the AO questioned the Share Premium charged by the Appellant Company . The AO had observed that the Appellant had not submitted any documents justifying the valuation of its shares to justify the charging of such high premium . The Ld . ARs have explained that shares were not exclusively issued to M / s STL . During AY 2007 - 08, on 02 . 08 . 2006 a total of 40,00,000 shares were issued by the appellant company to 4 investors including STL at the same rate and under the same terms and conditions . Thus the same price was charged from each of the 4 investors, and the AO has not raised any question on the premium charged from other 3 investors . Based on verification of appellant's submissions, documentary evidence and assessment records, it is found that the appellant's contention is correct . The price at which shares were issued by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 56 ( 2 )( viib ) with effect from 01 . 04 . 2013 . The said amendment is prospective and cannot be applied retrospectively in assessment year 2007 - 08 . Reliance has rightly being placed COMMISSIONER OF INCOME TAX vs . ANSHIKA CONSULTANTS PVT . LTD . HIGH COURT OF DELHI, ( 2015 ) 93 CCH 0016 Del HC, ADDITIONAL COMMISSIONER OF INCOME TAX vs . OM OILS OIL SEEDS EXCHANGE LTD . HIGH COURT OF DELHI, ( 1985 ) 152 ITR 0552 : ( 1984 ) 18 TAXMAN 0337 1st September, 1983, GREEN INFRA LTD . VS . INCOME TAX OFFICER ITAT, BOMBAY TRIBUNAL ( G ) [ 2013 ] 145 ITD 240 ( MUMBAI - TRIB .) I [ 2014 ] 159 TTJ 728 ( MUMBAI - TRIB .) The above judicial pronouncements fully support the Appellants view regarding that the erstwhile section 56 r . w . s 68 was not applicable to Share Premium . On page 27 of the Assessment order the AO has stated that the case of huge premium charged by the assessee on allotment of share is also hit by the provisions of section 56 ( 1} of the IT Act . Sec 56 ( 1 ) as it stood in AY 2007 - 08 was as under : - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts at :- - Ratija ( in the State of Chhattisgarh ) and - Kalinga ( in the State of Orissa ) The Ratija plant was commissioned in December 1999 with a capacity of 2 . 50 million tons per annum . The capacity was expanded to 5 . 00 million tons per annum in 2003, 8 . 00 million tons per annum in 2008 and 10 . 00 million tons per annum of raw coal in 2009 . The main customers were Gujarat State Electricity Corporation Limited, Rajasthan Rajya Vidyut Utpadan Nigam Limited and Reliance Natural Resources Limited . The Kalinga plant is located at Talcher, District Angul in the State of Orissa . Kalinga plant was commissioned in 2008 . The initial installed capacity of Kalinga Plant was 6 . 53 million tons per annum of raw coal which has been expanded to 9 . 52 million tonnes per annum of raw coal in October 2012 . Appellant is seen to have a proven track - record . The promoters are seen to have over 30 years of successful entrepreneurship . The Appellant had been granted credit - rating of 'AA' or 'A + ' by CRISIL credit - rating agency . The Appellant had been granted various credit fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial expediency and viability of the investment at a given price . The fundamentals of the Appellant Company and the strengths of the company have already been explained in Section 3 . 4 above . On page 27, 28 and 29 of the assessment order, the AO has devised the criteria and basis that should be adopted while deciding the price and premium at which an investor should acquire the shares of any company . The Appellant is of the firm belief that the AO is going way beyond his duties of being an Assessing Officer . The AO cannot step into the shoes of the investor and cannot question the wisdom of the investor . This decision is the exclusive result of the investor and the AO cannot question the investor's financial prudence . There is also no denying the following prepositions :- ( i ) Premium charged by a Company is added to the Reserves of the Company . Hence the Share holder, who pays the premium, also becomes entitled to the enhanced Reserves of the Company . ( ii ) Is charging High Premium in the interest of the Company or charging Low Premium in the interest of the Company? Also, charging higher Premium is in the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mauritius based non - resident entity and it is promoted by well regulated Akura Energy Group which is a world renowned Private Equity investment company focused on developing renewable energy projects around the world . Therefore, the Share Capital and Share Premium received from M / s STL were not covered even by the amended provisions of section 68 that became effective from 1 . 4 . 