Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home

2019 (5) TMI 418

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ischarged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 - We are inclined to delete the addition confirmed by the Ld. CIT(A) and consequently the appeal of Assessee is allowed. - I.T.A. No. 2411/Kol/2017 - Dated:- 1-5-2019 - Shri A. T. Varkey, JM And Dr. A.L. Saini AM For the Appellant : Shri Subash Agarwal, Advocate For the Respondent : Shri Rabin Choudhury, Addl. CIT, Sr. DR ORDER PER SHRI A.T.VARKEY, JM This is an appeal preferred by the Assessee against the order of Ld. CIT(A) - Jalpaiguri, dated 30.08.2017 for Assessment Year 2012-13. 2. The main grievance of .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... share subscribing companies was pleased to take adverse view against them and made the addition of the entire share capital and premium as income of the assessee u/s 68 of the Act. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved the assessee is before us. 6. The learned AR for the assessee assailing the action of the Ld. CIT(A) drew our attention to the fact that pursuant to the AO s notice under 133(6), the three share subscribing companies have duly responded which fact had been acknowledged by the AO himself at page 2 of his order and has also accepted the fact that the share subscribers are assessed by the department and all of them had been issued PAN card and that all the three share subscribers have filed their audited balance sheet, ITRs, bank accounts etc. According to ld. AR, despite filing all these documents and confirming the transactions, the AO only on the reason that the assessee failed to produce the directors of the share subscribing companies have drawn adverse view against those companies and have made the addition u/s 68 of the Act in the hands of assessee which according to the learned AR is ille .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... in the hands of the depositors and flow of fund from the appellant such adverse inference has to be drawn only in the hands of the depositors and not the appellant." 8. Thereafter, the Learned AR drew our attention to page 3 of the assessment order from where it is discernable that the subscribing companies had enough share capital to invest in the assessee-company and drew our attention to the balance sheet filed before the AO from where it can be discerned the fact that M/s. Pragya Commodities Pvt. Ltd. have own funds of ₹ 7,63,30,550/-. Likewise M/s. Samrat Finvestors Pvt. Ltd. at ₹ 7.81 crores whereas investment of assessee-company only to the tune of ₹ 25 lakhs. Likewise, M/s. Narayan Mercantiles Pvt. Ltd. have own funds of 7.48 crores and had investment of assessee-company only to the tune of ₹ 50 lakhs. So, according to him, the question of creditworthiness also does not arise. According to the Learned AR, since all the three share subscribing companies are regularly filing ITR before the department and have PAN card, their identity cannot be questioned. According to the Learned AR, share subscribing companies have filed their bank statements and .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... hare. The AO disallowed the entire share application money raised from the share applicant during the year under consideration on the ground that directors of the share subscribing companies failed to appear before him and that the funds received by the investor companies from different sources were passed on to the assessee-company on the same day. We note that the shares were issued to three companies, the details of which are as under: Sl No. Name of Share Applicant PAN No. of shares Total value of shares Total premium received 1. M/s. Pragya Commodities (P) Ltd. AABCP5764C 10,500 105,00,000 103,95,000 2. M/s. Samrat Finvestors Pvt. Ltd. AADCS4698G 2,500 25,00,000 24,75,000 3. M/s. Narayan Mercantiles Pvt. Ltd. AAGCS8391F 5,000 50,00,000 49,50,000 18,000 180,00,000 178,20,000 10. We note that the AO at page 2 of his assessment order has acknowledged the fact that share subscribing companies have filed the following documents before him pursuant to notice issued by him u/s 133(6) of the Act: 1. Copy of letter regarding detailing share application money paid. 2. Copy of bank account statement. 3. Copy of extracts of minutes of meeting of board of directors. 4. Copy of letter of al .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... lank on which the AO made the addition was because the directors of the share subscribers did not turn up before him. In such a case the Hon'ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523 , has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word "may" in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:- "Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the ass .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... n nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ess to advance the cash credit to the creditor from whom the cash credit has been. eventually, received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special knowledge of the assessee. " ********** " ... If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... re the issue was whether the assessee availed cash credit as against future sale of product, the AO issued summons to the creditors who did not turn up before him, so AO disbelieved the existence of creditors and saddled the addition, which was overturned by Ld. CIT(A). However, the Tribunal reversed the decision of the Ld. CIT(A) and upheld the AO s decision, which action of Tribunal was challenged by the Hon'ble High Court, Calcutta in the case of Crystal Networks (P.) Ltd. v. Commissioner of Income-tax 353 ITR 171 wherein the Tribunal s decision was overturned and decision of Ld. CIT(A) upheld and the Hon ble High Court has held that when the basic evidences are on record the mere failure of the creditor to appear cannot be basis to make addition. The court held as follows: 8. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). The .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows: "The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. " 11. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmi .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. 19. Our attention was also drawn to the decision of the Hon'ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295: "Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? We find no merit in this special leave petition for the simple reason that if the share application money is received by the assessee- company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment. 20. Our attention was also drawn to the decision of the Hon'ble Calcutta High Court while relying on the case of Lovely Exports, in the appeal of COMISSIONER OF INCOME TAX, KOLKATA-IV Vs ROSEBERRY MERCANTILE (P) LTD., ITAT No. 241 of 2010 dated 10- 01-2011 has held: "On the facts and in the circum .