TMI Blog2019 (6) TMI 158X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of evidence so as to substantiate his allegation that the capital raised by the assessee was in the nature of accommodation entries or that the monies were routed back to SGJHL and its associates as alleged in the impugned order. In the course of assessment proceedings, the assessee had furnished the documentary evidences as were made available to the assessee by the share subscribing companies. The documents furnished proved the identity creditworthiness of the shareholders. The transactions were carried through banking channels. Although the documents were submitted before the ld AO, no enquiry was conducted by the ld AO either from the Departmental records or from the bankers of the share subscribers. Hence it could be safely concluded that the adverse inference drawn by the ld AO was based on surmise conjecture having no relation whatsoever with the facts of the case. It is well established that the assessee by producing necessary documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 on 25.9.2012 declaring total loss of ₹ 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 ₹ 10 each with a premium of ₹ 50 per share totaling to ₹ 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 the tune of ₹ 120 crores were made on various dates during the year and such credits were made against the name of some companies who had either no income or meager income. According to ld AO, all the share subscribing companies are merely paper or shell companies and did not have sufficient means to fund the assessee company and accordingly the same are to be treated as bogus warranting addition u/s 68 of the Act. 5. The assessee company stated before the ld AO that it had set up a Solar Power Generating Plant of 25 MW capacity popularly known as Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 120 crores from 5 SPVs on different dates through banking channels as under:- M/s Carvan Creation Pvt Ltd - ₹ 30,00,00,000 M/s Alex Mercury Power Pvt Ltd - ₹ 36,00,00,000 M/s Shirdi Commosales Pvt Ltd - ₹ 18,00,00,000 M/s Alex Energy Pvt Ltd - ₹ 24,00,00,000 M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tence of these companies. The high net worth of SGJHL and EFJL substantiate the creditworthiness of those entities 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 ₹ 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial policy to promote setting up of solar power plants in their State. The assessee company was awarded 25MW solar power plant to be commissioned within 31st December 2011 in terms of expressed agreement with Gujarat Urja Vikas Nigam Limited ('GUVNL'), a State Government Undertaking. Pursuant to the contract for setting up solar 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 ₹ 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. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 119.25 crores i.e. 99% of the equity fund requirement) to the 5 new share applicant companies via loan transactions who finally contributed in the equity share capital of the assessee company to meet the project cost. As such, during the year, the assessee issued 2,00,00,000 equity shares at a face value of ₹ 10/- per share and share premium of ₹ 50/- per share to these 5 existing shareholders of the companies in the same ratio in which the original 10000 equity shares were transferred in three tranches as detailed below: 8.6. Hence the project was funded as under: a. From Banks - ₹ 280 crores b. From Shareholders as Equity Contribution - ₹ 120 crores TOTAL ₹ 400 crores 8.7. We find that the assessee had furnished before the ld AO the sources of funds for the above shareholders to make investment in assessee company ; balance sheets of respective shareholder companies ; address of the aforesaid shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd annual accounts of Late Mrs. Kumud Parekh for the AY 2011-12. On perusal of the same, it is evident that loan of ₹ 12,00,000/- was given by Mrs Kumud Parekh to M/s Alex Mercury Power Pvt Ltd. The own funds of Late Mrs Kumud Parekh is ₹ 21,48,58,769/-. This very clearly shows her high networth and creditworthiness to advance loans. Mrs Kumud Parekh (since deceased) is the mother of Shri Nilesh Parekh, director of SGJHL. Hence the assessee had proved the source of Mrs Kumud Parekh (i.e source of source) also in the instant case to the extent of ₹ 12,00,000/-. We find from the ITR acknowledgement and audited annual accounts of SGJHL that an amount of ₹ 35.88 crores was advanced to M/s Alex Mercury Power Pvt Ltd. From the balance sheet of SGJHL, we find that the own funds of the said company is ₹ 1,32,501.38 lakhs i.e. 1,325.01 crores. This very clearly shows the high networth and the creditworthiness of SGJHL to advance loans to M/s Alex Mercury Power Pvt Ltd. It is not in dispute that SGJHL is a listed company and one of the pioneers in manufacturing of jewellery generating huge surplus and having sufficient cash flows. The company repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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) - ₹ 18,00,00,000/- 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 ₹ 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 Commosale Pvt Ltd. The