2013 . ( vi ) Taking the fact of this amendment as the manifestation of intention of Legislature, it is evident that the Legislature always wanted to keep non - resident entities or well regulated Private Equity investors, Venture Capitalists and Angel Investors out of the ambit of section 68 . The conclusion arrived at from the perusal of the assessment records, assessment orders, written submission filed during assessment proceedings and Appellate proceedings, legal position, judicial pronouncements, facts of the case and arguments of the Ld . ARs lead to the conclusion that the AO had grossly erred in questioning the quantum of Share Premium charged by the Appellant Company . ( III ) questioning the Creditworthiness of M / s STL, Mauritius and genuinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, Duke of Edinburg 1 100 Seechum Avenue, Port Louis, Republic of Mauritius c ) Prior to the removal from the register of companies, the directors of STML were : Director's name Address Dr . A V Mohan Rao 15, Warren Street, Apartment 210, Jersey City, New Jersey, 07302 - 6457, USA Mr . Akula Srikant 15, Warren Street, Apartment 210, Jersey City, New Rao Jersey, 07302 - 6457, USA Ms . Tanya Sek Sum 5, Duke of Edinburg Avenue, Port Louis, Republic of Mauritius Mr . Salim Jhumka 5, Duke of Edinburg Avenue, Port Louis, Republic of Mauritius d ) Kindly refer to the enclosed Appendixes 1 and 2 re . change in shareholding and directorship of STML . e ) The details of the holding company are as follows :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entures, LLC ( previously known as Specturm Investment Group USA, LLC ) 200, Lanidex Plaza, 2 nd Floor, Parsipanny, NJ, 07054, USA 1 . Dr . A . V . Mohan Rao 15 . Warren Street, Apartment 210, Jersey City, New Jersey, 07302 - 6457, USA 2 . Srikant Akula 15 . Warren Street, Apartment 210, Jersey City, New Jersey, 07302 - 6457, USA It is apparent from a perusal of information provided by none other than the Ld AO, the following facts cannot be denied :- i ) The details of holding Company of M / s STL was Akula Energy Ventures, LLC, a New Jersey partnership having its office in New Jersey, USA . A perusal of the Balance Sheets and other financial statements of M / s . STL as audited by Jose Thibaut reveal that : i ] M / s STL's Paid up Share Capital of as on 31 . 12 . 2004 was US$ 13,81,000 that was increased to US$ 44,63,500 in 2008 . At the current exchange rate of US$ to Indian Rupees of ₹ 66 per US Dollar, the Paid up Share Capital works out to ₹ 9,11,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or allege that the Appellant had laundered its unaccounted money at what stage . As stated earlier, the Appellant neither created a shell company, nor acquired a shell company nor converted the inventories / investments / Loans and advances into funds for legitimate business . 'The Appellant had filed the bank statements of the investors and the Department had also obtained the same through the FT TR . It was apparent from the said bank statements that no cash had been deposited in the bank accounts of the investors . On a plain reading of the judgment of Bisakha read with the facts of the Appellant's case, it is evident that the facts of Bisakha's case were completely different from the case of Appellant : The AO has cited the observations of the Hon'ble Supreme Court in the case of CIT vs . Durga Prasad More 82 ITRU 540 ( SC ). The AO hasU alleged that in Appellant's . case that the situation was similar to the cited case wherein the Hon'ble court had held that appellant has to be distinguished from real . In the instant case the AO has not been able to show that there were reasons to believe that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NN 14 ( Delhi ) ( 2012 . The AO has himself recorded on page 25 of the Assessment Order as under :- In the case of Independent Media ( P ) Ltd . 210 TAXMANN 14 ( Delhi ) ( 2012 ) that came up before the Hon'ble High Court, Delhi where it was reported by the Investigation wing that the assessee company received share capital from those persons who had given statements before Investigation wing that they were entry providers giving accommodation entries after receiving cash and after charging their commission .... In the case under Appeal there was no report from the investigation wing alleging that the Appellant had received share capital from those persons who had given statements before investigation wing that they were entry providers giving accommodation entry after receiving cash and after charging their commission . In the case of Commissioner of Income Tax - IV, New Delhi us Focus Exports Pvt Ltd ITA No . 218 / 2012 ( He - DELHI ) order dated 16 / 09 / 2014 there was a big divergence on the aspect of PAN details, income tax returns, etc, the authorized representative of the assessee was pointedly asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bank account . It was further admitted that this entry providing activity was carried on by charging a commission @ 25 paise . In the case under Appeal there is no admission from the investor namely M / s . STL that they had received cash from the Appellant in 'lieu of giving cheques to the Appellant' towards Share Capital . Obviously, there is no admission to providing accommodation entry or of charging any commission in that regard . Contrary to the facts of the relied upon case, the Appellant is seen to have furnished complete details, extended fullest cooperation during the course of search, post search enquires and assessment proceedings . The Appellant did not try to block or obstruct enquiries and complied with all notices and summons . In comparison to the Appellant, the relied upon company had neither exported any goods nor had received any export orders . It had claimed to have done nominal fabrication on job work basis . The income declared in the relevant year was only Rs . 