TMI Blog2018 (5) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee or these companies have Corporate Identification Numbers is not sufficient as these are merely ministerial/administrative functions which needs to be done in any case by all the companies allotting shares but the moot question is as to the creditworthiness of these three new share holders to invest such a huge amount of ₹ 300 lacs in assessee company as well whether these share transactions raising ₹ 300 lacs from these three new shareholders at huge valuation/share premium were genuine and justified which we have wide detailed reasoning above held otherwise. Additions confirmed - Decided against assessee. - I.T.A. No.6690/Mum/2016 - - - Dated:- 11-5-2018 - SHRI C. N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Haresh P. Shah For The Revenue : Shri Rajat Mittal (DR) ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 6690/Mum/2016 , is directed against appellate order dated 08.09.2016 passed by learned Commissioner of Income Tax (Appeals)-21, Mumbai (hereinafter called the CIT(A) ), for assessment year 2012-13, the appellate pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO that these three new shareholders have invested ₹ 1 crores each in the assessee company by subscribing to the equity shares of the assessee company having face value of ₹ 10 each at a share premium of ₹ 490 each per equity share. The assessee submitted confirmation of accounts of all these three new equity shareholders namely Motivate Financial Services Pvt. Ltd, Tej Corporate Services Pvt. Ltd and Anumeeta Corporate Services Pvt. Ltd along with the copy of the relevant page of the bank statement. The AO observed that all three loan confirmations of these three new shareholders were signed by one Shri. Pradeep Kumar. The assessee could not submit any documents/ evidence to prove genuineness and creditworthiness of these three investing companies namely Motivate Financial Services Pvt. Ltd, Tej Corporate Services Pvt. Ltd and Anumeeta Corporate Services Pvt. Ltd. . The AO deputed Inspector to make field enquiries and verify the whereabouts of the shareholders . The inspector submitted report dated 20.03.2015 wherein he stated that shareholders are not available on the given addresses and whereabouts of all these three investing companies are not known. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Directors are attached by Debt Recovery Tribunal(DRT) and assessee is not in a position to pay any tax. It was requested by the assessee to decide the appeal on merits based on material on record. The learned CIT(A) observed from appeal memo enclosure that the assessee had claimed to have filed name and address, PAN number, confirmation letter , copy of ledger account and bank statements of the investing companies in respect of the investment received during the year . The learned CIT(A) also observed from appeal memo enclosures that it was also claimed by the assessee that valuation of business were done which justified the price charged for the shares . It was also claimed by the assessee that transactions were entered into with independent unrelated parties and share premium was claimed to be charged keeping in view future profits expected from this line of business. The claim was also made by the assessee in the appeal memo enclosure that issue of shares at a premium is a commercial decision which does not require justification . It was claimed in the appeal memo enclosure by the assessee that just because shares were issued at premium additions u/s 68 was not warranted. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income in the hands of the assessee of ₹ 3,00,00,000/- which was received by the assessee from these three companies namely Motivate Financial Services Pvt. Ltd, Tej Corporate Services Pvt. Ltd and Anumeeta Corporate Services Pvt. Ltd on account of share capital and share premium on the grounds that the assessee had failed to discharge its burden u/s 68 as to establishing identity, creditworthiness of these investing companies as well genuineness of the receipt of share capital and share premium transactions to the tune of ₹ 300 lacs could not be proved by the assessee and hence additions were sustained by learned CIT(A) vide appellate order dated 08-09-2016. While confirming/sustaining additions, the learned CIT(A) relied upon following decisions: a) N. Tarika Property Invest (P.) Ltd. v. CIT [2014] 51 taxmann.com 387 (SC), b)CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi), c) CIT v. Steller Investment Ltd. [1991] 192 ITR 287/59 Taxman 568 (Delhi), d) CIT v. Lovely Exports Ltd. [2008] 299 ITR 268, e)CIT v. Nova Promoters Finlease P. Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217(Delhi), f) CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court in the case of Principal CIT v. Apeak Infotech reported in (2017) 397 ITR 0148(Bom.) , decision of Hon‟ble Bombay High Court in the case of CIT v. Orchid Industries Private Limited (2017)397 ITR 0136(Bom.), decision of ITAT Mumbai in the case of Shakti Hardware Collections Private Limited v. DCIT in ITA no. 6301/Mum/2014 dated 31.01.2018 and decision of the Mumbai-Tribunal in the case of Arceli Realty Ltd. v. ITO reported in (2017) 50 CCH 0154(Mum-trib.). The Ld. DR on the other hand relied upon the appellate order of the learned CIT(A) and submitted that Inspector was specifically deputed to make field enquiries and trace the shareholders but they could not be located . It was submitted that the copy of the inspector report was given to the assessee but the assessee could not give current addresses of these parties . The learned DR submitted that the assessee could not discharge onus cast on it by virtue of Section 68 and hence additions as were sustained by learned CIT(A) are justified. The learned DR relied upon the decision of Hon‟ble Bombay High Court in the case of Konark Structural Engineering P. Ltd. v. DCIT [2018] 90 taxmann.com 56(BOM) , Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tune of ₹ 337 lacs out of which ₹ 37 lacs is invested by original promoters namely Shri. Viharilal Jhawar, Smt. Urmila Devi Jhawar and Shri Pratik Jhawar(hereinafter called original promoters ) while the assessee raised balance share capital(inclusive of share premium) to the tune of ₹ 3 crores from three new parties namely M/s Motivate Financial Services Pvt. Ltd, Tej Corporate Services Pvt. Ltd. and Anumeeta Corporate Services Pvt. Ltd each subscribing ₹ 1 crores each . These three new parties have invested ₹ 3 crores in 60000 equity share of the assessee company of the face value of ₹ 10 each at a premium of ₹ 490 per equity share. Thus, the issue price to these three new share holders was at ₹ 500 per share as against the face value of equity share of ₹ 10 each of the assessee company while the original promoters are allotted equity shares of ₹ 10 each at par and no share premium is charged from original shareholders. It is pertinent to mention that 3,60,000 equity shares of ₹ 10 each were issued to original promoters at face value of ₹ 10 per share in this year itself while new shareholders were allotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not furnish the current addresses of these new shareholders and the whereabouts of these new shareholders are also not known. The inspector who was deputed by the AO to make field enquiries reported that these three new shareholders are not available at the given addresses and their whereabouts are not known. The assessee was confronted with the adverse inspector report but the assessee could not produce current addresses of these three new shareholders. The assessee did not file any cogent material/evidences to justify chargeability of such a huge share premium from these three new shareholder vis-a-vis issuing shares at par to the original promoters within the same relevant year under consideration. The assessee did not placed reliance even on its own audited financial statements to prove and justify chargeability of huge share premium of ₹ 490/- per share as against face value of ₹ 10 per share . The assessee did not rely on its own financial statements , business model and financial indicators as are existing in its audited financial statements to justify charging of huge share premium of ₹ 490 per share as against face value of ₹ 10 per share from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders is itself not proved and the assessee was asked by the authorities to prove the same keeping in view mandate of Section 68 of the 1961 Act which assessee failed to prove . Section 68 of the Act cast obligation on the assessee where any sum is found credited in the books of an assessee maintained for any previous year , and the assessee offers no explanation about the nature and source of credit thereof or the explanation offered by the assessee is found not satisfactory in the opinion of the AO, the sum so credited may treated as income and charged to income-tax as income of the assessee of that previous year. The burden/onus is cast on the assessee and the assessee is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make additions u/s 68 of the Act as an income of the tax-payer. There are companies which are widely held companies in which public are substantially interested which comes out with an ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO , otherwise the AO shall be free to proceed against the assessee company and make additions u/s 68 of the Act as unexplained cash credit. The use of the word any sum found credited in the books‟ in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s 68 of the Act as an unexplained credit in the hands of the assessee