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TMI Blog2019 (6) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... and the decision of ITA No. 50/Kol/2016 would have to be applied for ITA No. 51/Kol/2016 with equal force except with variance in figures and hence the appeal in ITA No. 50/Kol/2016 is taken as the lead case. 3. The only issue to be decided in this appeal is as to whether the ld CITA was justified in confirming the addition made u/s 68 of the Act towards share capital and share premium in the facts and circumstances of the case. 4. The brief facts of this issue are that the assessee company is engaged in the business of generation of power and energy and had filed its return of income for the Asst Year 2012-13 on 25.9.2012 declaring total loss of Rs. 8,87,88,588/-. The ld AO observed that during the period 1.4.2011 to 31.3.2012, the assessee company had issued equity shares of Rs. 10 each with a premium of Rs. 50 per share totaling to Rs. 120 crores. The ld AO observed that the entire share capital and share premium was raised through private placement. The ld AO called for the details of the shareholders and their share subscriptions to the assessee company. The assessee provided the requisite details called for. The ld AO observed that the credit of share capital and premium to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese SPVs is essentially to stay invested in the project companies and get the benefits and gains upon the event of stake sale of this project to new investors. These SPV companies vis a vis shareholding companies, which were duly registered under Registrar of Companies (ROC) are as under:- a) M/s Shirdi Commodities Pvt Ltd b) M/s Shirdi Commosale Pvt Ltd c) M/s Alex Mercury Pvt Ltd d) M/s Carvan Creation Pvt Ltd (NBFC) e) M/s Alex Energy Pvt Ltd 5.2. The assessee company, investing company SGJHL, SGJHL's 100% subsidiary EFJL and the aforesaid 5 SPVs have common directors and management to facilitate day to day activities of the companies. Therefore, so far as investment in the project from equity contribution is concerned, the same was funded by the group companies only and no other outside company or agency was involved in such equity funding. In terms of the above arrangement or funding, the assessee company received Rs. 120 crores from 5 SPVs on different dates through banking channels as under:- M/s Carvan Creation Pvt Ltd - Rs. 30,00,00,000 M/s Alex Mercury Power Pvt Ltd - Rs. 36,00,00,000 M/s Shirdi Commosales Pvt Ltd - Rs. 18,00,00,000 M/s Alex Energy Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities to advance monies to the aforesaid SPV companies. All the transactions were routed through regular banking channels and hence the genuineness of the transactions are also proved beyond doubt. 7. The assessee also explained the immediate source of credit for each of the shareholder companies together with their respective bank statements for making investment in the assessee company. The ld CITA appreciated the aforesaid documents and on detailed examination vis a vis the respective sources for the shareholder companies came to the conclusion that the assessee in the instant case had duly proved the three ingredients of section 68 of the Act viz. identity of the shareholders, creditworthiness of the shareholders and genuineness of the transactions. Accordingly, he deleted the addition made in the sum of Rs. 120 crores u/s 68 of the Act in the assessment. Aggrieved, the revenue is in appeal before us. 8. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee comprising of pages 1 to 285 of the paper book. This paper book contains the following documents :- a) Copy of reply letter filed befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olar power plant, the assessee had obtained a land for lease and also entered into power purchase agreement with GUVNL. The total project cost was worked out at Rs. 400 crores. The assessee was successfully able to obtain bank finance for 70% of the total project cost. For the remaining 30% of the project outlay, the appellant company partnered with Shree Ganesh Jewellery House (I) Ltd. (SGJHL) for investment in equity share capital of the company who showed their interest as well as intention to invest in the solar power project. However instead of directly contributing in the share capital, SGJHL and the assessee company reached an agreement wherein it was decided that SGJHL would provide loans, either directly or indirectly to other companies who in turn will invest in the equity share capital of the assessee company. 8.2. Accordingly, 4 special purpose vehicle (SPVs) were formed specially to hold 75% of the shares of the project company, i.e. Alex Astral Power Pvt. Ltd. namely:- i) M/s Alex Mercury Power Pvt. Ltd. (10%) ii) M/s Alex Energy Pvt. Ltd. (15%) iii) M/s Shirdi Commosales P Ltd. (20%) iv) M/s Shirdi Commodities P Ltd. (30%) 8.3. Apart from these 4 SPVs, SGJH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the learned AO was of the view that the companies who invested in the share capital of the assessee company exist only on papers and none of these companies were even operational or capable to do the business before making such huge investment in the form of share capital. But we find from the materials available on record that the assessee company, investing company SGJHL, EFJL and the aforesaid five shareholder companies have common directors or management to facilitate day to day activities of the companies and that the entire investment by way of equity contribution in the assessee company was funded by the group companies of SGJHL only and no other outside agency was involved in such equity funding. We find that the assessee had furnished the details of funds for each of the shareholder companies as under:- A. Alex Mercury Power Pvt. Ltd. During the year, Alex Mercury Power Pvt. Ltd. made an equity investment of Rs. 36 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Years 2010-11 and 2011-12 were enclosed. The amounts invested by this company in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledgment, computation of income, Annual Accounts for the Financial Year 2011-12 were enclosed. The amounts invested by this company in the assessee company is duly reflected in its balance sheet. The source of funds from which equity investment was made are as follows: - Loan from Easy Fit Jewellery Limited (EFJL) (Subsidiary of SGJHL) - Rs. 12,00,00,000/- A detailed chart showing the datewise inflow of funds and the subsequent investment in the assessee company was filed before the lower authorities together with the bank statements. From the balance sheet of EFJL, we find that the own funds of the said company is Rs. 84,68,26,000/- i.e. 84.68 crores. This very clearly