TMI Blog2017 (12) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... x(Appeals)-21, Kolkata [in short the ld CIT(A)] in Appeal No.10762/ACIT, CC-3(1)/CIT(A)-21/Kol/2016-17 dated 08.09.2017 against the order passed by the ACIT, Central Circle-3(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 29.12.2016 for the Assessment Year 2014-15. 2. The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the addition made towards share capital u/s 68 of the Act in the sum of ₹ 10,56,00,000/- in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a private limited company engaged in the business of manufacturing of coated diplex paper board. The return of income for the Asst Year 2014-15 was filed by the assessee on 27.11.2014 disclosing total income of Rs Nil. During the year under review, the assessee had received equity share capital with share premium from the following shareholders :- Sr. No. Name of the Allottee PAN No. of Shares Allotted Face Value @ ₹ 10/- Premium @ 50/- Total (Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Statement taken on Statement Retracted on Brij Mohan Nangalia 17.8.2015 18.8.2015 Jaswant Kumar Nangalia 14.9.2015 16.9.2015 Rajesh Kumar Singhania 16.9.2015 18.9.2015 3.3. Post survey operations and during the course of assessment for the immediately preceding year i.e Asst Year 2013-14, the ld AO asked the assessee company to explain the genuineness of the share capital raised during the year. The ld AO was completely aware of the survey proceedings and the statement recorded of the above parties by the DDIT (Inv.). The assessee vide letter dated 9.11.2015 submitted the details of share allotment during the Asst Year 2013-14 and also submitted the annual accounts, bank statements, ITR acknowledgements and certificate of the source of funds of the share applicant companies. The details of share allotment made during Asst Year 2013-14 are as under :- Name of Party No. of Shares issued Share capital @ 10/- per share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee and the share applicant companies in detail and found no discrepancy with regard to the identity, creditworthiness of the parties and genuineness of the share allotment made during the year. The assessment for the Asst Year 2013-14 was completed u/s 143(3) of the Act on 26.3.2016 and no addition towards share capital was made u/s 68 of the Act by the ld AO, though the same was passed subsequent to the survey operations conducted on 29.7.2015. 3.4. Further even in Asst Year 2012-13, the assessee allotted 1522300 equity shares to the following shareholders at a premium of ₹ 90 per share :- Name of the Party Number of Shares Apex Tradexim Pvt Ltd 1,60,000 RBM Impex Pvt Ltd 30,000 Extreme Tie Up Pvt Ltd 10,000 Siddhi Suppliers Pvt Ltd 13,22,300 15,22,300 In the course of assessment proceedings for the Asst Year 2012-13, the ld AO asked the assessee to submit the supporting papers with regard to the increase in share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est to the ld AO seeking for certified copies of the said affidavits vide its letter dated 3.1.2017 filed on 5.1.2017, which were furnished to the assessee by the ld AO vide letter dated 19.1.2017 (i.e after the completion of assessment for the Asst Year 2014-15 on 29.12.2016). 3.7. The ld AO again recorded the statement of Jaswant Kumar Nangalia and Brij Mohan Nangalia (directors of share subscribing companies) on 16.12.2016 when they appeared in person in response to summons issued u/s 131 of the Act, wherein they were asked the reason behind investment in assessee company. In response, both the parties had stated that their companies invested in the assessee company keeping in mind the growth and future prospects of the company. In this regard, the assessee submitted that the profits in the immediately succeeding year FY 2014-15 was more than 200% of the profits in FY 2013-14 , being the relevant year under consideration and profits in the FY 2015-16 was more than 300% of the profits in FY 2013-14 and as such earnings per share (EPS0 had also increased. 3.8. The ld AO noted that there was no basis for issuing shares at a premium of ₹ 50/- per share. In this regard, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements recorded by the deponents were retracted, leading the entire exercise made by DDIT(Inv.) to a nullity. 4. That the Ld. CIT(A) erred in not having considered that the addition made by the AO on the basis of cash trail assumed by him was totally unfounded and baseless inasmuch as the figures shown were imaginary and not as per records and furthermore the entire transactions mentioned in the cash trail were through banking channel and no cash was deposited in the bank account and they were not related parties to the appellant. 5. That on the facts and circumstances of the case, the Ld. CIT(A) erred in upholding the addition of ₹ 10,56,00,000/- on account of share capital raised by the appellant as unexplained income u/s 68 of the Act in spite of that conditions precedent to invoke the said section have not been satisfied in the instant case. 6. That therefore, the order of the Ld. CIT(A) suffers from illegality and perversity inasmuch as he has failed to appreciate that the touchstone points on the basic issue of addition u/s 68 of the Act are identity, creditworthiness and genuineness of the transactions which are totally established and not hence the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders as stated above during the Asst Year 2013-14. The assessee company also received equity share capital at premium of ₹ 50 per share to the tune of ₹ 4.41 crores during the Asst Year 2014-15 (i.e the year under appeal) from its existing shareholders and a new shareholder. The only new shareholder from whom share capital and premium was received to the tune of ₹ 12 lacs during the year under appeal was from M/s Bansi Dealcom Pvt Ltd (PAN AAECB1132B). The details of parties from whom monies were received are as follows:- Sr. No. Name of Allottee No of Shares Allotted in A Y 2014-15 No. of Shares Allotted in A Y 2013-14 No. of Shares Allotted in A Y 2012-13 1 Apex Tradexim Pvt. Ltd. 270,00 885,000 160,000 2 Bansi Dealcom