10,880 /-. Therefore, there was hardly any business activity undertaken by the respondent assessee in the first two years . The Appellant had a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including foreign Shareholders ) was done . The observation of the Hon'ble Court regarding doctrine of source of source or origin of origin has been made in the light of the factum of the relied upon case where almost all the 31 Shareholders were untraceable or unavailable for verification . Only under such like circumstances looking into source of source or origin of origin was warranted . The Hon'ble Court had clarified as under : However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the transaction and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counterproductive and contrary to equity and justice . In the Appellant's case, the Shareholders were available and were verified . Therefore, the 'surrounding evidence and material revealed that it was entirely an arm's length transaction between the Appellant and bona - fide renowned investors, hence there was no need to resort to look into source of source or origin of origin . The AO has also placed reliance on certain ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficiary assessee company . 2 . On the basis of statement recorded during the course of post search operation, the following was inter - alia established : 1 . Shri . Praveen Kumar Jain has indulged in providing only accommodation entries and has not carried out any genuine business . 2 . Books of account of all shell companies are under the control of Shri Praveen Kumar Jain . 3 . There is no place from where any genuine business activity is carried out . 4 . In view of the above facts and the material available on record, it is clear that the accommodation entry of share capital ( share Application / investments ) cumulatively amounting to Rs . 120, 00, 000 / introduced during the financial year 2006 - 07 relevant to A . Y . 2007 - 08 in the books of accounts of M / s Om Vinyls Pvt Ltd is non genuine and a bogus accommodation entry . In the appellant's case issue involved is neitherreopening u / s 148 of the I . T . Act nor having received Share capital from any admittedly accommodation entry provider . On account of the facts of the cited case being entirely different from the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Om Oils and all Seeds Ltd. [1985J 152 ITR 552 (Del.) (HC) - CIT us. Krishnaram Baldeo Bank (P) Ltd. [1983J 144 ITR 600 (MP HC) - Vodafone India Seruices Private Limited us. UOI [20 14J 368 ITR 1 (Bom HC) which was later adopted by the UOI and no further appeal was filed vide press release dated 28.01.2015. ( iv ) In A . Ys 2007 - 08 and 2008 - 09 there was no mention of Share Premium in Section 68 of the Act . By inserting the Amendment in Finance Act 2012, the Legislature brought Share Premium in the ambit of Section 68 w . e . f 01 . 04 . 2013 . This reaffirms the Appellant's contention that prior to 01 . 04 . 2013, Share Premium was not under the ambit of Section 68 . In the relevant assessment years, the obligation of the assessee Company was only to show its' Source and not Source's Source . The Appellant Company had duly discharge its' onus of showing the Source as having come from M / s PIL and Indian Coal Agency . The AO has admitted the Source of the Appellant's funds . The AO has illegally made the additions in the impugned assessment order by questioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 . Case of CIT vs . Peoples General Hospital Ltd . , reported in 356 ITR 65 ( MP ). In fact, similar view has also been expressed in the following cases : i . 350 ITR 220 ( All ) CIT vs . Jay Dee Securities and Finance Ltd . ii . 350 ITR 222 ( All ). CIT vs . Misra Preservers ( P ) Ltd . iii . 361 ITR 220 ( Del ) CIT vs . Kamdhenu Steel and Alloys Ltd . iv . 320 ITR 619 Bhav Shakti Steel Mines ( P ). Ltd . vs . CIT . v . ITA . No . 1497 / 2010, . 1518 / 2010 ( Del ) CIT vs . Derby Overseas ( P ) Ltd . vi . ITA . No . 904 / 2010 ( Del ) CXT vs . Dhawan Jewellers ( P ) Ltd . vii . 329 ITR 110 ( Del ) Sarthak Securities Co . P . Ltd . vs . ITO . viii . 205 ITR 98 ( Del ) CIT vs . Sophia Finance Ltd . ix . 361 ITR 195 ( Del . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of M / s STL . The documents received from the Mauritius Revenue Authorities confirmed the identity and creditworthiness of M / s STL, Mauritius and genuineness of the transactions . The MRA also confirmed the source of source as having come from Akula Energy . The genuineness of the transactions is further substantiated from the fact that M / s STL, Mauritius had invested Rs . 1,78,97,570 in the Appellant Company on 23 . 06 . 1999, Rs . 9,26,430 on 18 . 08 . 1999, Rs . 4,11,64,000 on 20 . 12 . 2003, Rs . 1,27,73,410 on 21 . 03 . 2005, Rs . 2,33,67,722 on 21 . 03 . 2005, and Rs . 3,57,80,000 on 02 . 08 . 2006 . In fact, the ARs have pointed out that majority of the share application money ( i . e Rs . 2,30,78,952 ) for allotment of shares on 02 . 08 . 