TMI Blog2017 (10) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, in our considered view, the ld. CIT(A) has rightly deleted the addition. Disallowance of expenses - assessee has not started the business activity, hence expenses have to be capitalized - HELD THAT:- CIT(A) held that the financial expenses, salary expenses, water & electricity expenses, repairs & maintenance expenses were in relation to building which was given on rent. Thus these expenses are direct bearing to the income of the year credited in P & L A/c. It is also noted that during search no incriminating document was found to show the suppression of income or inflation of expenses. In view of the above facts and circumstances of the case, we concur with the findings of the ld. CIT(A) on the issue in question. Thus the solitary ground of the Revenue is dismissed. Addition u/s 68 - non providing opportunity of cross examination of the materials gathered and statement recorded behind the assessee - HELD THAT:- As during the course of hearing of appeal before the ld. CIT(A), the assessee had requested for cross examination of Shri Sanbtosh Choubey Shri Ajit Sharma, Shri RajeshKumar Singh and other persons which was denied by the ld. CIT(A). The ITAT Coordinate Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.384/JP/2017 for the Assessment Year 2009-10. Hence, the appeal of the assessee in ITA No. 384/JP/2017 is dismissed being not pressed. 4.1 The solitary ground of the Revenue in ITA No. 481/JP/2017 for the Assessment Year 2009-10 is as under:- 1. Whether on the facts and in the circumstances of the case the ld. CIT(A) was right in deleting the addition of ₹ 3,03,00,000/- made u/s 56(1) of the Act ignoring the fact that assets of the assessee company don t commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee. 4.2 Apropos solitary ground of the Revenue, the AO made the addition of ₹ 3,03,00,000/- u/s 56(1) of the Act in the hands of the assessee company by observing as under:- 16. Having dealt with each of the contention of the assessee and having found the same to be untenable it is important to place on record certain aspects which have a bearing on the issue at hand. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussed above, addition of ₹ 3,03,00,000/- made on a/c of bogus share capital in the hands of M/s. Motisons Buildtech Pvt. Ltd is hereby deleted. Assessee gets relief in Gr No. 2 3. Para 2.1.4.7 reads of ld. CIT(A) s order as under:- 2.1.4.7 In view of the above findings, it is also seen that this cash /DD was deposited at 4th Channel of source/ stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter, it is also seen that the assessee has not controverted the facts narrated by Shri Santosh Choube, Shri Rajesh Kr Singh and Shri Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts as evidences (both documentary oral) gathered during search and Post-search operation, addition to the extent of ₹ 8,71,97,727/- is sustained and balance is deleted, details given as under:- It is pertinent to mention here that M/s. Mayukh Vinimay Pvt.Ltd received share application of ₹ 10,54,95,000/- in AY 2009-10 which was added a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence Companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves. f) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L656-ITAT-Mum (PB pg 354-359 of case laws) observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any legislated law of the land. The amendment has been brought in the Income Tax Act under the head Income from other sources by inserting Clause (viib) to Sec. 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A.Y. 2013-14. In so far as the year under consideration is concerned, the transaction has to be considered in the light of the provisions of Sec. 68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos, the bank details and the confirmatory letters. 11.1. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee . Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accompany, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income Tax, under the head income from other sources . This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent Assessment years. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. This suggests that premium in excess of fair market value was not an income but is to be treated as income due to amended provision. Before the amendment, consideration received as premium was not income. The legislature in its wisdom required the share premium in excess of fair market value to be income from Assessment year 2013-14 and not the entire premium to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undue hardship and for that reason parliament specifically chose to make the proviso effective from June 1, 2002. Where a benefit is conferred by a legislation, the rule against a retrospective construction is different. In a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators objects, then presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provision as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. The Hon ble Apex Court further noticed that CBDT circular mentioned that proviso is applicable from 1.6.2002. In respect of 56(2)(vii b), CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for assessment year 2013-14 onward. Hence Share premium even if in excess of Fair market value is not taxable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t construction and any ambiguity must be resolved against imposition of the tax. In Billings V U.S 232 U.S.261 at page 265, 34 S.Ct 421 (1914), the Supreme Court clearly acknowledged this basic and long standing rule of statutory construction. Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favour of citizen... If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sprit of the law the case might otherwise appear to be As observed in Partington V Attomey General LR4HL100. Since for the year under consideration there was no provision in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the same cannot be taxed. The reliance is also placed on following cases: - i) The Hon ble Bombay High Court in the case of Cadell Wvg. Mills Co.(p) Ltd. