TMI Blog2019 (10) TMI 829X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O in the course of the set aside proceedings shall remain at a liberty to make necessary verifications, as he may deem fit. Needless to say, the assessee in the course of the set aside proceedings will be afforded a reasonable opportunity of being heard, and would be at a liberty to substantiate the authenticity of the transaction of receipt of share application money from the aforesaid six share applicants by placing on record fresh material. Appeal of the revenue is allowed for statistical purposes. - ITA No.4589/Mum/2017 - - - Dated:- 11-6-2019 - Shri Ravish Sood, Judicial Member and Shri N.K.Pradhan, Accountant Member For The Appellant : Shri A bi Rama Kartikiyen, D.R For The Respondent : Shri Pramod Kumar Parida, A.R ORDER PER RAVISH SOOD, JM The present appeal filed by the revenue is directed against the order passed by the CIT(A)-4, Mumbai, dated 09.03.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short I.T. Act ) dated 27.03.2015 for AY. 2012-13. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed by the A.O that the assessee had accepted fresh share application money for 43,750 shares @ ₹ 400 per share viz. (i). Face value of ₹ 10/- per share; and (ii) Share premium of ₹ 390/- per share. Further, it was noticed by him that the share application money received by the assessee company included an amount of ₹ 40 lac that was received from its promoter director i.e Mr. Aziz-ur-Rahman who had subscribed for 10,000 shares. Apart there from, the balance amount of ₹ 1,35,00,000/- was received by the assessee company from six companies which had subscribed for 33,750 shares. The A.O observed that as a result of accepting of share application money for 43,750 shares (which included 10,000 shares that were subscribed by the promoter director), nearly 63% of the share holding of the assessee company would be given out to the external parties, and the share holding of the existing shareholders would be reduced to 37%. On the basis of the aforesaid facts, the A.O was of the view that the assessee company by accepting share application money of ₹ 1,35,00,000/- from outside parties was effectively handing over the control of its affairs to them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the intrinsic value of the company. However, the A.O was not persuaded to accept the aforesaid explanation of the assessee for certain reasons, viz. (i) that, though the share application money was received by the assessee during the year under consideration i.e financial year 2011-12, however, till date despite lapse of a substantial period of three and a half years shares were not issued to the investor companies; (ii) that, as the assessee company had never declared any dividend, therefore, the same raised serious doubts as regards the rationale of the investor companies for making investment towards shares of the assessee company at such huge share premium; (iii) that, shares had not been even issued by the assessee company to its existing shareholder i.e Shri Aziz-ur-Rahman (director of the company); (iv) that, two of the six investor companies appeared in the list provided by the DGIT (Inv.) Mumbai, which revealed that they were the entities which were controlled by Shri Praveen Kumar Jain, an infamous accommodation entry provider; (v) that, the fact that the assessee had accepted money from dubious parties even in the subsequent year viz. A.Y. 2014-15, revealed that it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of share application money as was claimed by the assessee on the basis of documents placed on record, therefore, concluded that the addition made by him could not be sustained and was liable to be vacated. 6. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short D.R ) took us through the facts of the case. It was submitted by the ld. D.R that the shares of the assessee company with a face value of ₹ 10/- per share were issued at an exorbitant share premium of ₹ 390/- share. The ld. D.R took us through the observations of the A.O and submitted that the notices issued by him under Sec. 133(6) to the share applicants were partly replied by them. It was submitted by the ld. D.R, that the fact that the assessee had failed to produce the share applicants for necessary examination before the A.O duly supported the view taken by him that the assessee had merely obtained accommodation entries in the garb of share application money. In support of his aforesaid contentions, the ld. D.R relied on the certain judicial pronouncem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. 