TMI Blog2019 (12) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be faulted with and we find no reason to interfere with the same. Characterization of income - interest income - income has been held to be business income as against Income from other sources - HELD THAT:- We would concur with the submissions of Ld. AO that the same was assessable as Income from other Sources since undisputedly, the said investments were out of surplus funds and the assessee was not engaged in the business of finance and investment.Therefore, we hold that the said income was rightly brought to tax by Ld. AO as Income from other sources. Allowable business expenditure - since they were stated to be incurred for maintaining the corporate status and for the purpose of statutory compliances. The revenue has not agitated the same before us and therefore, the said conclusion would require no adjudication from our side. The Ld. AO is directed to recompute the income of the assessee in terms of this order. - I.T.A. No.5736/Mum/2018 - - - Dated:- 5-12-2019 - Shri C.N. Prasad, JM And Shri Manoj Kumar Aggarwal, AM For the Appellant : Shri S. Michael Jerald- Ld. DR For the Respondent : Shri Satish Mody Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Subject to the above, Special Leave Petition is dismissed. The ratio of said decision has subsequently been followed by various judicial authorities in catena of judicial pronouncements. The said decision has been followed by Hon ble Bombay High Court in the case of CIT Vs. Gagandeep Infrastructure Private Limited [80 Taxmann.com 272] subsequently in CIT Vs. Orchid Industries Private Limited [88 Taxmann.com 502]. The Hon ble Delhi High Court followed the said decision in Pr. CIT V/s Adamine Construction Pvt. Ltd. [107 Taxmann.com 84] against which revenue s Special Leave petition was dismissed by Hon ble Supreme Court reported at 107 Taxmann.com 85. Similar is the position of decision of Hon ble Delhi High Court rendered in Pr. CIT V/s Himachal Fibers Ltd. [98 Taxmann.com 72] against which revenue s Special Leave Petition was dismissed by Hon ble Supreme Court reported at 98 Taxmann.com 173. Similar is the decision of Hon ble High Court of Madhya Pradesh in Pr. CIT V/s Chain House International Pvt. Ltd. [98 Taxmann.com 47] against which revenue s Special Leave Petition has recently been dismissed by Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upon perusal of financial statements, it transpired that the assessee had issued 437500 equity shares of face value of ₹ 10/- each at a premium of ₹ 70/- per share during the year to as many as 12 Corporate entities, the details of which has already been extracted in para-7 of the quantum assessment order. Accordingly, the assessee was required to prove the identity of the investors, their respective creditworthiness and genuineness of the transactions. In defense, the assessee furnished various documents pertaining to assessee was well as investor entities viz. Copy of Annual Return, Copy of Income Tax Return, Copies of bank statement, Return of Allotment, Copies of PAN card etc. to demonstrate the fulfillment of primary ingredients of Sec. 68. The attention was drawn to the fact that most of the investor entities were engaged in trading / manufacturing activities and had substantial reserves to make the stated investments in the assessee company. It was further submitted that the money was received through proper banking channels. 4.4 However, notices issued u/s 133(6) to investor entities to file the requisite details remained un-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital at a premium. The attention was drawn to the fact that in support of the stated transactions, the assessee had furnished copies of PAN Card of share applicants, Share Application forms, copies of respective bank statements of the shareholders, audited financial statements, copies of Income tax return, confirmation letters etc. which would demonstrate the fulfilment of primary ingredients of Sec.68. The attention was also drawn to the fact that Ld. AO did not find any incidence of cash deposits or cash withdrawals in the bank accounts of the share subscribes. As against the evidences produced by the assessee, Ld. AO did not bring on record any material to controvert the documents furnished by the assessee to demonstrate the identity of the investors, their creditworthiness and genuineness of the transactions and therefore, the additions u/s 68 were not justified. The case laws being relied upon by ld. AO were factually distinguished. Reliance was placed on various favorable decisions rendered by Hon ble High Courts / Tribunal under similar factual matrix. 5.2 The learned first appellate authority, in the light of assessee s submissions, deemed it fit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hannels and necessary bank statements were produced during appellant proceedings as well as assessment proceedings as acknowledged by the AO in the assessment order. The AO himself acknowledged that relevant bank statements along with audited accounts and confirmation and PAN numbers of the investee companies were received in response to notices u/ s.133(6) from the 12 investee companies. Since both the debit and credit entries were carried out through cheques, and furthermore under remand all the correspondences and confirmations of the investee companies have confirmed under oath and/ or in writing the investment in the assessee company, therefore, genuineness of transaction cannot be doubted and the onus regarding genuineness of transaction stands discharged. The AO has relied on the ruling of the Apex Court in N. Tareka Properties Investment Pvt Ltd [2014] 51 Taxmann.com 387 regarding genuineness of the investment however I find the same is distinguishable on facts of the case as in that case it was held that subscribers bank account statement were forged and fabricated as there were corresponding cash deposits before issue of share application cheques. False evidence has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... half of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The Apex Court in a case in this context to the pre-amended section 68 has held that where the revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income tax Officer to proceed by reopening the assessment of such shareholder and assessing them to tax in accordance with law. It does not entitle the revenue to add the same to the assessee's income as unexplained cash credit. [Para 31] Hence, following the judgement of Hon'ble Jurisdictional High Court and that of the full bench of the Hon'ble Delhi High Court in Devine leasing (SLP dismissed) and Sophia Finance Ltd identity of the investee shareholders stands proved. 