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the test to interpret a taxing statue which reads as under: The intention of the legislature is a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not flow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spent and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter. Hon ble Bombay High Court in this case (Vodafone case) observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied section 56(1) of ITax Act to make the addition. The assessee submitted detailed reply before ld CIT(A) vide letter dated 12/07/2016 (copy at PB pg 318-373). Ld CIT(A) when satisfied that the addition u/s 56(1) can t be made, he tried to sustain the addition by applying the provisions of section 68 of Income Tax Act. He issued a show cause notice vide letter dated 09/03/2017 (Copy at PB pg 374-420). The assessee submitted detailed reply on the show cause notice of ld CIT(A) vide letter dated 24-03-2017 28/03/2017 alongwith documents (Copy at Pb pg 421-510). To support that shareholders were genuine and creditworthiness is proved, the assessee has filed all details, in respect of incorporation/existence of investors and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application. l) During the course of assessment proceedings the assessee submitted the following documents to prove their identity of shareholders, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir creditworthiness is duly proved. iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the assessee and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found from the possession of the assessee company or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books of account or document was found showing payment of cash to these investor companies against receipt of cheques from these companies against allotment of shares. Therefore the genu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 201314 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced for removal of doubts or that it is declaratory . Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be the assessee. The AO also noted that the Group is involved in introducing large share capital on high premium in accounts of various group companies through the Kolkata based companies. The AO has mentioned these details at page 3 and 4 of his assessment order. The AO further noted that the receipt of share capital is ₹ 3,03,000/- and the premium is to the tune of ₹ 2,99,97,000/- during the year under consideration which is not only abnormal but also appeared to be part of a well planned exercise of tax evasion. Accordingly, the AO issued the show cause notice dated 6-022015 to the assessee company requiring the assessee to show cause as to why the amount of ₹ 3,03,00,000/- should not be treated as income of the assessee u/s 56(1) of the Act. The assessee submitted the reply before the AO who rejected the assessee's contention and made the addition of ₹ 3,03,00,000/- u/s 56(1) of the Act in the hands of the assessee company. In first appeal, the ld. CIT(A) has deleted the addition of ₹ 3,03,00,000/- made by the AO. The relevant portion of ld. CIT(A) s order from para 2.1.4.2 to 2.1.47 is reproduced hereunder:- 2.1.4.2 Final observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. (iv) CIT v/s Navodaya Castle Pvt. Ltd 367 ITR 306 (Delhi High Court): AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. (v) CIT V/s MAF Academy Pvt. Ltd 206 (2014) DLT 277 (DB)(Del)/ 361 ITR 0285 (Del) : AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of Shareholder Company. Further, the summons u/s section 131 of I.tax Act were sent to the shareholders which were received back unserved. (vi) Rajmandir Estates Pvt. Ltd 70 Taxmann.com 124: Relates to order passed by CIT u/s 263 of ncome Tax Act, 1961. (vii) CIT v/s Sumati Dayal (1995) 80 Taxman 89 (SC) CIT V/s Durga Prasad More [1971] 82 ITR 540 (SC) : No application as ample evidence have been filed by assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in all these 15 companies therefore, for convenience, I am dealing the issue in compositze manner first on the basis of facts and then on legality also. The followings facts issues emerge from the findings of AO and submissions submitted by ld AR. a) Issue of according opportunity of cross examination of Sh Santosh Choube, Sh Ajit Sharma Sh Rajesh Kumar Singh to the assessee. b) Charging of Premium on shares and taxability by applying the provisions of section 56(1) of Income Tax Act. c) Addition by applying the provisions of section 68 of Income Tax Act 2.1.4.2 (a) According opportunity to cross examine Sh Santosh Choube, Sh Ajit Sharma Sh Rajesh Kumar Singh But before asking for an opportunity for cross examining them, assessees has to disprove the correctness of their assertions as emanating from the statements recorded of Sh Santosh Choube, Sh Ajit Sharma and Sh Rajesh Kumar Singh. Corroborative evidences in form of bank statements obtained in this regard and their analysis further proves the theory of cash deposit prior to transfer of share application money. Vide show cause letter issued , assessee has already been confronted with the oral evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduce section 56(1) of the Act here as under: Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources , if it is not chargeable to incometax under any of the heads specified in section 14, items A to E. Here, I find that the money so received against the share capital and share premium is capital receipt and not revenue receipt, therefore the same cannot be taxed in the hands of assessee companies under section 56(1) of Income Tax Act, 1961. The CBDT vide circular/instruction No.2 dated 29.01.2015 has stated as under [371 ITR 6(st)]. In reference to the above cited subject, I am directed to draw your attention to decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd V UOI for the Assessment year 2009-10 (WP No.871 of 2014) wherein the court has held interalia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Rules 1962 can only be taxed by applying provisions of section 56(viib) of the Act. The value of shares of the assessee company computed as per manner method of this rules is as under: The assessee has further clarified that the market value of land at SB-110, Tonk Road Jaipur, is taken on the basis of value of adjacent land at SB-111 purchased during the year under consideration (just adjoining to land at SB-110) and area of both the lands are almost same. It was further stated by the assessee that in option two the appreciation in value of assets has been taken only in respect to land as for this the direct evidence is available. The value of other assets goodwill is not taken in above computations. However while deciding the value of shares the same should also be taken into consideration. Therefore, I found the explanation of assessee in case of Motisons Global Pvt Ltd that the issue price of the shares in AY 2013-14 is in accordance with the value of shares as computed as per rule 11UA of Income Tax Rules 1962 and it is acceptable. Accordingly, no addition can be made in AY 2013-14 also as income of M/s Motisons Global Pvt Ltd as per provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required by law but still the assessee proved source of funds in the hands of shareholder company. The amended section even does not require to prove source of funds in the hands of 3rd or 4th stage. I have also perused the case records. In this regard, I find that the AO has issued notice u/s 133(6) of the Act to inquiry the identity, creditworthiness and genuineness of transactions. AO has issued total 94 notices