TMI Blog2019 (12) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... T-DR ORDER PER BENCH: The assessee has filed this appeal against the order of CIT(A)-I, Patna, dated 16.01.2017, on the following grounds of appeal :- (i). Considering the facts and in the circumstances of the case, the Ld CIT(A) has erred both in facts and in law by allowing relief to the assessee on account of Share Capital and Share premium amounting to ₹ 13,95,00,000/-, when the identity creditworthiness of the Shareholders and genuineness of the transaction were could not be proved. (ii) Any other grounds that may be urged at the time of hearing. 2. Brief facts of the case are that the assessee filed its return of income for A.Y.2008-2009 on 12.08.2008 declaring a loss of ₹ 3,063/-. Thereafter the AO issued notice u/s.148 of the Act on the ground that the assessee claimed an expenditure of ₹ 21,800/- as preliminary 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 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dissatisfaction about the compliance of the requirements of the provisions of section 68 of the Act nor brought out any cogent material whatsoever on record in this regard. 4.49 As discussed hereinabove, the directors of the appellant-company and the directors of the companies subscribing to the Share Capital that too on a premium as directed under section 263 of the Act had not been examined considering the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company which was of immense importance to understand the modus-operandi of the business and to establish the genuineness or otherwise of the transactions and creditworthiness of the subscribing companies in the light of the judicial pronouncements on the subject as mandated to invoke the provisions of section 68 of the Act on the face of peculiar facts of the case in respect of the identity and capacity of the so-called shareholders along with the genuineness of the transactions. In view of this and respectfully following the judgements of the Apex Court, various High Courts as well as the jurisdictional High Court including the Tribunals of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h proper enquiry . Thus, it is established beyond all reasonable doubt from the order of the Ld. CIT that notices issued u/s 133(6) in course of original proceedings were complied with. Further, in course of proceedings u/s 143(3)/ 147/ 263 enquiries were again instituted u/s 133(6) and the same was again complied with as would be evident from order sheet entry dated 10.02.2014(copy enclosed at page 32 of PB) where the A.O mentions that letter u/s. 133(6) of the IT Act issued to the share holders . It is not the case of the A.O either in the order sheet or in the assessment order that the notices u/s 133(6) were returned unserved and/or remained uncomplied with. Thus, even at the stage of second round of assessment proceedings pursuant to order u/s 263, compliances were made in response to enquiry instituted u/s 133(6). However, unfortunately the A.O at the fag end i.e. on 21/03/2014 has resorted to notices u/s 131 and vide show cause dated 27.03.2014 the assessee was asked to produce the investors and the impugned assessment order was passed on 28.03.2014. There is no allegation as to non-service of summons u/s 131 issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the burden lay upon him. It is in these peculiar facts that the Ld. CIT(A) has deleted the addition by holding that the appellant has discharged the onus saddled upon it by section-68 and that the department has not been able to prove laundering of cash through layers or within layers. The issue to be decided by this Hon'ble Tribunal is (i) whether the CIT(A) is justified in holding that the assessee has discharged its onus saddled by section 68 ? and (ii) whether the CIT(A) is justified in recording a finding on peculiar set of facts that the department has not been able to prove that there has been laundering of cash (unaccounted) through layers or within layers of bank accounts for subscription into share capital at premium ?. The appellant carve leave to produce the copies of notices issued u/s 133(6) and its compliance by the shareholders in course of first as well as second assessment proceedings. The same are voluminous and hence is not been enclosed with written submission. It is asserted as a matter of fact and record that these evidences are forming part of assessment record [both i.e.147/143(3) and 147/143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Delhi High Court in the case of CIT Vs. Stellar Investment reported in 192 ITR 287 which has been affirmed by Apex Court whereby the SLP of the department was dismissed (reported in 251 ITR 263). The relevant portion from the judgment of the Delhi High Court is reproduced hereunder :- The petitioner seeks reference of the following question : Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on facts and in law in holding that the provisions of section 263 have not been validly invoked in this case by ignoring the material fact that the Assessing Officerr had failed to discharge his duties regarding the investigation with regard to the genuineness and creditworthiness of the shareholders, many of them being