company raising the share capital because the AO is both an investigator and adjudicator. In our considered view, merely submission of the name and address of the share subscriber, Balance Sheet of affairs of the share subscriber and bank statement of the share subscribers is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs. Now. Let us evaluate the quality of evidences furnished by the assessee before the authorities below which are placed in paper book filed before us containing 1-32 pages. The assessee has filed confirmation from these three parties which is signed by the same person namely one Mr. Pradeep Sharma in all the three cases (pb/page 1,11 and 21) which is indicative of the fact that one person controlled all these three new shareholders. The assessee did filed unsigned financial statements of M/s Motivate Financial Services Pvt. Ltd and Tej Corporate Services Pvt. Ltd. which has common auditors namely N H Vyas and Company which is again indicator of the same persons controlling these companies. The assessee did not filed financial s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies are into any organised business of certain magnitude while perusal of the financial statements typically reveals and points towards peculiarity of being typical a shell companies which instead of doing any genuine business are undertaking huge voluminous movement of money from one entity to another entity. Now, coming to the case laws relied upon by both the rival parties. First, we will deal with the case laws relied upon by the assessee. The assessee relied upon decision of ITAT-Mumbai in the case of Arceli Realty Limited(supra) but the said case is distinguishable as in this case , the tax-payer duly discharged onus caste on it per Section 68 , existence of shareholders were not in doubt and all the primary evidences were duly submitted by the tax-payer satisfying all the ingredients of Section 68 which led tribunal to rule in favour of assessee, while in the instant case before us, these three new shareholders are not traceable , their creditworthiness is not proved and genuineness of the entire share transaction was not proved as discussed in details by us in this order. Similar was the fact situation in the case of Shakti Hardware Collections Private Limited(Supra) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in the case of Rajmandir Estates Private Limited(supra) stood affirmed by Hon‟ble Supreme Court in the case of Rajmandir Estates Private Limited v. Pr. CIT reported in (2017) 77 taxmann.com 2845(SC) and SLP stood dismissed. This takes us to the decision of Hon‟ble Bombay High Court in the case of CIT v. Gagandeep Infrastructure Private Limited(supra) wherein Hon‟ble Bombay High Court considered the factual matrix of the case wherein it was observed that the taxpayer satisfied the three ingredients of Section 68 which stood proved namely identity and creditworthiness of shareholders and genuineness of the transaction and on that factual matrix decision of the tribunal was accepted wherein tribunal ruled in favour of the assessee by holding that the tax-payer did satisfied all the three ingredients of Section 68. Thus all the case laws relied upon by the assessee are distinguishable keeping in view factual matrix of the case before us. The learned DR on the other hand has rightly relied upon the decision of Hon‟ble Bombay High Court in the case of Pr. CIT v. Bikram Singh(supra) wherein Hon‟ble Bombay High Court confirmed additions as the taxpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e investing companies and genuineness of these transactions of issuing share capital of ₹ 300 lacs( inclusive of share premium )by the assessee company could also not be proved and the additions were rightly made by the AO within deeming fiction of Provisions of Section 68 of the Act. The onus was on the assessee company to bring on record the cogent evidences to prove the creditworthiness of the share subscribers and genuineness of the transaction which in the instant case the assessee is not able to prove the same as per the facts emerging from the records and material before us as set out above and in our considered view in the instant case the transactions were nominal rather than real. The creditworthiness of the shareholders is not proved because they did not had their own money as every payments made by them towards share money in favour of the assessee is preceded by deposit in the bank account of the new shareholders and the balance maintained regularly in their bank accounts was miniscule. The genuineness of the transactions is also not proved as to how such a huge sum of money got invested by the share subscribers and that too at a huge share premium of ₹ 490 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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