for share capital of ₹ 35,29,50,000/-. On perusal of case records, it is seen that compliance was made for 41 notices issued u/s 133(6) of the Act which involvesd share capital amounting to total of ₹ 15,59,00,000/-. The status of notices issued u/s 133(6) of Income Tax Act can be seen from chart given below: 2.1.4.3 Further, in response to show cause notice issued by me u/s 250 (4) of the Act, is submitted that the assessee has also carried out search over the ROC site and found that charge has been registered over the assets of some of the investor companies under Companies Act in favour of leading banks like SBI etc for crores of rupees which proves that the shareholder companies are not shell company-rather creating of charge proves credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibhumi Dealers Pvt Ltd 25,00,000 Rainbow Buildcon Pvt Ltd (AY 2009-10) Puja Tie Up Pvt Ltd 40,00,000 Rainbow Buildcon Pvt Ltd (AY 2009-10) Narottama Trade Yyapaar Pvt Ltd 15,00,000 Total 2,70,00,000 Further six share applicant companies were assessed by the same AO for AY 2013-14 wherein genuineness of these companies were not doubted. Further, out of these six companies, the assessment of one M/s Mayukha Vinimay Pvt Ltd for AY 2009-10 was made in same circle i.e. Central Circle-2, Jaipur wherein addition of ₹ 10,54,95,000/- was made on account of its share capital by passing order u/s 143(3) r.w.s.263 of the Act. In other Companies cases, assessment for AY 200910 was made u/s 148 of the Act by their respective jurisdictional AO wherein their funds/ share capital was assessed. The share capital received from these companies are as under: S. No. Name of Company AY Detail of Share Capital issued N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mayukh Vinimay Pvt. Ltd 1,55,00,000 Regent Barter Pvt. Ltd 1,79,00,000 Regent Dealers Pvt. Ltd 1,40,00,000 Rose Suppliers Pvt. Ltd 35,00,000 Total 7,78,00,000 9 Motisons Buildtech Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 1,80,00,000 Evershine Suppliers Pvt. Ltd 28,00,000 Regent Barter Pvt. Ltd 1,60,27,500 Total 3,68,27,500 14 Shivansh Buildcon Pvt. Ltd 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DB ITA No 24/2014 vide order dated 28/09/2016. Hon ble ITAT Jaipur Bench in this case has made the following findings : ..Before, we proceed to decide the issue on merits, we would like to discuss the scheme of the Act and precedents on the issue involved in this appeal as under: In cases where share application money is found recorded in the books of an assessee which may represent credit in the books and the share applicant is identified, that amount cannot be added in the assessee's hands u/s 68 of the Act. The Hon'ble Rajasthan High Court has repeatedly reiterated the above legal position. These cases are: (i) CIT vs. Shree Barkha Synthetics Ltd. 182 CTR 175 (Raj.) (ii) Barkha Synthetics Ltd. vs. ACIT (2005), 197 CTR 432 (Raj).13 In coming to the above conclusion, the Hon'ble Jurisdictional High Court has considered at length the relevant decisions on the issue like CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 = 251 ITR 263 (SC) which has confirmed the decision of Hon'ble Delhi High Court reported in (1992) 192 ITR 287. The Hon'ble Court has gone to the extent of stating that even if it be assumed that the subscriber to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company. 11. Ultimately, the question as to whether the source of investment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:- 13. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. 10. In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the CIT(A) and Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or that it had been based on no reasoning, or based on absurd reasoning to the extent that no prudent man of average judicial capacity could ever reach to such conclusion, or that it had been found against any provision of law, then a case for formulation of substantial question of law on such finding can be said to have been made out. 11. In our view, no such error could be noticed by us in the impugned order because as observed supra, the Tribunal did go into the details of explanation offered by assessee and then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o material change in the facts of the appellant Companies with the facts of the above cited cases decided by Hon ble Rajasthan High Court as the appellant Companies have submitted documents such as (i) Share application containing the name/address/PAN of party, (ii) detail of payment received etc. (iii) Copy of board resolution, (iv) Copy of PAN card of party, (v) Copy of bank statement showing the entry of payment made to assessee,(vi) Declaration of source of funds with party (vii) Copy of Ack. of ITR and Computation, (viii) Copy of audit report and audited balance sheet along with annexure proved all the ingredients of section 68 of the Act. Apart from this, it is also to be noted here that six companies involving share capital of ₹ 58,70,57,300/- to appellant companies were assessed by same AO for AY 2013-14 and in other cases as per the facts available from records non of the notices issued u/s 133(6) of the Act remained unserved and many of them have also made compliance to the notices issued u/s 133(6) of the Act. Further from search report of ROC, it is also seen that some of the investor companies have charge registered under Companies Act in favour of leading banks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and Durga Enterprises Motisons Entertainment P Ltd 2012-2013 16,00,000 Regent Dealers P Ltd Shyam Fashion Motisons Entertainment P Ltd 2012-2013 10,00,000 Regent Dealers P Ltd Durga Enterprises Motisons Entertainment P Ltd 2012-2013 8,00,000 Regent Dealers P Ltd Durga Enterprises and Shyam Fashion Motisons Entertainment P Ltd 2012-2013 29,00,000 Alliance Trade Com P Ltd Swastik Traders and Global Securities Total 1,41,50,000 Motisons Global P Ltd 2012-2013 17,00,000 Rose Suppliers P Ltd Durga Enterprises and Shyam Fashion Motisons Global P Ltd 2012-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,00,000 Regent Dealers P Ltd Nibu Nagi Motisons Global P Ltd 2012-2013 18,00,000 Regent Dealers P Ltd Durga Enterprises Motisons Global P Ltd 2012-2013 9,00,000 Regent Dealers P Ltd Kevihulie Sinotsu Motisons Global Private Limited 2012-2013 28,50,000 Regent Dealers P Ltd Durga Enterprises and Shyam Fashion Motisons Global Private Limited 2012-2013 18,50,000 Regent Dealers P Ltd Shyam Fashion Motisons Global Private Limited 2012-2013 22,00,000 Alliance Tradecom P Ltd PNB, Axis Bank Siliguri, Swastik Traders an Global Securities Motisons Global Private Limited 2012-2013 10,00,000 Alliance Tradecom P Ltd Swastik Traders Motisons Glo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enterprises, Swastik and Shyam Fash Total 3,50,000 Grand Total 8,71,97,727 2.1.4.7 In view of above findings, it is also seen that this cash/DD