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TMI Blog2019 (12) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... reliminary expenses written off which is not an allowable deduction u/s.35D of the Act. Subsequently notices u/s.143(2) & 142(1) of the Act were issued. Thereafter the AO framed assessment u/s.147/143(3) of the Act assessing the total income at Rs. 18,738/-. Subsequently, the CIT invoking powers u/s.263 of the Act set aside the order passed by the AO u/s.147/143(3) of the Act for denovo assessment holding that the order passed by the AO is erroneous and prejudicial to the interest of revenue lacking complete enquiry. Accordingly, on the direction of CIT, the AO issued notice to the assessee to produce all evidences as to why the transactions with the said parties (shareholders) should not be treated as bogus and share application money received by the assessee should not be treated as unaccounted money converted in the form of share capital and undisclosed income. Accordingly, the AO made addition of Rs. 13,95,18,738/- as unexplained cash credit and passed order u/s.143(3)/147 r.w.s263 of the Act, dated 28.03.2014. 3. Feeling aggrieved from the order of AO, the assessee appealed before the CIT(A) and the CIT(A) after considering the submissions of assessee and findings of the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , various High Courts as well as the jurisdictional High Court including the Tribunals of several Benches, the AO, therefore, was not within his jurisdiction in treating such share capital and share premium as unaccounted cash credit of the appellant-company and adding the same u/s the Act. Therefore, addition made on this score is directed to be deleted and this ground of appeal is allowed. " Case of the A.O at page 6 of the assessment order According to the A.O in view of specific direction of the CIT in order u/s 263, notices u/s. 131 were issue and sent to share holders asking them to personally appear to verify their identity and creditworthiness and genuineness of the transaction. In response to above non-appeared. Further, show cause letters were issued to assessee company to produce all the share holders with evidence otherwise the transaction with the share holders will be treated as bogus and share application money should be treated as undisclosed income. The A.O has also directed the assessee in the said show cause to produce managing director of all share holder companies to prove identity, genuineness of transaction and creditworthiness. According to the AO, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the order sheet or in the impugned assessment order. On consideration of peculiar facts available on record the Ld. CIT(A) has deleted the addition by holding that the onus casted upon by Section 68 stands discharged. The Apex Court had an occasion to consider a case where the assessee has discharged its onus by providing names and addresses of the creditors along with their income tax file numbers. On the basis of the information supplied the Assessing Officer issued notices u/s 131 and thereafter did not pursue the matter any further. On this factual matrix the Hon'ble Supreme Court has been pleased to delete the addition by holding - "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 No. were in the file of the Revenue. The Revenue, apart from issuing notices u/s 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. In those circumstances, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpliances so made by the subscribing company before the DDIT(Inv.), Kolkata. On the basis of evidence already on record it is established beyond all reasonable doubt that the appellant has discharged its onus of proving identity, genuineness of transaction and creditworthiness in respect of the share application / capital including premium and hence the finding of the A.O. that identity, genuineness of transaction and/or creditworthiness could not be verified is contrary to the evidences / material already on record. It is respectfully submitted that the case of the appellant is squarely covered by the judgment of the jurisdictional High Court in the case reported in 154 ITR 244 (Pat) -ACIT Vs Bahri Brothers wherein their lordships have held as under : "In the instant case, the transaction were completed through account payee cheque. The creditors gave the amount in question to the assessee by account payee cheque which were encashed by the assessee through his own Bank. Not only this, the assessee has also submitted the copy of a certificate of the Bank to the effect that the cheques in question, given by the creditors, were honoured in favour of the assessee.----------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The Tribunal reversed this decision for reasons which we need not go into. It is evident that even if it be assumed that the subscribers to the increased share capital were not genuine, nevertheless, under no circumstances, can the amount of share capital be regarded as undisclosed income of the assessee. It may be that there are some bogus shareholders in whose names shares had been issued and the money may have been provided by some other persons. If the assessment of the persons who are alleged to have really advanced the money is sought to be reopened, that would have made some sense but we fail to understand as to how this amount of increased share capital can be assessed in the hands of the company itself. In our opinion, no question of law arises and the petition is, therefore, dismissed. " Further, the view taken by the Hon'ble Delhi High Court, as aforesaid, has been reaffirmed in its subsequent judgments reported in 299 ITR page 268 (Delhi) in the cases of CIT Vs Devine Leasing & Finance Ltd., General Exports & Credit Ltd. and Lovely Exports Pvt. Ltd. The relevant portion from the judgment is reproduced hereunder :- "The Tribunal has recorded that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to furnish particulars, which it did. 4. The assessee, inter alia, provided details relating to the share application money provided by each of the entities confirmation letters ; board resolutions from each company ; PAN card details ; copies of the memorandum and articles of association ; Forms 18 and 32 and audited financial statements for the years 2004, 2005 and 2006 ; copies of pay orders which were used for the share application money. In addition, the affidavits of the directors and share investors were also furnished. 