TMI Blog2018 (3) TMI 1618X X X X Extracts X X X X X X X X Extracts X X X X ..... l available on record clearly justify the findings of CIT(A) in deleting the addition. The assessee also explained the reasons for issuance of shares at high premium on which A.O. in the remand report did not make any comment on the submissions of the assessee. The Ld. CIT(A), therefore, was justified in holding that A.O. was not justified in treating share capital and share premium as unexplained credits under section 68 - Decided in favour of assessee - ITA.No.6589, 6590, 6591 & 6592/Del./2013 - - - Dated:- 16-3-2018 - SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER For the Appellant : Shri Vijay Verma, CIT-D.R. For the Respondent : Shri Ashwani Taneja Shri Shanthu Jain, Advocates ORDER PER BHAVNESH SAINI, J.M. All the appeals by Revenue are directed against different Orders of the Ld. CIT(A)-XXXII, New Delhi, Dated 17th September, 2013, for the A.Ys. 2005-2006, 2006-2007, 2007- 2008 and 2008-2009, challenging the deletion of additions of ₹ 1,52,08,500, ₹ 96 lakhs, ₹ 58,10,000 and ₹ 2,46,91,500 on account of bogus share capital and share premium made by A.O. by treating them as unexplained cash credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal before the Ld. CIT(A) stating therein that assessment order is passed in violation of principles of natural justice and that impugned assessment order is framed without jurisdiction as per law, totally illegal and void abinitio. No crossexamination have been allowed to the assessee. It was submitted that addition have been made without recovery of incriminating material found during the course of search. Therefore, assessment is bad in law. The assessee also filed application under Rule 46A of I.T. Rules for admission of additional evidences. The assessee filed additional evidence in the paper book and it was submitted that A.O. issued show cause notice dated 09th December, 2011 and fixed the case for 16th December, 2011. The notice was received by the assessee in the evening of 14th December, 2011. The assessee brought this fact about late service of the notice to the A.O. vide letter dated 15th December, 2011 and requested to grant time up-to 23rd December, 2011 to file required details. However, the A.O. without considering the request of the assessee, passed the impugned assessment order on 23rd December, 2011. Thus, it was a case, where adequate opportunity of hearing wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts stated earlier were reiterated and it was submitted that assessee proved the identity and creditworthiness of the Investors. No defects have been pointed out in the documents filed by the assessee. Nothing was found during the course of search against the assessee. The A.O. in the remand report admitted that this Circle assessed two of the Investors and that there is no relation between the Investor and Shri Aseem Kumar Gupta. The assessee relied upon several decisions of Hon ble jurisdictional Delhi High Court and others in support of the contention that it has proved the conditions of Section 68 of the I.T. Act, 1961. 4.4. The Ld. CIT(A) considering the material on record in the light of remand report of the A.O. admitted the additional evidences as per Rule 46A of the I.T. Act because same were relevant and vital and goes to the route of the matter. It may be noted here that the Revenue Department did not challenge these findings of the Ld. CIT(A) in the Departmental Appeals admitting the above additional evidences. 4.5. The assessee further submitted before Ld. CIT(A) that the additions have been made in the assessment order which were not based upon any material or ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... numbers (PB39). The appellant furnished apart from the above details, the copies of share application forms, incorporation certificate, copy of PAN card, copies of bank statements and copy of company master details downloaded from the ROC website, copy of Form No. 2 along with the copy of resolution passed by the appellant company. Copies of these evidences are enclosed in the paper book and are detailed as under :- S.No. Name of the Shareholders Application for Share Certificate of Incorporation PAN/ITR Bank Statement Company Master Details Resolution Confirmation of Accounts 1. KMC Portfolio Pvt. Ltd., (earlier Prakriti Softek Pvt. P. Ltd.) 64 63 55 57-63 52 65 44 2. Chotti Leasing Finance Pvt. Ltd., 74 -- 66.67 70-73 53 75 43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation money to the income of the assessee. 4. Kamdhenu Steel Alloys Ltd. (DHC) : 248 CTR 33. 5. CIT vs. Oasis Hospitalities Pvt. Ltd., (DHC): 333 ITR 119. Income Cash credit-Share application money- Though the share applicants were not produced in spite of specific direction of the AO, assessee company has filed copies of PAN, acknowledgement of returns of the share applicants and their bank account statements of the relevant period when the cheques were cleared- Thus, primary onus was discharged by the assessee- Assessee was not confronted with the investigation carried out by the Investigation Wing or given any opportunity to cross-examine the persons whose statements were recorded by the Investigation Wing to draw adverse conclusion against the assessee-As regards discrepancies in the bank statements, these statements were provided by the shareholders and were printed on the bank stationery- Assessee was never confronted with these discrepancies by the AO-In any case, it does not follow from these discrepancies that the amount of share capital was undisclosed income of the assessee-Even the correct bank statements as claimed by the AO show that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium was justified from their perspective and when these shareholder so decide, that is the end of the matter and the business prudence of the investor is not open for questioning. Therefore, this objection of AO that assessee did not provide any rationale for issue of shares at high premium is misplaced. 