2006, had already been received in earlier years, and was pending allotment as on 01 . 04 . 2006 . The reasonability of Share Premium has always been the subject matter of negotiations between the Company and its Share holders till the amendment was made in section 56 ( 2 ) ( viib ) and section 68 of the IT Act w . e . f 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the issue is covered in favour of the assessee by Judgment of the Hon ble Delhi High Court in the case of CIT vs. Kabul Chawla 380 ITR 573 and entire addition is liable to be deleted. He has submitted that this issue have been decided by the Ld. CIT(A) against the assessee merely because the matter is pending before the Supreme Court in the case of Kabul Chawla (supra). He has submitted that the decision of the jurisdictional High Court is binding on the income tax authorities and it is legal in nature and arising out of the order of the Ld. CIT(A). Therefore, the additional ground may be admitted for hearing and disposed of cross objection. 11. On the other hand, Ld. D.R. objected to the admission of the additional ground of cross objection. The Ld. D.R. submitted that for admitting additional ground, facts should be on record and it should be legal in nature and it should be raised before the authorities below. The Ld. D.R. also submitted that in this case reference for exchange of information was made by Investigation Wing on 28th December, 2012 and part information was received on 27th May, 2015 through FT TR CBDT, New Delhi which is relating to the creditworthiness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Ld. CIT(A) in his findings has noted that addition under section 68 of the I.T. Act in respect of the amount has already been disclosed in the audited accounts and interest paid thereon. The reasons for making these addition are not emanating from any documents found during the course of search proceedings. He has however, decided this issue against the assessee because the legal issue has not been settled by the Hon ble Supreme Court in the case of Kabul Chawla (supra). Learned Counsel for the Assessee, therefore, submitted that no incriminating material was found during the course of search so as to make addition under section 68 of the I.T. Act against the assessee. Learned Counsel for the Assessee also submitted that reference made by Investigation wing for exchange of information in December, 2012 and part information received May, 2015 are after conclusion of the search dated 12th April, 2012 and as such, the same could not be construed as incriminating material found or seized during the course of search. Therefore, it is a clear case of making additions under section 153A when there being no recovery of any incriminating material against the assessee during the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to maintain meticulous books or records for long . These factors are absent in the present case . There was no justification at all for the AO to proceed on surmises and estimates without there being any incriminating material qua the AY for which he sought to make additions of franchisee commission . 70 . The above distinguishing factors in Dayawanti Gupta ( supra ) , therefore, do not detract from the settled legal position in Kabul Chawla ( supra ) which has been followed not only by this Court in its subsequent decisions but also by several other High Courts . 71 . For all of the aforementioned reasons, the Court is of the view that the ITAT was justified in holding that the invocation of Section 153A by the Revenue for the AYs 2000 - 01 to 2003 - 04 was without any legal basis as there was no incriminating material qua each of those AYs . Conclusion 72 . To conclude : ( i ) Question ( i ) is answered in the negative i . e . , in favour of the Assessee and against the Revenue . It is held that in the facts and circumstances, the Revenue was not justified in invoking Section 153 A of the Act against t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdictional High Court. The Judgments of the jurisdictional High Court are binding on the income tax authorities. Ld. D.R. relied upon the decision of other High Courts on the proposition that even in the absence of any incriminating material, the addition can be made under section 153A. However, such decisions could not be given preference as against the Judgments of the Hon ble jurisdictional High Court. The Ld. D.R. also contended that in this case assessments have been made on the basis of the seized documents, statements recorded during the course of search, disclosure made by assessee and FT TR reports. Copies of the panchanama and statements are also filed on record. However, as noted above, none of the above documents are incriminating material in nature against the assessee. The A.O. made the addition under section 68 of the I.T. Act only on the basis of facts already on record which has also been considered in original assessment proceedings under section 143(3) of the I.T. Act and claim of assessee has been accepted by the A.O. prior to the search. Therefore, no assessment was pending against the assessee on the date of search. The completed assessments can be interfere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown income of only 3 US $ in assessment year under appeal. The assessee has not been able to explain why the money was brought from Mauritius. The assessee failed to explain the creditworthiness of the investor and genuineness of the transaction in the matter. The assessee has not produced any evidence to justify the valuation of the shares. The Ld. D.R. relied upon the following decisions : ( i ) Decision of Supreme Court in the case of Durga Prasad More 82 ITR 540 . ( ii ) Decision of Delhi High Court in the case of CIT vs . Nipun Builders and Developers Pvt . Ltd . , 350 ITR 407 ( Del .) ( iii ) CIT vs . Nova Promoters Fin Lease Pvt . Ltd . , 342 ITR 169 ( Del .) ( iv ) N . R . Portfolio Pvt . Ltd . , vs . CIT 29 taxmann . com 291 ( Del .) ( v ) CIT vs . Empire Buildtech Pvt . Ltd . , 366 ITR 110 ( Del .) ( vi ) CIT vs . Focus Exports Pvt . Ltd . , 228 Taxman 88 ( Del .) ( vii ) CIT vs . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e India Pvt . Ltd . , 361 ITR 147 ( iv ) CIT vs . Suresh Kumar Kakar 324 ITR 231 ( v ) CIT vs . K . C . Fibres Ltd . , 187 taxman 53 ( Del .) 24. Learned Counsel for the Assessee, therefore, submitted that assessee proved identity of the investor, its creditworthiness and genuineness of the transaction in the matter. Therefore, Ld. CIT(A) on proper appreciation of facts, correctly deleted the addition. 25. We have considered the rival submissions. The A.O. in order to verify the transactions and also to verify the creditworthiness of the persons who have invested amount of share capital/share premium in assessee-company, called for explanation of assessee because during assessment year under appeal, the assessee company has received the amount in question of ₹ 3,57,80,000 on account of share capital/share premium from M/s. Spectrum Technologies Ltd., ( M/s. STL ), Mauritius. The assessee filed detailed reply before A.O. supported by the relevant information and documents. Assessee filed details of the investor with address, details of share application money received with confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet of M/s. STL provided by Mauritius Revenue Authorities, investment in assessee-company have been disclosed. M/s. STL is an associate company of promoter Mr. A.V. Mohan Rao who had also invested in assessee-company in earlier year. The records produced by the Ld. D.R. in sealed cover were again sealed and returned to the Ld. D.R. The above material on record clearly shows that M/s. STL made investment in assessee company, having source, was existing company in Mauritius and made investment through banking channel. It would prove the identity of M/s. STL Ltd., its creditworthiness and genuineness of the transaction in the matter. 26. The Ld. CIT(A) in his findings found that in assessment year under appeal assessee did allotted 40 lakhs equity shares to four shareholders including M/s. STL Ltd., on the same price. Despite the issue was same, the A.O. did not distinguish as to how the issue of share to M/s. STL were different from issue of shares to other investors. The A.O. did not raise any objection at the price at which shares have been allotted to 3 other investors at the same time. The assessee produced sufficient evidence on record for its establishment, when productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived 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, but it cannot be regarded as undisclosed income of assessee company . 29. Decision of Hon ble jurisdictional High Court in the case of CIT vs. Kamdhenu Steel and Alloys Ltd., Ors. 361 ITR 220 (Del.) in which it was held as under : Once adequate evidence / material is given, which would prima facie discharge the burden of the assessee in proving the identity of shareholders, genuineness of the transaction and creditworthiness of the shareholders, thereafter in case such evidence is to be discarded or it is proved that it has created evidence, the Revenue is supposed to make thorough probe before it could nail the assessee and fasten the assessee with such a liability under s . 68; AO failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s . 68 was not sustainable . 30. Decision of Hon ble jurisdictional High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th Augus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dismissing the appeals, that if the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made under section 68 of the Income - tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented the company's own income from undisclosed sources . It was nobody's case that the non - resident Indian company was a bogus or non - existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee . The assessee had established the identity of the investor who had provided the share subscription and that the transaction was genuine . Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen . Thus, the addition was rightly deleted . CIT v . Lovely Exports P . Ltd . [ 2009 ] 319ITR ( St .) 5 ( SC ) applied . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payee cheques . On appeal to the High Court : Held, dismissing the appeals, that the deletion of addition was justified . 