5. The Assessing Officer was not satisfied with the materials furnished and held that the assessee had not discharged the onus/burden of proving the genuineness of the identity of the applicants, the genuineness of the transactions or the creditworthiness of the investors as required by the decision in CIT v. Lovely Exports P. Ltd. [2009] 319ITR (St.) 5 (SC) ; [2008] 216 CTR (SC) 195. Arguments of counsel of the revenue : 5. Learned counsel for the Revenue highlighted that the Assessing Officer examined all the materials in great detail and rejected the affidavit furnished to him. It was highlighted that the Assessing Officer took not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6. The Tribunal has considered that the assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance-sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the assessee. The judgment in the case of Gagandeep Infrastructure P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of the companies from whom the subscribing company has received the fund that there is no cash deposit in the bank account of such companies as well. Thus the appellant has not only been able to explain the source of deposit in its bank account but has also established the source of the source i.e. availability of fund in the hands of the investor companies. The Ld. CIT(A) has recorded a categorical finding at page 34 para 4.48 which reads "in absence of such categorical or circumstantial finding on record, any action in bringing this amount to tax would fall in the category of conjuncture, suspicion and surmises which has not found favour of the Apex Court, various High Court and .................". To substantiate the above said finding, the appellant relies on the following well settled proposition of law enunciated by the Apex Court wherein it has been held that suspicion howsoever strong cannot partake the character of proof :- 37ITR 271 (SO -Umacharan Shaw & Brothers Vs CIT, West Bengal - Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by the twin decisions as observed by the Tribunal that all the share applicants stand identified. The assessee has provided permanent account numbers of the share applicants. The mode of payment has also been explained. There is no direct or indirect relation between the assessee-company and the share applicants. The statements recorded during survey has got no evidentiary value without any supporting documents or evidence. Further, the A.O. has not treated the bank account of investing company as benami bank account of the appellant and hence, the addition in the hands of the appellant is directly in teeth of judgment of the Apex Court, reported in 211 ITR Page 11 (ST) - Commissioner of Income-tax Vs. Chunni Lai - wherein their lordships have dismissed SLP of the department and has affirmed the finding of the Hon'ble Tribunal and High Court. The relevant portion is reproduced hereunder : "The tribunal allowed the assessee's appeal holding that since the cash credits came from bank accounts held by the wife, the son and the daughter in law, the officer could not add back these amounts unless he could prove that these persons were the benamidars of the assessee." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Rs. 5,850 but invested in shares to the tune of Rs. 90,00,000 in the Assessee Company -Respondent, etc. iii.There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share. iv.Further more, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act. " None of the facts noticed by the Apex Court, quoted in the preceding paragraph, is present in the appellant's case. In the said case, the investor companies were found to be nonexistent and had no office at the address mentioned by the assessee. In the present case enquiry u/s 133(6) were initiated on two occasions i.e. first while passing order u/s 147/143(3) and secondly while passing order u/s 147 / 143(3) / 263 and were complied with whereby the investors have submitted their full particulars of IT assessment, confirmation/ copy of account and Bank statement. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pages 69 to 81 of PB) wherein at para 6.17, the Hon'ble Tribunal has found the said judgment to be not-applicable on the facts of the case before them and has accordingly deleted the addition. The relevant portion in this regard is quoted below :- Para-6.17 "We have gone through the said judgment and we find in that case, the Ld. AO has made extensive enquiries and from that he had found that some of the investor companies were non-existent which is not the case before us. Certain investor companies did not produced their bank statements proving the source for making investments in assessee company, which is not the case before us. Source of funds were never established by the investor companies in the case before the Hon 'ble Apex Court, whereas in the instant case --------------------------------------------. Hence, the decision relied upon by the Ld. CIT DR is factually distinguishable and does not advance the case of the revenue. " In the present case, the findings of the Ld. CIT(A) while deleting the addition is similar to the one arrived at by the Hon'ble Kolkata Bench of ITAT in its order dated 05.04.2019 at para 6.19 whereby the Hon'ble Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not produce subscribers in response to the aforesaid show cause letter. Apart from this, ld. DR also submitted the CIT(A) has erred