TMI Blog2019 (3) TMI 1131X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of transactions, cannot be disregarded when the AO does not have anything more than suspicion in his possession to doubt the transactions. Therefore, we are of the considered view that the AO was erred in bringing to tax share capital received from 5 companies u/s 68 as unexplained credit. Assessee has discharged its initial burden by filing enormous details to prove identity and genuineness of transactions. AO, having accepted the fact that identity has been proved, could not have proceeded to make addition only on the basis of charging higher premium, because charging higher premium on issue of shares is a decision between parties and the AO would not have any role to play as long as genuineness of transaction is not in doubt. - Decided against revenue - ITA NO.5241/Mum/2017 - - - Dated:- 8-2-2019 - Shri Sandeep Gosain, Judicial Member And Shri G. Manjunatha, Accountant Member For the Assessee : Shri Ajay R. Singh Shri Ravindra Poojary For the Revenue : Shri Satishchandra Rajore ORDER PER G. MANJUNATHA (ACCOUNTANT MEMBER) This appeal filed by the Revenue is directed against the order of Ld. CIT(Appeal)- 16, Mumbai, dated 30/05/2017 and it per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed a valuation report justifying charging premium of ₹ 990 per share with necessary explanations and how such valuation has been arrived at, considering the nature and type of business carried out by the assessee. 3. The AO, after considering relevant submissions of the assessee and also by observing that although the assessee has filed complete details of subscribers alongwith their financial statements, but failed to provide any justification for charging huge premium with relevant industry experience or any track record towards managing successful business. Although/ the assessee has filed a valuation report, but such valuation is based on assessee's own calculations and projects which is neither decided nor proved with corresponding previous track record. Therefore, he opined that the assessee has failed to prove the genuineness of transactions in the backdrop of charging such a huge premium on shares, accordingly came to the conclusion that the share capital received from 5 parties has not passed the test of genuinity and accordingly by following certain judicial precedents including the decision of Hon ble Supreme Court in the case of CIT vs P Mohanakala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd surplus of ₹ 8,73,33,683/ - ii. Thus the Net Worth of the company was ₹ 9,10,69,683/- iii. The company has investment of ₹ 7,50,10,000/- iv. The company has extended Loans Advances of ₹ 1,19,00,000/- v. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant's company. vi. Identity was proved by submitting PAN. Also notice u/s.133(6) were duly served. vii. The bank account of the company reflects the payments made to the appellant company for investing in shares. There is no entry in the bank accounts which reflects that the appellant company has paid back the amount of investment. viii. The company in its response to notice u/s.133(6) has confirmed of having applied for the shares at premium. ix. Hence addition made in the assessment is not correct. II. In the case of Pushpanjali Trading Pvt. Ltd.-Rs.25,00,000/-, the financial statement of the said company as on 31.03.2011 reveals as following. i. Equity capital of ₹ 20,77,500/- with high reserves and surplus of ₹ 7,71,18,698/- ii. Thus the Net Worth of the company was ₹ 7,91,96,198/- i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the appellant company for investing in shares. There is no entry in the bank accounts which reflects that the appellant company has paid back the amount of investment. vii. The company in its response to notice u/s.133(6) has confirmed of having applied for the shares at premium. viii. Hence addition made in the assessment is not correct. V In the case of Founders Properties Pvt. Ltd. ₹ 40,00,000/-, the financial statement of the said company as on 31.03.2011 reveals the following: i. Equity capital of ₹ 3,58,000/- with high reserves and surplus of ₹ 2,55,42,000/ - ii. Thus the Net Worth of the company was ₹ 2,59,00,000/- iii. The company has made investment of ₹ 2,57,00,000/- iv. The above mentioned details prove the credibility of the company and capacity to make investment in the appellant's company. V. identity was proved by submitting PAN. Also notice u/s.133(6) were duly served. Vi. The bank account of the company reflects the payments made to the appellant company for investing in shares. There is no entry in the hank accounts which reflects that the appellant company has paid back the amount Of investment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the concurrent findings recorded by the authorities below, it is apparent that none of the parties have recorded any findings to the effect that the identity of the depositors had not been established by the assessee. The case of the respondent is that the assessee has failed to explain the source of such cosh as well as creditworthiness of the deposits. It is not the case of the revenue that the subscribers are