students and housewives ? In the present case, the subscribed capital of the assessee had been increased. The Income-tax Officer assessed the company and accepted the increase in the subscribed capital. The Commissioner of Income-tax came to the conclusion that the Assessing Officer did not carry out a detailed investigation inasmuch as there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as indicated by the Delhi High Court in the above said judgment was undertaken by the A.O. as the A.O. has not treated the investing companies as benamidar of the appellant nor could have held that the investing companies are fictitious person in view of the enquiries instituted u/s 133(6) and compliances made by the investing company. The Hon'ble Apex Court has affirmed the above judgment of Delhi High Court. The relevant portion from the judgment of Apex Court is quoted below : 319 ITR page 5 (Si) - C1T vs. Lovely Export (SC) 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 the alleged bogus shareholders, whose names are given to the Assessing Officer, 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. The appellant would like to draw your honour's kind attention to some other judgments on the issue :- [2018] 401 ITR 83 (Del) - Principal Commissioner of Income-Tax V. Orient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts is not in dispute. Furthermore, its bank details too were furnished to the Assessing Officer. If the Assessing Officer were to conduct his task diligently, he ought to have at least sought the material by way of bank statements, etc., to discern whether in fact the amounts were infused into the shareholder's account in cash at any point of time or that the amount of ₹ 1.3 crores in the case of M/s. Creative Financial Services Pvt. Ltd. and ₹ 3.7 crores in the case of other share applicants were such as to be beyond their means. In the absence of any such enquiry, the court is of the opinion that the findings holding that the assessee had not discharged the onus placed upon it by law cannot be considered unreasonable. No question of law arises. 6.8 [2017] 397 ITR 136 (Bom) - COMMISSIONER OF INCOME-TAX v. ORCHID INDUSTRIES PVT. LTD. 6.3 Whether on the facts and in the circumstances of the case and in law, orders of the Tribunal was perverse in deleting the addition of ₹ 95,00,000 made under section 68 of the Act, relying only on the documentary evidence produced by the respondent-company while ignoring the key factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estor company. It is also not the case of the A.O. that the sum in question has been deposited in cash in the bank account of the investor company prior to investment in the appellant's company. It is also not the case of the A.O. that these companies are not assessed to income tax. If the facts of the appellant's case are tested on the anvil of the aforesaid decision it is clear that the proceedings initiated u/s 133(6) in course of the two assessment proceedings were duly complied with. The investors have produced their acknowledgement of return, copy of accounts and bank statements which proves their existence, genuineness of transaction through bank and creditworthiness as the sum in question have been given out of the balance lying in their accounts and there was no cash deposit in their bank account prior to investment in the appellant company. Thus, the onus of proving the identity, genuineness of transaction and creditworthiness stands proved by (i) compliance / confirmation by the subscribers in response to notice u/s 133(6) in course of original as well as second round of assessment proceeding; (ii) transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... National Bank Others the inference drawn by the Enquiry Officer apparently were not supported by any evidence. Suspicion, as is well known, however high may be, can under no circumstances be held to be a substitute for legal proof . It is also not the case of the A.O. that the investors companies are in any way related to the appellant and/or the directors of the appellant's company are related to any of the directors / share holders of the investors company. There is no doubt with regard to identity of the investors as investors are not only known to income tax but are also known to bank and ROC. Thus the very addition made is fit to be deleted in view of judgment of Hon'ble Rajasthan High Court reported in 394 ITR 383. The relevant portion from the judgment is quoted below : [2017] 394 ITR 383 (Raj) COMMISSIONER OF INCOME-TAX v. ARL INFRATECH LTD. Question of law 3. Counsel for the appellant has framed the following questions of law which reads as under :- (i) Whether in the facts and circumstances of the case, the Tribunal was justified in reversing the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At this stage it would be fair on the part of the appellant to inform this Hon'ble Bench the latest judgment of Apex Court in the case of Pr. CIT (Central)-l Vs. N R A Iron and Steel Pvt. Ltd. dated 05.03.2019 in SLP (C) No.29855 of 2018 reported in (2019) 412 ITR 161 wherein the Apex Court has overturned the orders of CIT(A) and ITAT and the judgments of the Hon'ble Delhi High Court deleting the addition on account of share