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... w that the increase in share capital by ₹ 52,03,500/- was nothing but the introduction of the assessee's own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong. The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of ₹ 52, 03,500/- to the income of the assessee company during the Assessment Year in question. The learned Commissioner of Income Tax Appeals found that there were as many as 2155 allottees, whose names, addresses and respective shares allocation had been disclosed. The Commissioner of Income Tax Appeals, further found that the Assessee Company receive .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... round of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment. By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of ₹ 52, 03, 500/- to the income of the assessee as made by the Assessing Officer. We are of the view that there is no question of law involved in this appeal far less any substantial question of law. The learned Tribunal has concurred with the learned Commissioner on facts and found that there were materials to show that the assessee had disclosed the particulars of the shareholders. The factua .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... der section 68 of the Income- tax Act and the Tribunal below rightly held that the onus was validly discharged. We, thus, find that both the authorities below, on consideration of the materials on record, rightly applied the correct law which are required to be applied in the facts of the present case and, thus, we do not find any reason to interfere with the concurrent findings of fact based on materials on record. The appeal is, thus, devoid of any substance and is dismissed summarily as it does not involve any substantial question of law. 23. In the light of the aforesaid decisions of the Hon ble Apex and jurisdiction High court and other High Courts let us examine the present case in hand. We will examine each share subscribers totalling three (3). The Ld. AR took pains to bring out the relevant facts in respect of each share subscribers which will throw light as to the identity, creditworthiness and genuineness of the share subscribers. We note from pages 12 to 28 of the paper book wherein the details of M/s. Pragya Commodities Pvt. Ltd. is given. We note that this company invested a sum of ₹ 1.05 crores in the appellant company. The share application was made by account .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... oresaid which emerges from the paper book filed before us as well as before the lower authorities, it is vivid that all the share applicants are (i) income tax assessee s, (ii) they are filing their return of income, (iii) allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. 27. As noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the assess .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ecord including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned Ld. CIT(1) on the decision of the Hon'ble Apex Court in the case of CIT vs Lovely Exports (P) Ud reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received. 3.4. 1. We also find that the impugned issue is also covered by the decision of Hon'ble Calcutta High Court .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... the balance sheets observed that the shareholders have paltry income and small savings and none of them have any bank account and huge cash balances were shown in their hands out of which Pay orders were obtained. Based on this, the Learned AO concluded that these shareholders do not have creditworthiness to invest in the assessee company and brought the entire sum of ₹ 57,00,000/- to tax as unexplained cash credit u/s 68 of the Act. 4.2. On first appeal, the Learned CIT(A) observed that entire share application monies of ₹ 57,00,000/- we received during the previous year 2004-05 relevant to Asst Year 2005-06 from 20 persons and the shares were allotted to them during the asst year under appeal. He observed that the assessee had furnished details of the share applicants giving the date wise receipts, mode of payment, amount, name, address, income tax returns, PA No. of share applicants along with their balance sheet. The Learned CITA also observed that the assessee in its reply to show cause notice before the Learned AO had requested him to use his power and authority for the physical appearance of the shareholders which was not exercised by the Learned AO. Instead the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ted 13-01-2016. In this the decision the Ld. Tribunal held as follows: 6. We have heard the Learned DR and when the case was called on for hearing , none was present on behalf of the assessee. However, we find from the file that the assessee had filed a detailed paper book and written submissions. Hence the case is disposed off based on the arguments of the Learned DR and written submissions and paper book already available on record. The facts stated in the Learned CIT(A) were not controverted by the Learned DR before us. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned CITA on the decision of the Hon'ble Apex Court in the case of CIT vs Lovelv Exports (p) Ltd reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e applicants did not have the means to make the investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. No substantial question of law arose. " 6.3. We find that the argument of the Learned DR to set aside this issue to the file of the Learned AO for verification of share subscribers would not serve any purpose as the ratio decided in the above cases is that in any case, no addition could be made in the hands of the recipient assessee. In view of the aforesaid findings and respectfully following the decision of the apex court (supra), Jurisdictional High Court (supra) and Delhi High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the grounds raised by the Revenue are dismissed. (c) The Ld. ITAT Kolkata in ITA No.1061/Ko1/2012 in the case of ITO Wd.3(2) Kol, vs. M/s. Steel Emporium Ltd dated 05-02-2016. In this the decision the Ld. Tribunal held as follows: 10. We have heard both the rival parties and perused the materials available on record. The Ld. DR vehemently supported the order of the AO. Before us the Ld. AR submitted th .