36. Decision of Hon ble jurisdictional High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in which it was held as under : Dismissing the appeal, 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 had stopped functioning . Therefore, the Commissioner ( Appeals ) and the Tribunal were justified in holding that the genuineness of the transactions had been duly established by the assessee . 37. Decision of Hon ble jurisdictional High Court in the case of CIT vs. Value Capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia Services P. Ltd., (supra) in which it was held that premium on share issue was on account of capital account transaction and does not give rise to income. Therefore, no infirmity have been pointed in the order of the Ld. CIT(A) with reference to provisions of section 56(ii)(viib) of the I.T. Act. The Ld. D.R. has also not pointed out as to which additional documents have been considered by the Ld. CIT(A) at appellate stage which were not submitted before A.O. at the assessment stage. In the absence of any substantial point to highlight as to which additional evidences have been considered at appellate stage, we do not find if there is any violation of Rule 46A of the I.T. Rules in the matter. The decisions relied upon by Ld. D.R. would not support the case of the Revenue which are distinguishable on facts and in view of the fact that no enquiry have been conducted by the A.O. in this case to dispute the documentary evidence filed by the assessee. The Ld. CIT(A) discussed all case laws relied on by A.O. The material on record clearly support the explanation of assessee that not only in assessment year under appeal but in earlier years also, M/s. STL made investment in assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on merit. The assessee similarly raised additional ground of cross objection challenging the assessment under section 153A of I.T. Act and addition on merit as again no incriminating material was found unearthed during the course of search so as to make assessment under section 153A of the I.T. Act. ITA . No . 5585 / Del ./ 2016 C . O . No . 210 / Del ./ 2017 A . Y . 2008 - 2009 in the case of M / s . ACB India Ltd . , New Delhi . 44. The Departmental Appeal as well as Cross Objection by assessee are directed against the order of the Ld. CIT(A)-27, New Delhi, dated 09.08.2016 for A.Y. 2008-2009. 45. In the Departmental Appeal, the Revenue challenged the deletion of addition of disallowance under section 14A of ₹ 18,03,188 and deleting the addition of ₹ 146,43,05,175 on account of share capital and premium under section 68 of the I.T. Act. The assessee in the cross objection, has challenged the order of the A.O. that unabated assessment can be interfered with by the A.O. while making assessment under section 153A only on the basis of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and the original assessment had already stood completed on the date of search. ITA . No . 3222 / Del ./ 2016 C . O . No . 248 / Del ./ 2016 A . Y . 2010 - 2011 in the case of M / s . Shyam Indus Power Solutions Pvt . Ltd . , New Delhi 51. The Departmental Appeal as well as Cross Objection by assessee are directed against the order of the Ld. CIT(A)-27, New Delhi, dated 11.03.2016 for A.Y. 2010-2011. 52. In the Departmental Appeal, the Revenue challenged the deletion of addition of ₹ 24,22,134 on account of VAT penalty and in deleting addition of ₹ 33.81 crores on account of unexplained cash credit under section 68 of the I.T. Act on account of share application money/share premium. 53. The assessee in the cross objection, has supported the order of Ld. CIT(A) in deleting both the addition. He also challenged the order of Ld. CIT(A) in confirming the assessment under section 153A of the I.T. Act and addition because no incriminating material was discovered pursuant to search under section 132 of the I.T. Act and the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of incriminating material found during the course of search against the assessee. The assessee pleaded that all these issues are covered by the judgment of jurisdictional High Court in the case of CIT vs. Kabul Chawla (supra). In the case of Spectrum Coal Power Ltd., (supra), we have admitted the additional ground in cross objection because it is legal in nature and arising out of the order of the authorities below. Therefore, following the same reasons for decision, we admit all the additional grounds raised in the respective cross objections in the remaining cross-objections. The issue of addition under section 68 of the I.T. Act is same as have been decided in the leading case of Spectrum Coal Power Ltd., (supra). In some of the remaining Departmental Appeals, there are other issues involved in deleing the addition under section 14A of the I.T. Act. We may note that in those cases the assessee pleaded that it did not incur any expenditure to earn exempt income. No satisfaction under section 14A of the I.T. Act as required by law has been recorded by the A.O. A.O. re-stated additions made under section 143(3). As per Ld. CIT(A) s order, part disallowances made suo moto b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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