capital / share application and has upheld the order of the A.O. on peculiar facts of that case. The Apex Court in para 12 of its order has noted the outcome of enquiry conducted by the A.O. The relevant portion is reproduced hereunder : 12. In 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 Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiated 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. There is no allegation of non-service of notice u/s 131 dated 21.03.2014 issued in course of assessment proceedings u/s 147 / 143(3) / 263 on any of the investors. It is well settled that a decision is an authority for what it decides and not that can be deduced therefrom. In this regard kind attention is invited to the Constitution Bench of Supreme Court in the case of Padmasundera Rao (Deed) Others Vs State of Tamil Nadu Others reported in 255 ITR 147 at page 153 has categorically held that :- Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant 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 categorically held that accordingly, all the three conditions as required u/s 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction were placed before the Ld. AO and the onus shifted to the Ld. AO to disprove the materials placed before him. Without doing so, the addition made by the Ld. AO is based on conjunctures and surmises cannot be justified. Although the findings of the CIT(A) while deleting the addition has been quoted elsewhere in this submission but in order to demonstrate the similarity between the above said reasoning of Hon'ble ITAT, Kolkata Bench, relevant portion of the findings of CIT(A) in the present case are again reproduced hereunder :- 4.48 In order to invoke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpliance 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. 7. After considering the submissions of both the sides and perusing the entire material available on record, we find that the AO has made the impugned addition u/s.68 of the Act on account of unexplained cash credit as the creditworthiness of shareholders and genuineness of the transaction between shareholders and assessee could not be verified. The CIT(A) deleted the addition holding that the AO was not within his jurisdiction in treating such share capital and share premium as unaccounted cash credit of the assessee company and addition the same u/s.68 of the Act. We find that the assessee in the course of the assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 channel is not sufficient enough to establish the creditworthiness of these shareholders. It is not a case of establishing the source of source but at least basic documentation to establish the creditworthiness of these shareholders should have been brought on record which assessee has failed in the instant case. Whether share subscribers have their own profit making apparatus and were involved in any tangible business activity or were they merely rotated money, which was coming through the bank accounts. These are some of the questions which remain unanswered in the present case. 8. We also note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd., 2nd Floor, Saklat Place, Chandni Chowk, Kolkata Nil 13. Charms Suppliers Pvt. Ltd. 4th Floor, Anjali Apartment, R.B.C. Road, Dumdum, Kolkata 36,240/- 14. Adishwar Trade Link(P) Ltd., 6th Floor, P-41, Princep Street, Chandni Chowk, Kolkata- PIN-700072 36,310/- From the above share applicants companies it is clear that they have meagre income or nil income. While going through the bank statements submitted by the assessee for a small period, which have been placed on record, we find that huge transactions have been made and the amount 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. 8.3 With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. The Delhi High Court in CIT v. Oasis Hospitalities (P.) Ltd. [2011] 9 taxmann.com 179/198 Taxman 247/333 ITR 119, held that : The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise. It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however, act unreasonably ii. In CIT v. P. Mohankala [2007] 161 Taxman 169/291 ITR 278 this Court held that: 'A bare reading of section 68 of the Income- tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression the assessee offers no explanation means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose for which payment/investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. vii. Other cases where the issue of share application money received by an assessee was examined in the context of Section 68 are Lovely Exposes (P.) Ltd. Divine Leasing Financing Ltd. (supra), and CIT v. Value Capital Service (P.) Ltd. [2008] 307 ITR 334 (Delhi) 11. The principles which emerge where sums of money are credited as Share Capital/Premium are i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of ₹ 190 per share, even though the face value of the share was ₹ 10/- per share. iv. Furthermore, 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. 13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assessee Company -Respondent. Clearly the onus to establish the credit worthiness of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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