Pvt. Ltd. 20,000 3 Epson Electronics Pvt. Ltd. 3,750 50,000 4 Extreme Ti-u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the Asst Year 2013-14 to the tune of ₹ 7.98 crores was verified by the ld AO by issuing summons u/s 131 of the Act and the same has been accepted to be genuine by the ld AO and scrutiny assessment for the Asst Year 2013-14 was completed by the ld AO on 26.3.2016 which is 8 months after the date of survey. D) The equity shares were issued to the shareholders at the rate of ₹ 60 per share which includes premium of ₹ 50 per share in both Asst Years 2013-14 and 2014-15. E) The premium has been duly justified by an independent share valuation done by a Chartered Accountant in terms of Rule 11UA of the Income Tax Rules who had certified the value per share at ₹ 67.78 , whereas the assessee company had issued shares only at ₹ 60 per share ( enclosed in page 202 of the paper book which is part of the reply letter dated 19.9.2016 filed before the ld AO during the scrutiny proceedings for Asst Year 2014-15) . F) One of the main contentions of the ld AO for framing the addition towards share capital was due to the fact that in the post survey proceedings, the shareholders had given a statement u/s 131 of the Act wherein they had stated that the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the ld AO to the assessee vide his letter dated 19.1.2017 (copy enclosed in page 204 of paper book). The affidavits filed by these parties are enclosed in Pages 206 to 214 of paper book. In the said affidavits, it has been mentioned by the said directors that the statements during survey were made out of coercion and mental torture purportedly created by the office of the DDIT(Inv.). All these affidavits were filed within one day of giving the statement and had been duly sworn before the Notary Public at Bidhannagar Court. H) The Directors of the share applicant companies in response to summons issued u/s 131 of the Act had responded vide reply letter dated 16.12.2016 filed on 16.12.2016 for the Asst Year 2014-15 as under:- a) Copy of the PAN Card . b) Hard Copy of the ITR for the Asst Year 2014-15. c) Computation of Income for the year ended 31.3.2014. d) Copy of the Profit and Loss Account along with copy of Balance Sheet for the year ended 31.3.2014. e) Since the concerned director had no transactions with the assessee company in his individual capacity, he stated that there is no question of furnishing his relevant bank statement. f) Copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded that the investors had obtained due capital appreciation out of their investments made in capital of the assessee company due to consistent good performance of the assessee company. K) The source of funds were also duly explained by the share subscribing companies which are enclosed in pages 115-119 of the paper book ( Apex Tradexim Pvt Ltd) ; pages 131-133 of the paper book (RBM Impex Pvt Ltd ) ; pages 145-147 of the paper book (Extreme Tie up Pvt Ltd) ; pages 161-163 of the paper book (Shiksha Dealtrade Pvt Ltd) ; pages 175-176 of the paper book (Epson Electronics Pvt Ltd) and pages 189 190 of the paper book (Bansi Dealcom Pvt Ltd). All the shareholders had duly submitted a certificate with regard to investment in the share capital of the assessee together with their audited accounts and ITR acknowledgements and relevant pages of their bank statements to explain their sources for making investments in share capital in the assessee company. 5.3. We find that Mr Brij Mohan Nangalia and Mr Jaswant Kumar Nangalia had during the course of assessment proceedings had given a statement before the ld AO in person wherein they had accepted to the fact that their respective c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its bank account. Further none of the parties whose names are mentioned in the cash trail are in anyway related to the assessee company. Moreover, both the parties in their statements had repeatedly stated that they had signed the statements before the DDIT(Inv.) without reading the same. In any case, the statement given before the DDIT(Inv.) had already been retracted by those parties by way of an affidavit duly sworn before a registered Notary. 5.5. We also find that merely rejecting the evidences filed by the assessee does not entitle the ld AO to make an addition u/s 68 of the Act . Such outright rejection of the evidences by the ld AO is totally contrary to the law as laid down by the Hon ble Apex Court in the case of CIT vs Orissa Corporation (P) Ltd reported in 159 ITR 78 (SC) wherein it was held that :- 10. The question was again considered by this Court in Homi Jehangir Gheesta v. CIT [1981] 41 ITR 135, when this Court reiterated that it was not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established ; but where the circumstances of the rejection were such that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the instant case. In the case before the Hon ble Calcutta High Court, there is a finding to the effect that the recipient company of share capital with premium is a paper company and does not carry on any business to justify such huge premium. Whereas in the instant case, the assessee company before us (i.e Krishna Tissues P Ltd) is a running company engaged in the business of manufacturing of coated duplex paper board and is a pioneer in that industry in Eastern India. This company was incorporated on 30.3.2005 and is having a turnover of above ₹ 200 crores. The assessee company before us had duly justified the premium per share for allotment of shares based on the strength of its financials and supported by a chartered accountant s certificate in terms of Rule 11UA of the Income Tax Rules. These facts are conspicuously absent in the case before the Hon ble Calcutta High Court in the case of Rajmandir Estates P Ltd supra. We find that the three ingredients of section 68 of the Act are duly fulfilled in the instant case which is not so in the case before the Hon ble Calcutta High Court. Hence the reliance placed on the said decision by the ld DR does not advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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