1. Ld. AO has mentioned that assessee has taken accommodation entries from the entities owned or fully controlled by Shri Asseem Kumar Gupta in other assessment years. In reply, it is submitted that first there is no basis or material with Ld. A.0 to make this allegation and in any case according to Ld. A.0 himself, there is no adverse evidence for this year. Therefore, all the objections of Ld. A.0 in making the impugned addition are bad in law. 5.1. The Ld. CIT(A) considering the evidences on record, remand report of the A.O. and submissions of the assessee, deleted the addition on merit. The findings of the Ld. CIT(A) in paras 16 to 16.10 of the impugned order are reproduced as under : 16. I have gone through the facts of the case, written submissions of the appellant, remand report of the Assessing Officer and the rejoinder of the appellant. I have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly there seems to be no reason to differ with the order of the AO. 16.1. From the comments of the Assessing Officer in his remand report, it is seen that the Assessing Officer has examined the additional evidences and appeared to be satisfied with the evidence filed by the appellant. The Assessing Officer however, has observed that the status of the companies who had subscribed to the share capital and share premium is doubtful in view of the nature of documents submitted during the remand proceedings and documents found during the course of search and seizure operation in the case of Sh. Assem Kumar Gupta, who had categorically admitted that these companies were run by him to provide accommodation entries. This observation is totally based on surmises and conjecture. The Assessing Officer has not brought on record any material to substantiate this observation. Not only in the assessment proceedings, but also in the remand proceedings the Assessing Officer did not make any effort to conduct enquiries to find out the status of these companies. The Assessing Officer should have issued notices u/s 133(6) to these companies and also summoned the directors of these companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other indisputable channels; and Creditworthiness of these subscribers. 16.5. Thus, the three ingredients which the appellant company has to fulfill in accordance with the provisions of section 68 of the I.T. Act, 1961 have been fulfilled in this case. The appellant has a) established the identity of the subscribers; b) prove the genuineness of the transactions i.e whether it was transmitted through banking or other indisputable channels; and c) established the creditworthiness or the financial strength of the subscribers. I also find that the appellant furnished complete details i.e., names of the share holders, their addresses, occupation and their PANs. On the basis of the documentary evidences filed by the appellant, in my opinion, the appellant has discharged its onus in proving the transactions pertaining to share capital and share premium. 16.6. On perusal of the documentary evidences furnished by the appellant, I find that all the subscribers are corporate entities who have applied for shares in the appellant company and the shares were duly allotted to them through a resolution passed in the Meeting of Board of Directors of the company held on 31st day of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I find that the appellant has given an explanation on this issue in its written submissions. As mentioned above, these written submissions were sent to the Assessing Officer for the examination and comments. However, the Assessing Officer in his remand report did not comment on these submissions of the appellant. It has been explained by the appellant in the written submissions that the shares were offered at premium in view of the fact that the appellant company was having very good orders in hand and was having very bright future and that is why the Board of Directors passed a resolution to issue the share of the company at premium. The issuance of shares at premium is the prerogative of the issuing company in an invitation offer. There is no statutory restriction and it is something which falls within the domain of contractual terms. It is for the prospective shareholders to judge and decide as to whether the share premium was justified from their perspective and when these shareholders so decide, there the matter ends and the business prudence of the investors is not open for questioning. Therefore, I do not find this as a good ground for the Assessing Office to disbelieve tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39 of the I.T. Act, on 05th August, 2005, declaring income of ₹ 3929/- which have been processed under section 143(1) of the I.T. Act, 1961. Copy of the acknowledgment of filing of the return is filed on record. He has submitted that Ld. CIT(A) has deleted the addition on merit and assessee seeks to support the order of the Ld. CIT(A) in deleting the addition on the ground that no incriminating material has been found as a result of search because addition is made in assessment under section 153A of the Act, on the basis of the details submitted in original return of income already filed and stood completed on the date of the search. No assessment was pending on the date of the search. He has submitted that in case where some inter connected grounds are subject matter of appeal, the other ground not subject matter of the appeal, can be considered at the instance of the respondent. He has relied upon the following decisions in support of his contention. 