was deposited at 4 Channel of source/stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter , it is also seen that assessee has not controverted the facts narrated by Sh Santosh Choube, Sh Rajesh Kr Singh and Sh Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts and evidences( both documentary oral) gathered during search post-search operation , addition to the extent of ₹ 8,71,97,727/= is sustained and balance is deleted, details given as under: Name of Appellant Company ITA No AY Addition Made by AO Addition Sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------- 2,00,00,000 Shivansh Buildcon Pvt. Ltd 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Total additions 94,14,07,100 8,71,97,727 85,42,09,373 It is pertinent to mention here that M/s Mayukh Vinimay Pvt Ltd received share application of ₹ 10,54,95,000/- in AY 2009-10 which was added as income of M/s Mayukh Vinimay Pvt Ltd in AY 2009-10. Thereafter in subsequent years the part of the funds owned by this company was invested in the companies under appeal as under: S.No Name of Company (under your appeal) Assessment Year Amount 1 Motisons Global Pvt Ltd 2012-13 6,93,49,800 2. Motisons Global Pvt Ltd 2013-14 2,24,50,000 3 Motisons Entertainment (India) Pvt Ltd 2012-13 1,55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on shares has been included by provision of sec 56(2)(viiib)of the Act w.e.f. 01-042014 which is reproduced as under: 56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income tax under the head Income from other sources namely:- (i) dividends (ia) to (viia) (viib) Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: This has also been included in the definition of income u/s 2(24)of the Act w.e.f. 01-04-2013. The relevant portion reads as under:- (xvi) any consideration received for issue of shares as exceeds the fair market value of the share referred to in clause (viib) of sub-section (2) of Section 56;] To tax the income under the Act, it must come under the definition of income as provided u/s 2(24) of the I.T. Act, 1961. There were amendments in sec 2(24) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions cannot be made applicable prior to that A.Y. 2013-14. It is pertinent to note that the ld. CIT(A) had issued the show cause notice to the assessee to tax the share capital under section 68 of the I.T. Act, 1961 as against section 56(1) applied by the AO. However, he had not made any addition under section 68 of the Act. His observation on this issue is in para 2.1.4.6 which reads as under:- 2.1.4.6 Therefore, in view of the findings of Hon'ble Jurisdictional High Court, the identity, creditworthiness and genuineness of transaction of these companies cannot be held as doubtful and addition by applying the provisions of sec 68 of the Act cannot be upheld. The Revenue has not preferred appeal against this findings the ld. CIT(A). It is also pertinent to note that AO has made whole addition by invoking section 56 of the Act, hence the amended provision w.e.f. 0104-2013 are applicable only on shares premium received on fair market value. In view of these facts, circumstances of the case and the case laws relied on by the ld.AR of the assessee (supra), it is clear that share premium received cannot be considered as income for the year under consideration by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incidental expenses of the company which are not attributable to a particular activity/ project of the company, thus the same are duly allowable out of income of the year. The financial expenses, salary expenses, water electricity expenses, Repair Maintenance expenses etc. were in relation of building which was given on rent inclusive of other amenities such as electricity water, repair maintenance, guard facility etc. Thus these expenses have direct bearing from income of the year credited in P L a/c and therefore, same is duly allowable out of the income of the year. It is also a fact that during the search operation, no incriminating document suggesting suppression of income or inflation of incidental expenses, were found from the possession of the assessee. The rental income so disclosed by the assessee for the year are composit rent, accordingly assessee has claimed incidental expenses in relation to that building /property. For claiming of such composite rents for the aforementioned AYs, assessee has debited the same in its P L A/c to which AO has not pointed out any mistake/ defect. It is also a fact that AO has not properly examined the P L A/c Balance Sheet for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year credited in P L a/c and therefore the same is duly allowable out of income of the year. f) The Administrative expenses debited in P L was in relation to income earned during the year or other day to day incidental expenses of the company. Since the expenses so claimed were incidental to the income earned during the year or day to day incidental expenses of the company which are not attributable to a particular activity/project of the company, thus the same are duly allowable out of income of the year. g) The fact of case law relied by ld. AO i.e. Tuticorin Alkali Chemcials and Fertilizers Pvt Ltd 227 ITR 172 (SC)/1997 is totally difference from case of the assessee. In the cited case for the accounting year ending on June 30, 1981 (assessment year 1982-83), the assessee received a total amount of interest of ₹ 2,92,440. In its return of income filed on June 22, 1982, the company disclosed the said sum of ₹ 2,92,440 as income from other sources . It also disclosed business loss of ₹ 3,21,802. After setting off the interest income against business loss, the company claimed the benefit of carry forward of net loss of ₹ 29,360. But i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vershine Suppliers Private Limited Swastik Traders 25.07.2011 2000000 Alliance Tradecom Private Limited Swastik Traders and Global Securities 26.07.2011 1700000 Alliance Tradecom Private Limited Swastik Traders 29.07.2011 3000000 Alliance Tradecom Private Limited Swastik Traders Total 8200000 b) confirming the addition of ₹ 82,00,000/- by holding that the assessee could not explain the deposit of cash/DD in the accounts of other parties/persons at 4th Channel of source/stage and further erred in not providing opportunity of cross examination of Shri Santosh Choube, Shri Ajit Sharma and Sh Rajesh Kumar Singh and other persons; and c) confirming the addition of ₹ 82,00,000/- more so when he has categorically held that the addition made by ld. AO u/s 56(1) of Income Tax Act, 1961 is not sustainable and the identity, creditworthiness and genuineness of transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,27,500/- was introduced into the books of the assessee company in the form of share premium attached to the share capital. As discussion above, the premium of ₹ 1240/- per share was not justified at all on the basis of absolutely no assets commensurate to premium charged, no business activity, no income, no net worth nor any promise for creation of this much assets, business activity income or net worth in the future. Accordingly, the charging and receipt of share premium and share capital to the tune of ₹ 3,68,27,500/- is held to be income of the assessee company in the nature of income envisaged u/s 56(1) of the Income Tax Act, 1961. The same is added back to the total income of the assessee. 