company reported Gross Total Income of ₹ 48,75,807/- in the Income Tax Return filed for the year. Loan given to M/s Shirdi Commosale Pvt Ltd is shown in the balance sheet of EFJL under Related Party disclosures . M/s Shirdi Commosale 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 extent of ₹ 18,00,00,000/-. D. M/s. Caravan Creation Pvt. Ltd. During the year, M/s. Carava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 75,00,000/- Loan from SGJHL - ₹ 12,00,00,000/- Total ₹ 24,15,00,000/- 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. The assessee had filed before the lower authorities the copy of ITR acknowledgement and annual accounts of M/s Caravan Creation Pvt Ltd for the AY 2012-13. As stated supra, M/s Caravan Creation Pvt Ltd is a NBFC company whose primary business is investment in shares and dealing inter-corporate loans and advances. It is a company belonging to SGJHL group. The assessee had filed before the lower authorities the copy of ITR acknowledgment and annual accounts of M/s Radiant Equity Management Pvt Ltd for the AY 2012-13. From perusal of the balance sheet of M/s Radiant Equity Management Pvt Ltd, it is evident that it has own funds of ₹ 64,35,05,315/-. This very clearly shows the high networth and the creditworthiness of M/s Radiant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 SGJHL or EFJL or 5 shareholder companies which are all group companies of the assessee having common directors and common management of day to day activities. In this regard, the following points would be pertinent to note :- a) Easy Fit Jewellery Ltd and M/s. Alex Mercury Power Power Pvt. Ltd are wholly owned subsidiaries of Shree Ganesh Jewellery House (I) Ltd. b) M/s. Shirdi Commosale Pvt. Ltd. and M/s. Shirdi Commodities Pvt. Ltd. are the wholly owned subsidiaries of Easy Fit Jewellery Ltd. As such, these became the step down subsidiaries of Shree Ganesh Jewellery House (I) Ltd. c) M/s. Caravan Creation Pvt. Ltd is a NBFC company owned by M/s. K R Associates. M/s. K R Associates is a partnership firm, owned by Late. Mrs Kumud Parekh, mother (since deceased) of Shri Nilesh Parekh and Mrs. Ratna Parekh, wife of Shri Nilesh Parekh. As such, this company is indirectly controlled by Shri Nilesh Parekh, director and chairman of SGHJL., which is a listed company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 applicants and genuineness of transactions. Even otherwise in a scenario, when the assessee has successfully discharged the onus of proving the three essential conditions as stipulated in section 68 of the Act, non-attendance of one party cannot suffice as a reason for rejecting the documents filed and the submissions made in this regard. We find that the ld AO had made only general comments doubting the source of funds stating it to be dubious. He neither brought any specific evidence to support his allegation nor was he able to controvert or point any infirmity in the details furnished by the assessee. We find that the ld AO has not taken any pains to prove that the share capital investment transactions are not genuine. He has simply put emphasis only on the creditworthiness of the share applicant companies regardless of the fact that these companies borrowed funds from SGJHL and its group concerns to make the equity investment. The creditworthine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relevance for examining the assessee s transactions with the share applicant companies. Hence it could be safely concluded that the summons u/s 131 of the Act issued by the ld AO calling for certain details had no relevance in determining the genuineness of transactions or creditworthiness of the share applicant companies. Hence non-compliance to the said summons seeking illogical information which are not germane to the issue under dispute, would not, in our considered opinion, make any difference to the issue and would not automatically lead to drawing an adverse inference on the issue before the ld Ao. It is not in dispute that the assessee company had placed before the ld AO the relevant information which the ld AO could have verified independently from the Departmental records. Infact in the instant case, as could be seen from the aforesaid documentary evidences, the assessee even furnished the source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of evidence so as to substantiate his allegation that the capital raised by the assessee was in the nature of accommodation entries or that the monies were routed back to SGJHL and its associates as alleged in the impugned order. The ld AO seemed to have acted in haste and made generalized comments observations for making this humongous addition in the hands of the assessee. On the other hand, the assessee had discharged its onus of substantiating the identity creditworthiness of the shareholders and the genuineness and background of the transaction. We find from the materials available on record that the assessee company was formed for the purpose of setting up solar plant in terms of express agreement with GUVNL. The funds for the project were substantially raised from banks financial institutions. The stipulated equity ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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