in deleting the disallowance made on account of share capital and share premium amounting to Rs. 13,95,00,000/-observing that the AO neither spelt out the dissatisfaction about the compliance of the requirements of section 68 nor brought out any cogent material in this regard ignoring the fact that the AO has clearly mentioned the non compliance of summons issued u/s 131 by the subscriber companies and failure of the assessee company to produce the directors of the subscriber companies. Therefore, the AO has rightly held that due to non-compliance on the part of the shareholders, the identity and creditworthiness of the shareholders and genuineness of the transaction between shareholders and assessee company could not be verified, enabling the AO to add the entire amount received on account of issue of shares along with the quantum of premium paid for issue of shares to the income of the assessee as unexplained cash credit. Accordingly, the ld. DR submitted that the impugned order of CIT(A) deserves to be quashed and the order of AO should be restored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving credits in its book of accounts lies squarely on the assessee and such proof consists of proving the identity of the subscriber or creditor, capacity of such creditor or subscriber to make payment and also to prove the genuineness of the transaction. It is only when the assessee discharges this primary onus, that onus shifts to the department. Merely establishing the identity of the creditor is not sufficient. Therefore, the preponderance of probabilities theory will apply in this case as observed by the Hon'ble Apex Court in case of Sumati Dayal & Durga Prasad More (supra). What is the valuation methodology and justification for such premium variation, terms of issue and the payback which has been agreed and acted upon? These are some of the questions which remain unanswered. At least the assessee company should have come forward and answered these questions by itself and for which it doesn't have to depend upon the shareholders to establish the genuineness of these transactions. Further, we find that the creditworthiness of these shareholders have not been established in the instant case. Mere confirmation or the fact that the money has been received through the banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t i.e. more or less have been withdrawn on the same day. The ld. AR of the assessee also unable to satisfy that the share applicant companies have genuineness business activities. However, before us, ld. AR could not submit any financial statements to substantiate the creditworthiness of the share applicants. Our above view is supported by the Hon'ble Supreme Court in the case of Pr. CIT Vs. NRA Iron Steel (P.) Ltd. [2019] 103 taxmann.com 48 (SC), wherein the Hon'ble Apex Court has held as under :- "8. We have heard the Ld. Counsel for the Revenue, and examined the material on record. 8.1 The issue which arises for determination is whether the Respondent /Assessee had discharged the primary onus to establish the genuineness of the transaction required under Section 68 of the said Act. Section 68 of the I.T. Act (prior to the Finance Act, 2012) read as follows: "68. Cash credits- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. In Shankar Ghosh v. ITO [1985] 13 ITD 440 (Cal.), the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The loan amount was rightly held to be the assessee's own undisclosed income. 8.4 Reliance was also placed on the decision of CIT v. Kamdhenu Steel & Alloys Limited [2012] 19 taxmann.com 26/206 Taxaman 254 [2014] 361 ITR 220 (Delhi) wherein the Court that : "38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise if going in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the case deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability." 9. The Judgments cited hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moters (P.) Ltd. [2019] 102 taxmann.com 182/410 ITR 379 upheld the additions made by the Assessing Officer on account of introducing bogus share capital into the assessee company on the facts of the case. iv. The Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions. The initial onus of proof lies on the assessee. This Court in Roshan Di Hatti v. CIT [1992] 2 SCC 378, held that if the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee. v. The Guwahati High Court in Nemi Chand Kothari v. CIT [2004] 136 Taxman 213/[2003] 264 ITR 254 held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction. : "It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, the A.O. had conducted detailed enquiry which revealed that : i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee.: For example : a. The companies Hema Trading Co. Pvt. Ltd. and Eternity Multi Trade Pvt. Ltd. at Mumbai, were found to be non-existent at the address given, and the premises was owned by some other person. b. The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. c. The two companies at Guwahati viz. Ispat Sheet Ltd. and Novelty Traders Ltd., were found to be non-existent at the address provided. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 15. On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income. 16. The Appeal filed by the Appellant - Revenue is allowed. In the aforesaid facts and circumstances, and the law laid down above, the judgment of the High Court, the ITAT, and the CIT are hereby set-aside. The Order passed by the AO is restored. Pending applications, if any are disposed of. Ordered accordingly." 9. Respectfully following the above judicial decisions of the Hon'ble Supreme Court as well as the observations of the Assessing Officer in the assessment order, it is clear that the creditworthiness of the share applicants, in the present case in hand, have not been proved by the assessee, therefore, the AO has rightly made a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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