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2020 (3) TMI 227

..... ies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the account .....

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..... f the Act was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has received share application money of ₹ 3,87,72,000/-. The ld.AO has called the assessee to submit identity of the creditors, capacity of creditors to advance money, and show genuineness of the transaction. According to the AO, the assessee has submitted partial information. Thereafter, the ld.AO has made reference to large number of decisions viz. Rajshree Synthetics P.Ltd. Vs. CIT, 176 CTR 300 (Raj), ITO Vs. Diza Holdings P.Ltd., 173 CTR 45 (Ker), CIT Vs. N.R. Portfolio P.Ltd., 263 CTR 456 (Del), and ultimately made addition of ₹ 3,87,72,000/-. 4. Dissatisfied with the addition the assessee carried the matter in appeal before the ld.CIT(A). It has filed an application for additional evidence, which was allowed by the ld.CIT(A). In paragraph-2.3 on page no.13 of the impugned order, the ld.CIT(A) has observed that the assessee was prevented by sufficient reasons, and therefore, in the interest of justice, additional evidence was admitted. He sent those evidences to the file of the AO for verification and necessary inquiry related to the assessee. The .....

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..... on page no.18 and 19 of the impugned orders that these share applicants have shown meager income, and therefore, their credit-worthiness is doubtful. According to the ld.counsel for the assessee, the return of income shown by a party cannot be a criterion to judge his credit-worthiness. Even in the case of loss making company, there could be assets and the liabilities, which could authorise such particular company to apply for share of another company. The AO has not considered any such circumstances. He has just drawn an inference from the income-tax returns, and held that these share applicants were not having capacity to subscribe shares of the assessee s company. He further contended that as far as Shri Anilkumar Champalal Jain is concerned, he is proprietor of M/s.Anil Enterprise, and he is brother of one of the directors hence, his identity is never in dispute. For buttressing his contention, he made reference to the decision of Hon ble Gujarat High Court in the case of CIT Vs. Ranchhod Jivabhai Nakhava, 208 TAXMAN 35. He also relied upon judgment of Hon ble Gujarat High Court in the case of Associated Transrail Structure Ltd. Vs. ACIT, 397 ITR 573 (Guj) as well as judgment o .....

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..... her hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the accounts of the assessee, then role of section 68 would come. It is pertinent to take note of this section. It reads as under: Where any sum is found credited in the boo .....

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..... der company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. 10. Let us take into consideration observations made by the Hon ble Delhi High Court in the case of Softline Creations P.Ltd. (supra) while taking note of judgment of Hon ble Delhi High court in the case of CIT Vs. Fair Finvest Ltd., 357 ITR 146 (Delhi). Hon ble Delhi High Court made following observations: ….. This court has considered the concurrent order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of permanent account numbers, to highlight the identity of the share applicants, as well as produced the affidavits of the directors. Furthermore, the bank details of the share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness .....

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..... h to note: …In this connection the observation of the jurisdictional High Court in case of Dwarkadhish Investment (Supra) are quite relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person. Further in the case of CIT vs. Victor Electrodes Ltd. 329 ITR 271 it has been held that there is no legal obligation on the assessee to produce some Director or other representative of the Director or other representative of the applicant companies before the A.O. Therefore failure on part of the assessee to produce the Directors of the share applicant companies could not by itself have justified the additions made by the AO particularly when the seven share applicant companies through their present Directors have now again filed fresh affidavits confirming the application and allotment of shares with respect to the total amount of ₹ 45 Lacs. It is observed that no attempt was made by the AO to summon the Directors of the share applicant companies. Moreover, it is settled law that the assessee need not prove the "source of source". Accordingly it was incumbent upon the department to have enforced attendance of .....

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..... ivious of these ground realities. 13. In order to complete the method requires to be adopted or the approach requires to be taken by an adjudicator in such type of litigation, we are also deem it appropriate to take note of the decision of Hon ble Bombay high Court rendered in ITA No.1231 of 2017 in the case of Pr.CIT Vs. Ami Industries (India) Ltd. In this case, there were three share applicants, who are Kolkatta based companies, and had paid ₹ 34 crores as share application money. The AO has directed the investigation wing of Kolkatta to make an inquiry about these companies. It is noticed from the paragraph 20 of the judgment that investigation wing reported about the existence of those companies. The ld.AO did not give much credence to the report, but recorded a finding that these companies have disclosed very meager income in their returns of income, and therefore doubted their credit-worthiness. The AO accordingly treated the alleged share application money as bogus, and made addition. Matter went to the ld.CIT(A) who deleted the addition, and thereafter the said order met approval of the Tribunal. Dissatisfied with the order of the Tribunal, Department went to the Hon .....

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..... ing Officer had made inquiries through the investigation wing of the department at Kolkata and collected all the materials which proved source of the source. 22. In NRA Iron & Steel (P) Ltd (supra), the Assessing Officer had made independent and detailed inquiry including survey of the investor companies. The field report revealed that the shareholders were either non-existent or lacked credit-worthiness. It is in these circumstances, Supreme Court held that the onus to establish identity of the investor companies was not discharged by the assessee. The aforesaid decision is, therefore, clearly distinguishable on facts of the present case. 21. Therefore, on a thorough consideration of the matter, we are of the view that the first appellate authority had returned a clear finding of fact that assessee had discharged its onus of proving identity of the creditors, genuineness of the transactions and credit-worthiness of the creditors which finding of fact stood affirmed by the Tribunal. There is, thus, concurrent findings of fact by the two lower appellate authorities. Appellant has not been able to show any perversity in the aforesaid findings of fact by the authorities below. 22. .....

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..... plicant has not furnished the copy of income tax return and complete bank accounts, the credit worthiness of the applicant are not proved. (iii) Maars Software International Ltd Chennai. The above party has filed confirmation in respect of payment made of ₹ 2,05,70,000/- and also confirmed vide letter dated 24/03/2016 that the payments were made towards the share application money for the allotment of shares of M/s D. J Stock Broking Pvt. Ltd. Copy of share application forms and details allotment etc. have been furnished. It is also stated that out of above share application money ₹ 70 lakhs were paid by M/s Anil Enterprise to M/s D J Stock Broking Pvt. Ltd as per the its instruction. The copy of instruction letter has also been attached. The copy of income tax return along with Balance sheet has been furnished. However, on verification of return of income it is seen that there was lossj of ₹ 7,36,567/-. Further copy of bank statement reflecting the transactions have not been furnished. Therefore, the credit worthiness of the applicant is not proved. (iii) Shri Anil Kumar Jain.(Prop of M/s Anil Enterprise) The above party has filed confirmation in respect of payme .....

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..... oprietorship concern of Shri Anilkumar Champalal Jain. Shri Anilkumar has filed confirmation in respect of payment of ₹ 70 lakhs on behalf of Maars Software, and thereafter submitted that for this amount, shares were not allotted, but money was returned during the accounting year 2012-13. Now, the ld.counsel submitted that this Anilkumar is brother of one of the directors, though this fact was not unearthed by the AO in his remand report. The AO nowhere discussed about the genuineness of the balance payment of Maars software i.e. ₹ 2,05,70,000/- minus ₹ 70,00,000/-. It might have been received in earlier years, and could be part of the total payment considered by the AO. It suggests that he has not conducted any inquiry about both these concerns. When the assessee has been alleging that ₹ 70.00 lakhs received during this period from Maars Software has been returned to the contributor i.e. Anil Enterprises, who had paid it on behalf of the Maars Software, he simply doubted it, the AO should have conducted more inquiries. 19. As far as payment received from Ski High Financial Services is concerned, though according to the AO, the assessee did not file copy of .....

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