7.2 In first appeal, the ld. CIT(A) has deleted the addition of ₹ 2,86,27,500/- out of addition of ₹ 3,68,27,500 made by the AO u/s 56(1) of the Act by observing at pages 105 106 of his order as under:- 3.2.2 I have considered assessee's submission and carefully gone through assessment order. I have also take a note of factual matrix of the case as well as applicable case laws relied upon. I have already given a detailed findings in para 2.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,30,00,000 Bholenath Real Estates Pvt. Ltd. 770/14-15 2009-10 2,90,00,000 - 2,90,00,000 Rainbow Buildcon Pvt. Ltd 757/14-15 2009-10 2,00,00,000 - 2,00,00,000 Shivansh Buildcon Pvt. Ltd 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 94,14,07,100 8,71,97,727 85,42,09,373 In view of the above facts and circumstances of the case as discussed above, addition of ₹ 2,86,27,500/- made on a/c of bogus share capital in the hands of M/s. Motisons Buildtech Pvt. Ltd is hereby deleted. Assessee gets relief in Gr No. 2 3. 7.3 During the course of hearing, the ld. DR relied on the order of the AO and submitted that the order of the ld. CIT(A) should be set aside on the issue in question. 7.4 On the other hand, the ld.AR of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts as evidences (both documentary oral) gathered during search and Post-search operation, addition to the extent of ₹ 8,71,97,727/- is sustained and balance is deleted, details given as under:- Name of Appellant Company ITA No. A.Y. Addition made by AO Addition sustained Addition deleted/Relief given Motisons Global Pvt Ltd 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Motisons Global Pvt Ltd 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Motisons Global Pvt Ltd 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Motisons Global Pvt Ltd 755/14-15 2013-14 4,41,00,000 50,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the ld AO to prove identity, creditworthiness and genuineness of share capital and ld AO satisfied that addition under section 68 cannot be made. The ld AO made the addition of ₹ 3,68,27,500/- on account of share capital received by the assessee during this year by applying the provisions of section 56(1) of Income Tax Act on the ground that the assets of the assessee company don t commensurate to premium charged and any business activity was not performed or any business income has not been shown by the assessee. However, the ld CIT(A) issued show cause notice to assessee to tax the share capital under section 68 of ITax Act as against 56(1) applied by ld AO. The assessee submitted detailed reply before ld CIT(A) vide letter dated 12/07/2016 (copy at PB pg 280-351). The ld CIT(A) has not confirmed/sustained the addition made by ld AO by applying the provisions of section 56(1) of Income Tax Act, on the basis of his detailed findings at page 41-53 of his order. Ld CIT(A) when satisfied that the addition u/s 56(1) can t be made, he tried to sustain the addition by applying the provisions of section 68 of Income Tax Act. He issued a show cause notice vide letter date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d its onus laid down under section 68 of Income Tax Act. The ld AO being satisfied with the submission of assessee on section 68, has not applied section 68 of Income Tax Act for the addition. The provisions of section 68 specify the authority mentioned as Assessing Officer . For the sake of clarity we are reproducing the provisions of section 68 of I.Tax Act as stood for AY 2012-13 as under:- Where any sum is found credited in the book of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Therefore, addition under section 68 of ITax Act can be made only he the explanation of the assessee is not satisfactory in the opinion of Assessing Officer . The Assessing Officer has been defined u/s 2(7A) of Income Tax act as under:- (7A) Assessing Officer means the Assistant Commissioner 31[or Deputy Commissioner] 32[or Assistant Director] 31[or Deputy Director] or the Income-tax Officer who is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment of AY 2013-14 was completed by the same AO of all the above companies who completed the assessment of the assessee in the same month. The copies of assessment order are at PB pg 243 to 245, 259 to 261 and 277 to 279. It is further relevant to mention here that the department also carried out the survey operations over these parties which also prove the existence of these parties. ii) Creditworthiness:- All the companies are Income Tax assessee and duly filing the Income Tax return and Balance sheets. There is sufficient source of funds with all the companies to investment share capital/share application in the assessee company. The assessee submitted the copies of bank account/declaration of source of funds with them of investor companies. The bank statement shows the huge transaction of high value in the accounts of the companies. The chart showing the amount invested by the above named companies in assessee company viz a viz own funds with the investor company are as under: - Name of the Investor company Amount invested in assessee company Share capital and reserve surplus with Investor companies as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued against the allotment of the shares to these companies were not found from the possession of the assessee company or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books of account or document was found showing payment of cash to these investor companies against receipt of cheques from these companies against allotment of shares. Therefore the genuineness of the transactions cannot be doubted. B) Onus to prove source of source From the show cause notice given by ld CIT(A) and excel sheet provided to the assessee showing chain of source it is apparent that even there is no cash deposit till 3rd stage of channel source (Copy at Pb pg 473 to 506/ AY 2012-13). The ld CIT(A) confirmed the addition of ₹ 82,00,000/- on account of cash/DD deposited at 4th channel or beyond to that stage shown as under:- Date Amount From Company Cash deposit /Demand draft at 4th Channel as per inquiry by investigation wing 02.08.2011 1500000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer aforesaid has been found to be satisfactory: The above proviso was inserted with effect from the 1st day of April, 2013 so it cannot be applied retrospectively. Therefore as per law the assessee has no onus to prove