shows the high networth and the creditworthiness of EFJL to advance loans to M/s Shirdi Commodities Pvt Ltd. The company reported Gross Total Income of Rs. 48,75,807/- in the Income Tax Return filed for the year. Loan given to M/s Shirdi Commodities Pvt Ltd is shown in the balance sheet of EFJL under 'Related Party disclosures'. M/s Shirdi Commodities Pvt Ltd is wholly owned subsidiary of EFJL. Hence we find that the assessee had proved the source of EFJL (i.e source of source) also in the instant case to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the firm has given a loan of Rs. 40,13,91,000/- to M/s. Caravan Creation Pvt. Ltd out of unsecured loan received from its partner Kumud Parekh to the tune of Rs. 42,98,91,000/-. M/s. K & R Associates is a partnership firm, wherein Smt. Kumud Parekh (since deceased) and Smt. Ratna Parekh were partners. Late Kumud Parekh was the mother of Shri Nilesh Parekh and Smt Ratna Parekh is the wife of Shri Nilesh Parekh. Shri Nilesh Parekh is the Director of SGJHL. This partnership firm holds 100% shareholding in M/s Caravan Creation Pvt. Ltd. As such, M/s Caravan Creation Pvt. Ltd., is indirectly controlled and managed by Shri Nilesh Parekh, director of SGJHL. Hence we find that the assessee had proved the source of K & R Associates (i.e source of source) also in the instant case to the extent of Rs. 32,35,91,000/-. E. M/s. Alex Energy Pvt. Ltd. During the year, M/s. Alex Energy Pvt Ltd made an equity investment of Rs. 24 crores in the assessee company. The said company is regularly assessed to income tax. The ITR acknowledgment, computation of income, Annual Accounts for the Financial Year 2011-12 were enclosed. The source of funds from which equity investment was made are as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case to the extent of Rs. 12,00,00,000/-. 8.8. We find from the aforesaid documents and evidences available on record that the following facts emerge :- a) The five shareholder companies, SGJHL, EFJL, K & R Associates, Radiant Equity Management Pvt Ltd and Kumud Parekh are regular income tax assessees as is evident from their respective ITR acknowledgements. This proves the identity of all those parties. b) The aforesaid transactions are duly recorded in their respective books of accounts as is evident from their respective annual accounts and all the transactions are routed through regular banking channels by way of account payee cheques or the online transactions as the case may be. This clearly proves the genuineness of the transactions. c) The five shareholder companies, SGJHL, EFJL, K & R Associates, Radiant Equity Management Pvt Ltd and Kumud Parekh are having high net worth and creditworthiness to advance funds to respective parties which in turn had found its way into the coffers of the assessee company by way of equity contribution for the purpose of solar power project. 8.9. We find that the entire funds had ultimately reached the assessee through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of making private investment in equity share capital. Hence, they were newly incorporated and as such were not having sufficient funds to invest in the equity share capital of the company. The fifth company, M/s Caravan Creation Pvt Limited is an NBFC company and an associate concern of SGJHL. As per the arrangement of funding entered into between SGJHL and the assessee company, SGJHL group met almost the entire equity fund requirement either directly or indirectly by advancing loans to the share applicant companies to enable them to make the required equity investment in the assessee company. 8.11. With regard to the contention of the ld AO that Shri Nilesh Parekh, director of SGJHL failed to appear in response to summons issued u/s 131, it was submitted that Shri Nilesh Parekh was travelling out of town on the specified date on which he was called upon to appear in person. The aforesaid various documents and evidences on record would conclusively prove that the assessee company had duly discharged the onus that lie on him by complying with the three necessary ingredients of section 68 of the Act viz. identity of the share applicants, creditworthiness of share applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor, why and how SGFHL controls the assessee company and his personal income & expenditure account and balance sheet for the period 01.04.2009 to 31.03.2012. We are not able to persuade ourselves to understand as to what relevance these questions have got to understand the veracity and genuineness of share capital and share premium received by the assessee company from five share applicant companies, more so, in the light of various details already filed on record by the assessee before the ld AO. In our considered opinion, the answers to the aforesaid questions sought for by the ld AO would lead to no inference for determination of the issue under dispute before him viz the genuineness of share capital received from corporate shareholders. We find that the ld AO also required the director to explain as to how SGJHL controlled the assessee company in the summons, when the same had been already adequately answered by various documentary evidences supra available with him. The ld AO had further required the director to provide details of other companies in which he was a director where monies were ploughed back by those companies. In our considered opinion, this is also of no relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the ld AO is duty bound to confront the assessee with the enquiries made and information gathered and the principal of nature justice demands that the assessee should be allowed an opportunity to give its rebuttal and/or explain its case in light of the enquiries allegedly made by the ld AO. In the present case, we find that the ld AO merely stated that he had made "discreet enquiries" which led to him forming conclusion that the share application monies received during the year were in nature of accommodation entries. However the nature & findings of enquiries were unknown. The ld AO never confronted the assessee with the information borne out of the so called "discreet enquiries". In fact from the material on record, we find that no enquiries were conducted by the ld AO under the provisions of Section 133(6) and/or 131 from the share subscribers who had actually paid the monies to the assessee. The ld AO seems to have sat back with folded hands just so as to arbitrarily reject the documents & evidences placed by the assessee at the end of the assessment proceedings with a pre-conceived notion in order to reach to pre-decided destination. The ld AO was unable to bring an iota ..... X X X X Extracts X X X X X X X X Extracts X X X X
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