6.2. Decision of jurisdictional Delhi High Court in the case of CIT vs. Edward Keventer (Successors) P. Ltd., (1980) 123 ITR 200 in which, in para-9, it was held as under : 9. If a party appeals, he is the party who co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not necessary for the assessee to prefer an appeal. The position in law is well-settled that a cross objection, for all intents and purposes, would amount to an appeal and the cross objector would have the same rights which an appellant has before the Tribunal. 18. Section 253 of the Act provides for appeal to the Tribunal. Under sub-section (1), an assessee is granted right to file an appeal; under sub-section (2), the Commissioner is granted a right to file appeal by issuing necessary direction to the Assessing Officer; sub-section (3) prescribes the period of limitation within which an appeal could be preferred. Section 253(4) of the Act lays down that either the Assessing Officer or the assessee, on receipt of notice that an appeal against the order of Commissioner (Appeals) has been preferred under sub-section (1) or subsection (2) by the other party, may, notwithstanding that no appeal had been filed against such an order or any part thereof, within 30 days of the notice, file a memorandum of cross objections verified in the prescribed manner and such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within the period of limitation presc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot exhaustive and the powers of the Appellate Tribunal. The rules are merely procedural in character and do not, in any way, circumscribe or control the power of the Tribunal under section 33(4) of the Act. It is significant to note that in the case before the Supreme Court, the department which was the respondent sought to raise a new plea in defence of the order appealed against. Earlier, in New India Life Assurance Co. Ltd. v. CIT [1957] 31 ITR 844, the Bombay High Court while pointing out the difference between an appellant and respondent before the appellate court, observed at page 55 that the respondent may support the decision of the trial court, not only on the ground contained in the judgment of the trial court, but on any other ground . Later, in the case of B.R. Bamasi v. CIT [1972] 83 ITR 223, the Bombay High Court which was dealing with the case of right of the respondent to defend the order appealed against held that the respondent would be entitled to raise a new ground in defence of the order appealed against, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not only be a defence to the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and that a person indulging in such activities can hardly be accepted 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed against any disallowance or addition sustained by CIT(A) which is not under challenge at behest of Appellant, only remedy available with Respondent is to either file separate appeal or agitate issue by way of cross objections in appeal filed by Appellant impugning disallowance or addition sustained. 7.1. The Ld. D.R. also relied upon the decision of the jurisdictional Delhi High Court in the case of ACIT vs. Vipul Motors (P) Ltd., Order dated 08.08.2013 in ITA.Nos.2675 2676/Del./2010) in which it was held that during the pendency of proceeding under section 153A of the Act, the A.O. is not empowered to issue notice under section 148 of the Act . The Ld. D.R. also relied upon the decision of Hon ble Supreme Court in the case of CIT vs. Mukundray K. Shah (2007) 290 ITR 433 (SC) in which it was held as under : Diary seized during search revealing that company MKSEPL in which assessee had substantial interest and which had accumulated profits advanced moneys to two closely related partnership firms in which also assessee was a partner which amounts were withdrawn by assessee and utilised for purchase of RBI bonds, the amounts were advanced by MKSEPL for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there was no incriminating material qua each of those assessment years. Similarly, the Hon ble Supreme Court in the case of CIT vs. Sinhgad Technical Education Society (supra) held that where, as per provisions of Section 153C of the Act, incriminating material which was seized had to be pertain to assessment year in question and documents which were seized did not establish any co-relation documentwise with four assessment years, then order passed for initiation of proceeding under section 153C should be quashed. These legal propositions have not been disputed by the Ld. D.R. It is, therefore, clear from the above discussion in the light of these case laws that there should be recovery of incriminating material (unearthed) during the course of search, then only, the A.O. can interfere with the completed assessments. However, in the present case, no incriminating material was unearthed during the course of search in the case of the assessee to make the addition under section 68 of the I.T. Act against the assessee. The assessee filed original return of income prior to the search which was completed. The assessee disclosed receipts of share capital and share premium in the orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions relied upon by the Ld. D.R. would not support the case of the Revenue on this proposition. We, therefore, permit the assessee to raise his point in Petition under Rule-27 of the Appellate Tribunal Rules. The application of the assessee under Rule-27 of the Appellate Tribunal Rules is accordingly allowed. 