source of source. Hon ble Mumbai High Court in the case of Commissioner of Income Tax 1 Vs M/s. Gagandeep Infrastructure Pvt.Ltd (Pb pg 360 to 366/Case Laws) held as under:- (e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 201314 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced for removal of doubts or that it is declaratory . Therefore it is not open to give it retrospective e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk a/c of Shri Ajit Sharma and Rajesh Kumar Singh and used for its own purpose therefore onus to prove the source of amount deposited in their bank accounts primarily lay on this person PB 407. b) At Q. No. 12 of statement of this person he said that The Motisons Jewellers group of Jaipur was the beneficiary of accommodation entries arranged by me through the bank accounts of the above prop. concerns. The cash was received by me from Motisons Jewellers group from time to time and was deposited into a number of bank accounts including the two bank accounts of M/s Shyam Fashion (Prop. Ajit Sharma) and M/s Durga Enterprises (Prop. Rajesh Kr Singh) in IDBI, Girish Park Branch, Kolkata. In this regard it is quite interesting to note that a person stating that Motisons Jewellers group was the beneficiary of the accommodation entries arranged by him and he is also admitting that cash was received by him from Motisons Jewellers Group to deposit the same is bank accounts maintaining by him but no further questions were made from him to controvert that whatever he is stating is true or not. The important thing is that Motisons Jewellers group is not a human being therefore it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the AO must act honestly on the material before him and not vindictively, capriciously, or arbitrarily- Gurumukh Singh Vs CIT 12 ITR 393, 427 (FB), Dakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775, c) It is also settled law that the AO is not entitled to make a pure guess without any evidence or material at all - Dakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775, But in the case of assessee, the ld AO and the investigating team has brushed aside all the principles of law and utilizing a statement which is totally irrelevant, unacceptable to frame a high-pitched assessment purely on surmises, conjectures and suspicion. c) In view of above mentioned the statements of this person have no legal sanctity and cannot be relied upon. From the reading statement of this person its appears that the investigating party recorded the statement by putting words in his mouth with sole motive to use the same against the assessee group to make a strong case against the assessee. Therefore we submit that the statement of this person is completely false, incorrect and not acceptable and therefore cannot be relied upon unless the opportunity of cross examination is not given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction. In response, the assessee submitted that Shri Bhanwarlal Jain is not known to him and regarding various incriminating documentary evidences seized during the course of search and statements recorded of Shri Bhanwarlal Jain and other persons, he specifically requested the AO to provide copies of such incriminating documents and statement of all various persons recorded in this regard and provide an opportunity to the assessee to cross examine such persons. However, the AO didn t provide to the assessee copies of such incriminating documents and statements of various persons recorded and allow the crossexamination of any of these persons. While doing so, the AO stated that in his statements, Bhanwarlal Jain had described that they are indulged in providing accommodation entries of bogus unsecured loans and advances through various Benami concerns (70) operated and managed by them. This admission automatically makes all the transactions done by them as mere paper transactions and in these circumstances, further as per the infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this subject has been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Sinqh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it. It was held in that case that In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him. 2.10 In light of above proposition in law and especially taking into consideration the decision of the Hon ble Supreme Court in case of C. Vasantlal Co. (supra) relied upon by the Revenue and which actually supports the case of the assessee, in the instant case, the assessment was completed by the AO relying solely on the information received from the investigation wing, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- 10. The points as sought to be raised by the appellantrevenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company. 11. Ultimately, the question as to whether the source of investment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:- 13. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged does not constitute a substantial question of law within the meaning of s. 260A ibid in an appeal arising out of such order. 10. In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the CIT(A) and Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or that it had been based on no reasoning, or based on absurd reasoning to the extent that no prudent man of average judicial capacity could ever reach to such conclusion, or that it had been found against any provision of law, then a case for formulation of substantial question of law on such finding can be said to have been made out. 11. In our view, no such error could be noticed by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged its initial burden except in one case-As regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO-Thus, additions were sustained only in respect of investments said to have been made by U, an individual investor and by W Ltd., for the reason that such investments were not proved- Finding of the Tribunal is essentially a finding of fact which is not vitiated in law-No substantial question of law arise for consideration. (iv) CIT vs. First Point Finance Ltd. (2006) 206 CTR (Raj) 626 : (2006) 286 ITR 477 (Raj HC). (PB pg 157 to 162/Case Laws) Income-Cash credit-Share application money-Tribunal found that the investors are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded-Amount of share capital/share application money could not be treated as unexplained cash credits and no addition could be made under s. 68-No substantial question of law arises. (v) Commissioner of Income Tax Vs. Bhaval Sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2008 and addition on account of share capital was deleted. 