6.1.10 Creditworthiness: At page 15 of assessment order and the inquiry report the AO has also disputed the creditworthiness of the investee companies stating that the investee companies have no networth of their own. I find that the AO has grossly erred in these o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company. If relevant details of address and identity of the subscribers are furnished to the department along with copies of the shareholders register, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee. c. In Hindustan Inks Resins Ltd. vs. Dy. C.LT. 60 DTR 0018 (2011) the Hon'ble Gujarat High Court has held as under: From the concurrent findings recorded by the authorities below, it is apparent that none of the parties have recorded any findings to the effect that the identity of the depositors had not been established by the assessee. The case of the respondent is that the assessee has failed to explain the source of such cash as well as creditworthiness of the, deposits. It is not the case of the revenue that the subscribers are bogus. The case of the revenue is that the source of such cash as well as creditworthiness of the depositors has not been explained. In the circumstances, the department is free to proceed to reopen the individual assessments of the deposits named by the assessee, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed the investment and the AO having not given his specific comments on his enquiries pertaining to them except for nine shareholders, addition u/ s.68 cannot be sustained. h. In CIT vs. Gangour Investment Ltd. 335 ITR 359 (2011) the Hon1ble High Court of Delhi held that assessee company having filed the subscription forms of the investors, including IT Ltd., a group company, containing details and information with respect to their addresses as well as PAN; thereby establishing their identity and also supplied a copy of the statement of bank accounts of TT Ltd., it has discharged its onus in respect of veracity of the transaction and therefore, the addition u/ s.68 made by the AO in respect of the impugned investment made by TT Ltd. has been rightly deleted. 6.1.12 In the instant case, having regard to the documents furnished before me, I am convinced about the identity of the investor, genuineness of transaction along with creditworthiness of the shareholders and the share subscription money paid by them duly reflected in the bank account of the Appellant assessee company. Hence, the facts do not warrant an addition under section 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from ground no.2, the revenue is aggrieved by the fact that stated income has been held to be business income as against Income from other sources as assessed by Ld. AO. The revenue has not challenged the allowance of expenditure by learned first appellate authority. 6. We have carefully heard the arguments advanced by respective representatives and perused relevant material on record and deliberated on various judicial pronouncements as cited before us. 7. Upon careful consideration of factual matrix as enumerated in the preceding paragraphs, it is quite evident that the assessee was successful in discharging the primary onus of demonstrating the fulfilment of primary ingredients of Section 68. The identity of the investor entities was established by the fact that all the entities were regular in filing their respective tax returns and assessed to Income Tax. Regarding creditworthiness, it is undisputed fact that all these entities had adequate reserves in the financial statements to make further investments in the assessee company. In fact, the said findings have been recorded by learned Assessing officer himself. No adverse material is on re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome during assessment year under dispute. The two companies in Mumbai as well as Guwahati were found to be non-existent. With respect to Kolkata Companies, the response came through DAK only and nobody appeared. Further, the bank statements were not produced in most of the cases to establish the source of funds for making huge investments. However, the factual matrix, before us, in the present case is quite different. As noted in earlier paragraphs, the investor entities were assessed to tax and the assessee has discharged the initial onus of proving the identity of the investors, creditworthiness of the entities and genuineness of the transactions. Therefore, the ratio of aforesaid decision, in our respectful submission, do not apply to the facts of the case. Finally, on the facts and circumstances of the case, ground no.1 of the appeal stand dismissed. 9. So far as the head under which interest income would be assessable to tax is concerned, we would concur with the submissions of Ld. AO that the same was assessable as Income from other Sources since undisputedly, the said investments were out of surplus funds and the assessee was not engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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