8.1. Considering the above discussion, it is, clear that during the course of search, no incriminating material was found so as to make any addition under section 153A of the Act, on account of unexplained share capital/premium which was already disclosed in the original return of income. Therefore, the decisions of jurisdictional Delhi High Court in the case of Kabul Chawla (supra), squarely applicable to the facts and circumstances of the case because no assessment was pending on the date of search and addition is made merely on the basis of book entries already disclosed to the Revenue Department. Therefore, the Ld. CIT(A) should have deleted the addition on this ground itself. The order of the Ld. CIT(A), to that extent, is set aside and quashed. The addition would stand deleted because no incriminating material was found during the course of search to make any ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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; A.O. failed to carry his suspicion to logical conclusion by further investigation and therefore addition under s.68 was not sustainable. 10.3. Decision of the Hon ble jurisdictional Delhi High Court in the case of CIT vs. Expo Globe India Ltd., (2014) 361 ITR 147 (Del.) (HC) in which it was held as under : The order of the CIT (A), would reveal that even though the Assessing Officer had initially concluded on the basis of the materials made available at that stage that service of the entry providers had been utilized to bring in capital, after remand the CIT (A) elaborately took into account considerable material furnished by the assessee. These included income tax returns, balance sheets, ROC particulars and bank account statements. On the basis of these, the CIT(A) held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not follow from these discrepancies that the amount of share capital was undisclosed income of the assessee - Even the correct bank statements as claimed by the AO show that the assessee has received cheques from the shareholders - Though source of cash deposits in the bank accounts of some shareholders is questionable, AO has not further probed the matter - Therefore, remedy lies in reopening the case of these investors and addition cannot be made in the hands of the assessee. 11. We have considered the rival contentions. The A.O. directed the assessee to furnish copy of the ITR and related Bank Statements of new shareholders with their names and addresses at the assessment stage. The A.O. however, noted that since assessee did not produce these documents, he made addition under section 68 of the I.T. Act. The assessee filed application under Rule 46A of I.T. Rules, before Ld. CIT(A) in which it was submitted that A.O. issued show-cause notice dated 09th December, 2011 and case was fixed for hearing on 16th December, 2011. The assessee received notice in the evening on 14th December, 2011 and vide letter dated 15th December, 2011 requested the A.O. to grant time up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the assessee so as to make the above addition under section 68 of the I.T. Act. The A.O. has not brought on record any material to substantiate his observations in the remand report. The A.O. did not make any effort to conduct any enquiry directly from these Investors. The A.O. did not issue notices under section 133(6) or summon under section 131 against these Investors for recording their statements. The A.O. was swayed by the fact that statement of Shri Aseem Kumar Gupta was recorded by Investigation Wing to provide accommodation entries. However, such fact is contradicted by the A.O. himself by noting in the remand report that his Circle has assessed two of the Investors under section 153A of the Act and that Investors are not apparently related to Shri Aseem Kumar Gupta. Therefore, there was nothing on record to support the finding of fact recorded by the A.O. Evidences and material available on record clearly justify the findings of Ld. CIT(A) in deleting the addition. The assessee also explained the reasons for issuance of shares at high premium on which A.O. in the remand report did not make any comment on the submissions of the assessee. The Ld. CIT(A), therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f amount invested through banking channel, copy of resolution and copies of the balance sheet. The AO failed to conduct any scrutiny of the document, the departmental appeal was accordingly dismissed. 11.4. Decision of Hon ble Supreme Court in the case of Earth Metal Electric Pvt. Ltd., vs. CIT, Order Dated 30th July, 2010 in SLP.No.21073 of 1999 in which it was held as under : We have examined the position, we find that the shareholders are genuine parties. They are not bogus and fictitious therefore, the impugned order is set aside. 11.5. Decision of Hon ble Madhya Pradesh High Court in the case of CIT vs. Peoples General Hospital Ltd., (2013) 356 ITR 65 in which it was held as under : 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. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income-tax Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified. 11.7. Decision of the Hon ble jurisdictional Delhi 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 assesseecompany 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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