bogus./ the case of the revenue is that the source. of such cash as well as creditworthiness of the depositors has not been explained. In the circumstances, the department is free to proceed to reopen the individual assessments of the deposits named by the assessee, however, under no circumstances, can the amount of share capital be regarded as the undisclosed income of the assessee. iv. In CIT Vs. K.C. Fibres Ltd. in IT Appeal No. 701 of 2009 the Hon ble Delhi High Court held that in so far as assessing company is concerned, it is not disputed that money was paid to it towards the aforesaid share application money, by means of cheques. It is not for the assessing company to probe as to the source from where DP collected the aforesaid money. It was for the AO, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has discharged its onus in respect of the veracity of the transaction and therefore, the addition u/s.68 made by the AO in respect of the impugned investment made by TT Ltd, has been rightly deleted. ix. Appellant has also placed reliance on recent judgement of Jurisdictional Bombay High Court dtd 20.03,2017 in case of CIT vs; Gagandeep Infrastructure Pvt Ltd where in the Hon'ble court has held that: In view of the matter the three essential tests while confirming the section 68 laid down by !fit Court namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on fact it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion On the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the preamended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is far the Incometax Officer to proceed by reopening the assessment of such shareholder and assessing them t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 6.2.9, appeal of the assessee is allowed and addition of ₹ 1,50,00,000/- made by the AO u/s.68 of the Act is deleted. 5. The Ld. DR submitted that the Ld.CIT(A) was erred in deleting addition made by the AO towards share capital received from 5 subscribers for ₹ 1.50 crores u/s 68 of the Act, without appreciating the fact that the assessee failed to produce shareholders before the AO, when the AO has asked the assessee to produce them personally for verification. The Ld.DR further submitted that when the AO has brought out clear facts to the effect that the assessee has not Justified charging higher premium on issue of shares to hold that genuineness of transaction cannot be questioned merely for charging higher premium, ignoring the vital facts that the parties never attended before the AO for examination. The Ld. DR further referring to the decision of Hon'ble Supreme Court in the case of CIT vs P Mohanakala (supra) submitted that mere payment of amount by cheque through banking channels would not be enough to prove the genuineness of transactions. In this case, except furnishing certain evidence to prove identity and payment of amount by cheques, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Acquutk Remedies Pvt. ltd. ( 11'. A. No. 83 of 2016), dated-30/07/ 2018 (Bom) 23-28 7 CIT vs Orchid Industries Pvt Ltd- (2017) 397 ITR 136(Bom)(HC) 39- 7. We have heard both the parties, perused materials available on record and gone through the orders of authorities below. We have also considered case laws cited by both the parties. The AO has made addition towards share capital received from 5 companies, basically on the ground that although identity of subscribers has been proved, but the transaction between parties did not pass the test of genuineness as the assessee has not justified charging of higher premium on shares without there being any corresponding business activity to justify projections and estimates relied upon for arriving at a share premium. Except this, the AO never doubted identity of the parties. The assessee has filed complete details in respect of 5 parties including their names and addresses, PAN, income-tax returns, copies of financial statements, bank statements, letter of allotment, etc. In fact all 5 parties have replied to notices issued u/s 133(6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company from alleged bogus shareholders, whose names were 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. The Hon'ble Bombay High Court in the case of CIT v. Gagandeep Infrastructure Pvt. Ltd(supra) had an occasion to consider similar issue in the light of bogus share capital and the Hon'ble High Court by following the ratio laid down by the Hon'ble Supreme Court in the case of CIT vs Lovely Exports Pvt Ltd (supra) held that if the three essential test laid down by the Courts, viz. Genuineness of the transaction, identity and the capacity of the investors of share capital alongwith premium have been proved, then the department cannot take, view that the amount of share capital had been received from bogus shareholders. It was for the AO to proceed by reopening the assessment of such shareholders and assessing them to tax. It did not entitle the department to add money received to the assessee's income as unexplained cash credit. The Hon'ble High Court further observed that Proviso to section 68 of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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