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... rd to disbelief the evidences furnished with him and treat the transaction as not genuine. The assessee submitted the following material at the time of assessment. a) Copy of share applications from the share applicants (copies enclosed) b) Copy of Form 2 filed with Registrar of Companies, West Bengal (copy enclosed) c) Copy of Form 18 about the Registered Office of the applicants for change of address subsequent to the date of allotment, i.e. 31.03.2009 (copies enclosed) d) Members register e) Share application & Allotment Register f) Copy of board resolution. g) Replies from Share applicants to the notice u/s. 133(6) issued to them by the AO seeking information and documents about the sources and to examine their identity, genuineness of the transaction and their creditworthiness. (copy enclosed). h) Copy of audited accounts. i) Copy of bank statements. j) Copy of Income tax acknowledgment of return filed for AY 2009- k) Copy of PAN Card. l) Details of sources of funds. m) Copy of covering letter for delivery of shares. n) Copy of master data as per ministry of Company Affairs records. o) Copy of Annual return. p) Copy of Memorandum and articles of Association. Finally the Ld .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... he ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A. Y.2005-06 and AY.2004-05 respectively were completed by the I TO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the AO's inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of ₹ 54,00,000/ -. The ground Nos. 2 and 3 are allowed, " 7. Aggrieved by the order of CIT{A) the Revenue .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... uring the year in question. The assessee filed the complete names, addresses of the share applicants, confirmatory letters from them, copies of bank statements of both the company as well as the share applicants and copies of share application forms. In spite of the aforesaid documentary evidences the AO held the explanation to be unacceptable and treated the share application as unexplained cash credit thereby making addition under Section 68 of the Income-tax Act, 1961. On appeal the CIT(Appeals) deleted the aforesaid addition holding that the identity of the share applicants stood established beyond doubt, all the payments were through account payee cheques and the share applicants were regular income-tax assessees. The CIT(Appeals) further held that the Revenue did not bring any evidence on record to suggest that the share application had been received by the assessee from its own undisclosed sources nor any material was brought on record to show that .the applicants were bogus. The Revenue was neither able to controvert the documentary evidences filed by the appellant nor prove that the share application were ingenuine or the applicants were non-creditworthy. The findings of t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:- ''Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of ₹ 1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was ₹ 55,50,000/- and not ₹ 1,11,50,000/- as mentioned in the notice. The assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at ₹ 55, .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Mr. Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examin .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... t cannot be said that their creditworthiness is doubtful when their own funds are several times the investment made in the assessee company. In this regard, reliance is placed on the observation of the Hon'ble High Court of Delhi in the case of CIT vs. M/s. Mayawati 338 ITR 563, wherein a bench comprising of Hon'ble Justice A.K. Sikri and Hon'ble Justice Suresh Kait wherein Hon ble Justice A.K. Sikri as his Lordships then were held as under:- 62. Further in the case of Mrs. Veena Jain, details of assets proved on record show that the total assets of Mrs. Veena Jain were of ₹ 1.34 crores and the liabilities were only of ₹ 2.11 lakhs. We have perused the assets owned by Mrs. Veena Jain and found that she had capacity to borrow first, and then to gift as per her desire. The capacity does not mean what you are earning monthly or annually. The capacity includes how much total assets a person own. [Emphasis given by us] 34. From the above facts, it is evident that all the three ingredients viz., identity, genuinity and creditworthiness have been proved beyond doubt. 35. In regard to the question of high premium on shares, the assessee s Ld AR filed a reply on 30.0 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... der of the Tribunal and on facts it was found satisfied. (ii) 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 CIT v/s. Lovely Exports (P) Ltd. 317 ITR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee s income as unexplained cash credit. 37. According to Ld AR, recently, the Tribunal Mumbai Bench in the case of DCIT vs. M/s. Alcon Biosciences (P) Ltd., ITA No. 1946/M/2016, Order dated 28.02.2018 held as under - "As regards the AOs observation with regard to the issue of shares at a face value of ₹ 10/- issued at a premium of ₹ 990 per share, we find that there is no merit in the findings of the AO for the reason that the issue of shares at a premium and subscription to su .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... r of "income". It is a settled proposition of law that capital receipts , unless specifically taxed under any provisions of the Act , are excluded from income. The Hon'ble Supreme Court has laid down the ratio that share premium realized from the issue of shares is of capital in nature and forms part of the share capital of the company and therefore cannot be taxed as a Revenue receipt. It is also a settled proposition of law that any expenditure incurred for the expansion of the capital base of a company is to be treated as a capital expenditure as has been held by the Hon'ble Supreme Court in the case of Punjab State Industrial Corporation Ltd. Vs CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. VS CIT. In the case of Kapurchand Shrimal Vs CIT 131 ITR 451, it was held that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal was preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. Considering the submissions of the Ld. DR in the lig .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... visions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies. …………………. 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 field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s 68 of the Act. We draw support from the decision of the Hon ble Supreme Court in the case of Lovely Exports Ltd. 317 ITR 218. 41. In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the s .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Site Map - Recent || Site Map ||