9. As per Sec. 68 of the I.T. Act, an assessee remains under a statutory obligation to explain the nature and source of any sum found credited in his books of accounts maintained for any previous year. In case, the assessee offers no explanation about the nature and source or the explanation offered by him is not, in the opinion of the A.O, satisfactory, then the sum so credited may be charged to Incometax as the income of the assessee of that previous year. Accordingly, it is obligatory on the part of an assessee to substantiate the nature and source of a sum credited in his books of accounts during the previous year. We have perused the orders of the lower authorities and find that the A.O in the course of the assessment proceedings, had in order to verify the authenticity of the transaction of receipt of share application money of ₹ 1,35,00,000/- by the assessee company from the six applicant companies, issued notices under Sec. 133(6) to them. A perusal of the contents of the aforesaid notices issued under Sec. 133(6) reveals that the A.O had inter alia at Serial No. (vi) of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the claim of the assessee that all the requisite details called for by the A.O were furnished with him. We find that even in the course of the proceedings before us the copies of the bank accounts from where the share application money is stated to have been paid by the applicant companies had not been made a part of the bulky paper book (for short APB ) filed by the assessee. Rather, the assessee had furnished before us the copies of its bank statements for the year under consideration [Page 1 28 of APB ]. We thus, are of the considered view, that in the absence of the copies of the bank statements from which the share application money was paid by the share applicant companies, the A.O would had no occasion to verify the genuineness of the transaction of receipt of the share application money by the assessee from the aforementioned six applicant companies. In fact, we had perused the replies which were filed by the assessee on three occasions before the A.O i.e dated 19.03.2015 [Page 16-19 of APB ] , dated 20.03.2015 [Page 14-15 of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the material placed on our record. In fact, the ld. A.R on being called upon by the bench to substantiate that the copies of the bank statements of the applicant companies were filed before the lower authorities, however, failed to place on record any material in support thereof. We find that the assessee as per its submission dated 11.07.2016 that was filed with the CIT(A), had claimed at Serial No. 3.11 (iv) [Page 35 of APB ] that the details of the investments made by the share applicants , cheque Nos. and dates of cheque alongwith details of the banks on which the said cheques were drawn was furnished with the A.O. We are afraid, that merely furnishing of the details as regards the mode of payment would by no means justify the genuineness of the transaction of receipt of share application money by the assessee company. Further, a perusal of the letters written by the respective share applicants to the assessee company (as form part of the APB ) , also reveals, that only the details of the cheques through which the payments were made to the assessee company can only be gathered there from. We f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 05.03.2019]. The Hon ble Apex Court had in its aforesaid judgment observed, that, once the assessee had submitted the documents relating to identity, genuineness of the transaction, and the creditworthiness, then the A.O must conduct an inquiry, and call for more details before invoking Sec. 68. It was further observed by the Hon ble Apex Court that in case the assessee is unable to provide a satisfactory explanation of the nature and source of the investments made, then it is open for the revenue to hold it as the income of the assessee. As for the genuineness of the transaction, it was observed by the Hon ble Apex Court that it is for the assessee to prove by cogent and credible evidence that the investments made in share capital were genuine borrowings, since the facts were exclusively within the assesses knowledge. Apart there from, the Hon ble Apex Court approving the view taken by the Hon ble Guwahati High Court in the case of Nemi Chand Kothari vs. CIT (2003) 264 ITR 254 (Gau) and that of the Hon ble High Court of Delhi in the case of CIT Vs. N.R Portfolio (P) Ltd. (2014) 42 taxmann.com 339 (Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank i.e Kotak Mahindra Bank, Branch: Prabhadevi, Mumbai. Further, as is discernible from the records, the same Chartered Accountant viz. H.T Merchant Co., Chartered Accountants had audited their respective accounts for the year under consideration. On the basis of the aforesaid peculiar facts, we are of the considered view that the A.O ought to have carried out necessary verifications by summoning the directors of the respective companies and carrying out further verifications, which we find had not been done by him. Also, in the case of two other applicant companies viz. (i). M/s Duke Business Pvt. Ltd. (JPK Trading I.P Ltd); and (ii). M/s Atharva Business P. Ltd, we find that the A.O was in receipt of specific information from the DGIT (Inv), Mumbai, that the said companies were controlled by Shri. Praveen Kumar Jain, who is stated to be an infamous accommodation entry provider. In our considered view, the A.O on the basis of the aforesaid information ought to have carried out necessary verifications by summoning the directors of the said respective companies and examined them as regards the transactions of the said companies with the assessee. However, we are afraid that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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