28.5 On identical issue, the Tribunal, Jaipur Bench in the case of Hotel Gaudavan (P) Ltd. (supra) has held as under : 6. As regards the issue on merit in the Departmental appeal, we concur with the views of the learned CIT(A) that the AO has not considered the explanation of the assessee. The amount under consideration of ₹ 1.89 crore has been received by the assessee as share application money from M/s Jalkanta Technical Financial Service (P) Ltd. (JTFSPL) after a proper resolution passed by the board of directors of the aforesaid company through banking channel. M/s JTFSPL is having permanent account and filing its return of income regularly. The AO has nowhere mentioned that money belongs to the assessee company and therefore, provisions of s. 68 cannot be invoked. The learned CIT(A) has rightly relied upon the decision of Hon ble Delhi High Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 which has been confirmed by the Hon ble Supreme Court of India. The learned CIT(A) has also relied upon the decision of Hon ble jurisdictional High Court in the case of Barkha Synthetics Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). Income-Cash credit-Share application money-Burden of proof can seldom be discharged to the hilt by the assessee-If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations-But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company-If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders registers, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee-Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices-Tribunal has noted that the assessee company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange-Complete details were furnished- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... py of PAN, copy of Board resolution, copy of Director s report, auditor s report, copy of balance sheet, copy of P L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT(A) i.e. decision of Hon ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yr. 1984-85, it cannot be said that she was not assessed to tax-Though V has not been shown to be assessed to tax, he had made major part of investments towards share capital through cheques and his identity is not doubted- Accordingly, share capital advanced by U and V is also to be accepted as genuine-Therefore, no addition of share capital money could be made in the hands of the assessee-company. (iv) The ld. Jaipur Tribunal in the case of DCIT V M/s Kamdhenu Steel and Alloys Ltd. 2014-TIOL-709ITAT- (PB pg 203 to 213/Case Laws) Case relates to search and issue of shares on premium. Held that the assessee had submitted the particulars of registration of the applicant company, the confirmation from the share applicants, bank account details from which payment through account payee cheques, so the assessee had discharged its initially onus. (v) M/s. ARL Infratech Ltd. vs. The ACIT ITA No. 619/JP/2013 (PB pg 268 to 281/Case Laws) ITAT Jaipur. The findings of Hon ble ITAT was as under:- Before, we proceed to decide the issue on merits, we would like to discuss the scheme of the Act and precedents on the issue involved in this appeal as under:- In cases where s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicants was never put or confronted to the assessee. The cumulative effects of these reasons is that the impugned addition cannot be added in the hands of the assessee company. Accordingly, we order to delete the entire additions and allow the appeal of the assessee. 3.0 In the result, the appeal of the assessee stands allowed. The department filed appeal before Hon ble Rajasthan High Court. Hon ble Rajasthan High Court confirmed the findings of Hon ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016 (c) Other High Courts (i) 2014 (8) TMI 605 - MADRAS HIGH COURT The Commissioner of Income Tax Versus Pranav Foundations Ltd. T. C. (A). No. 262 of 2014 Dated - 12 August 2014 (PB pg 343 to 346/Case Laws) Addition u/s 68 Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved Held that:- Following the decision in CIT v. Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - all the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces-As regards receipt of share capital on issue of rights shares to five companies, these companies were duly incorporated under the Sikkimese Companies Act and were assessed under the Sikkimese Taxation Manual- Their share subscriptions were also received through banking channels and found to be valid by the jurisdictional AO-Therefore, no addition could be made under s. 68 (iv) CIT v/s Value Capital services P Ltd. 307 ITR 334 (Delhi) (PB pg 319-3202/Case Laws) held that there is additional burden on the department to show that even if share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee. (v) CIT v/s STL Extrusion (P) Ltd. 333 ITR 269 (MP) (PB pg 347 to 350/Case Laws) Income-Cash credit- Share application money-Assessee has duly established the identity and source of credits- Additions not sustainable. (vi) CIT v/s Arunanda Textiles (P) Ltd. , 333 ITR 116 (Karnataka) (PB pg 351 to 353/Case Laws) Share application money-Assessee able to identify the shareholders-It is not for the assessee-company to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company-It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147-That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capital and advances received by established identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences-Assessee company substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO-These facts had not been rebutted on behalf of Revenue-ITAT was not inclined to interfere with findings of CIT(A) who thus rightly deleted entire impugned additions of ₹ 40 lakhs made by AO u/s 68 on account of share capital subscription received by assessee-company Held: It was pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC) that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore AO-All documents clearly show that shareholders do exist- Assesseecompany had discharged its onus of explaining the cash credits as required under law-If the company is able to establish that shareholders existed and they have invested money for purchase of shares burden of company to prove the credit is discharged-Identity of shareholders not in dispute-Assessee is not required to prove credit-worthiness of shareholders-Addition deleted (iv) Allen Bradley India Ltd. vs. Dy. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del); Income-Cash credit-Subscription to share capital and loan-In case of limited companies jurisdiction of AO would be limited only to see whether identity of shareholders is established and whether they exist or not-Once identity is established, then, possibly no further enquiries need to be made-Since the shareholders of assessee-company were in existence, they were assessed to tax, complete details were available, share capital money as well as loan were received through account payee cheques and they were cleared through proper banking channels, AO was not justified in disbelieving the capital invested by the shareholder companies- Similarly, AO w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to investor companies, all of which were served and some of them were complied with. b) CIT V/s N. R. Portfolio Pvt. Ltd 206 (2014) DLT (DB) (Del)/ 264 CTR 0258 (del) Assessed u/s 144 of Itax Act. In this case the AO issued several notices and show cause notice which was not served/complied and assessment was framed u/s 144 of Income Tax Act. In our case all the compliances were made and evidences submitted. c) N Tariks Properties Pvt. Ltd 227 Taxmann.com 373 (with reference to decision of Delhi high court in 264 CTR 472) AO noticed that extracts of bank account had been fabricated and AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. d) CIT v/s Navodaya Castle Pvt. Ltd 367 ITR 306 (Delhi High Court)AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. e) CIT V/s MAF Academy Pvt. Ltd 206 (2014) DLT 277 (DB)(Del)/ 361 ITR 0285 (Del) AO found that immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct ;] Thus the ld. CIT(A) is not the Assessing Officer as per Income-Tax Act. Therefore, the ld. CIT(A) does not have any legal sanction to make the addition u/s 68 of the Act. Ld. CIT(A) in his order at para 2.1.4.6 had clearly held that the identity, creditworthiness and genuineness of transactions of these companies cannot be held doubtful and addition by applying the provision of sec 68 of the Act cannot be upheld. The ld. CIT(A) has sustained the addition of ₹ 82.00 lacs without specifying any provision of Income tax Act. No such addition can be sustained without invoking the relevant provisions of the Act. Moreover, the addition has been sustained in the hands of that assessee where cash /DD was deposited at 4th Channel. Hon'ble Rajasthan High Court and other Hon'ble Courts held that assessee cannot be asked to explain the source of the source. The relevant portions of the verdicts given by Hon'ble High Courts in the following cases are as under:- (i) In the case of CIT vs Jai Kumar Bakliwal (2014) 366 ITR 217 (Raj):- Held, dismissing the appeal, that all the cash creditors were assessed to Income-tax and they provided a confirmation as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money comes from the assessee himself or such source could be traced to the assessee itself. (v) In the case of Aravali Trading Co. vs ITO (2008) 220 CTR (Raj): Observed that the fact that the explanation furnished by the four creditors about the sources where from they acquired the money was not acceptable by the Revenue could not provide necessary nexus for drawing inference that the amount admitted to be deposited by these four persons belonged to the assessee. The assessee having discharged his burden by proving the existence of the depositors and the depositors owing their deposits, he was not further required to prove source of source. Taking into consideration the facts and circumstances of the case and case laws relied on (supra), the ld. CIT(A) is not justified in confirming the addition of ₹ 82.00 lacs which is directed to be deleted. It is also noted that during the course of hearing of appeal before the ld. CIT(A), the assessee had requested for cross examination of Shri Sanbtosh Choubey Shri Ajit Sharma, Shri RajeshKumar Singh and other persons which was denied by the ld. CIT(A). The ITAT Coordinate Bench in the case of Prateek Kothari (supra) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case laws relied upon by the AO, appeal on Ground No. 4 is dismissed. 9.3 During the course of hearing, the ld.AR of the assessee prayed for deletion of addition of ₹ 19,08,447/- for which the ld.AR of the assessee filed the following written submission. Submission of assessee:- a) The ld CIT(A) has taken contrary view to his findings for AY 2011-12 2013-14 In AY 2011-12 AY 2013-14, he allowed the same expenses but for this year he confirmed the addition without seeing the material on record. b) The ld. AO disallowed the entire expenses debited in profit loss a/c by holding that assessee has not started its business activities. The ld CIT(A) held that the assessee has received interest income which is liable to tax as income from other source. In this regard this is to submit that from perusal of Memorandum of Association of the company (PB pg 2333/AY 2011-12) your honor would found that the assessee is in the business of real estate and leasing out of the property is its business activities. Kindly see main object and objects incidental or ancillary to main object at PB pg 26-27/AY 201112. Therefore, the letting out the properties is business ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the humble assessee prays your honour kindly to delete the addition of ₹ 19,08,447/- sustained by ld CIT(A). 9.4 On the other hand, the ld. DR supported the order of the ld. CIT(A). 9.5 We have heard the rival contentions and perused the materials available on record. It is pertinent to mention that ld. CIT(A) on similar issue in the case of the assessee for the Assessment Year 2011-12 (in ITA No.554/JP/2017) has deleted the addition by observing as under:- 3.3 I have duly considered assessee's submission and also carefully gone through the assessment order. I have also taken a note of factual matrix of the case as well as case laws. While passing the assessment orders, AO has disallowed entire expenses of ₹ 24,20,479/- Rs. S41,26,273/- debited respectively in profit loss a/c for A.Y. 2011-12 2013-14 by holding that assessee has not started its business activities and only received rental income and discount which are to be assessed as income from rent other sources respectively. In this regard, it is submitted that the expenses debited in P L for the years were in relation to income earned during the year or other day today incidental expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case the ld. CIT(A) was rightly in deleting the disallowance of expenses of ₹ 41,26,273/- without appreciating the fact that assessee has not started the business activity, hence expenses have to be capitalized. 10.2 Brief facts of the case are that the AO during the year under consideration observed that no business activity was carried out by the assessee company. The AO further noted that the source of the income during the year was rental income and business income. The AO further noted that the assessee has received other income of ₹ 22,94,267/- for which the assessee claimed expenses of ₹ 41,26,273/-. The AO keeping in view of the fact that the assessee has not started its business activities the other income is to be taxed as income from other sources and the expenses claimed by the assessee should be capitalized for which the AO relied on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Pvt Ltd. 227 ITR 172 (SC). The AO thus assessed the income of assessee at ₹ 22,94,267/-. 10.3 In first appeal, the ld. CIT(A) has deleted the addition of ₹ 41,26,273/- by observing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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