TMI Blog2020 (12) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... heques out of sufficient bank balances available in the bank accounts of the share applicant. It will be evident from the paper book that the assessee has even demonstrated the source of money deposited into their bank accounts, which in turn has been used by them to subscribe to the assessee company as share application. As source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year. The share applicant has confirmed the share application as well as the payments made to the assessee company, which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. We note that section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicant. The PAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t company has failed to discharge its onus of proving the identity and creditworthiness of share applicants and genuineness of the transactions. The Ld. CIT(A) has erred in confirming the action of A.O. 4.b) The A.O has erred in observing that investors are companies which have no financial muscle to invest. Infact, as evident from the replies of share applicants in response to notices u/s 133(6) of the Act, that the each share applicants had substantial funds in the form of share capital and reserves out of which the share subscription amounts were paid. The own funds of the investors were substantially more than the amounts invested in the assessee s shares. 4. c) That in the facts and circumstances of the case, the A.O has erred in making additions u/s 68 of the Act by inter-alia observing that the premium of Rs, 49/- per share was not justified. The A.O has erred in not relying on submissions at assessment hearing stage with respect to justification of premium. The Ld. CIT(A) has erred in confirming the action of A.O. 4.d) The additions made by the A.O are based purely on surmises, pre-conceived notion and on the basis of his inference drawn from the alleged r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate order. 8.b) That in the facts and circumstances of the case, the Learned CIT(A) has erred in ignoring the rejoinder to the enquiry report filed during appellate proceedings and proceeded to pass appellate order on pre-conceived notion. 9. That in the facts and circumstances of the case, the assessment order is bad in law, the Ld. CIT (A) has erred in confirmatory the same as his order is untenable in law. 10. That the appellant humbly craves leave to add, alter, withdraw all or any grounds of appeal at the time of hearing . 3. Facts of the case which can be stated quite shortly are as follows: In pursuance of Warrant of Authorization issued by the Director of Income Tax (Investigation) Patna, search seizure operations u/s 132(1) of the Act were carried out in the business and residential premises of Poddar Group of cases on 22.06.2011 and subsequent dates. The present assessee is one of the flagship concern of the said group. During the financial year under consideration, the assessee company received share application money from M/s Rohan finance securities Ltd. Total number of shares issued is 90,000 at the face value of ₹ 1/- per share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 708.29 18.11 8.94 5.94 606.81 31/03/2011 1966.22 24.25 15.55 11.18 662.10 Based on the above strong financial strength as per audited accounts, the company has issued shares at a premium. 4.Book value of shares at the end of the financial year: Date Face Value Book Value 31.03.2008 10/- 44.37 31.03.2009 10/- 46.17 31.03.2010 10/- 47.70 The value shall significantly increase if we consider the market value of immovable properties held by the company and the replacement value of plant and machinery. You have raised an issue how the investors were secured. The investors were allotted shares and they had all rights as available to a shareholder. All the shares issued by the company were pari-passu in all respects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. In the appellate proceeding, the appellant has controverted this finding on following arguments: i) No incriminating document were found or seized during search and seizure action pertaining to the share application money. Therefore, the AO was not within his jurisdiction to assess this issue u/s 153A of the Act. ii) The issue of shares application premium is a capital a/c transaction and not a revenue transaction and it cannot be subject matter of addition unless there is specific provision in the Act. The applicant has referred to the judgment of Bombay High Court in the case of Vodafone India Services Pvt Ltd Vs. Union of India 50 Taxmann.com 300. iii) The appellant has contended that the companies financial over the last few years were very sound which led the company to issue shares at a premium. iv) The appellant has contended that the AO did not give any opportunity before using material gathered by him and has referred to the decision of Supreme Court in the case of Dhakeshwari Cotton Mills Vs CIT 34 ITR 123. Based on this decision, the appellant claimed that the order was passed in violation of principle of natural justice and therefore suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention that share application premium is on capital account and as per the decision of Bombay High Court in the case of Vodafone India Services Pvt. Ltd, I find that in the current case the share application money and share premium was received from subscriber companies which were third parties and their identity, genuineness of transaction and creditworthiness was not proved by the appellant before the AO. These subscriber companies were mere share applicants whose credentials were under question. In the case of Vodafone India Services Pvt. Ltd the facts were different and distinguishable from the facts of the current case. With regard to the appellant s contention of violation of principle of natural justice, I find that the AO had required the appellant to prove the share application money received from various parties as per provision of sec. 68 of the Act. The appellant did not bring any of the Directors / Representatives of the subscriber companies who had invested several crores of Rs. in the shares of the appellant company. It is hard to believe that the subscriber companies who invested substantial amount of money in the share application in the appellant company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any sum is found credited in the books 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 satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. It is well known that provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 16.12.2010 of ₹ 45,00,000/-. (g) Transaction with the assessee was duly highlighted in the bank statement (h) Copy of Income tax return acknowledgement. (i) Evidences of source of source of the share holders j) PAN Number(address proof) All these evidences are available in the paper book from pages 96-119 of the paper book, which were submitted before the assessing officer. 11. Before addressing the legal issue involved in this case, we would like to bring on record the various documents relating to the assessee company to justify the share premium received by it, which are available in the paper book and ld Counsel submitted the same before the Bench. The ld. Counsel submitted before us audited annual accounts A.Y. 2011-12 vide PB 1 to 16 and stated that during the year ended 31.03.2011, the assessee has turnover to the tune of ₹ 19,66,22,229/- and net profit before taxation to the tune of ₹ 15,54,573/- which clearly shows that the company is progressing and having good turnover and declaring profit (PB-06). During the previous year ended 31.03.2010 the assessee company has turnover of ₹ 17,08,29,352/-. The assessee company has reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on HDFC bank, ₹ 45,00,000/0. (e). Share Allotment Letters (f). The above transaction was made by the share subscribing company out of the amount received from M/s Lavender Tie-up Pvt Ltd, vide RTGS dated 16.12.2010 of ₹ 45,00,000/-. (g) Transaction with the assessee was duly highlighted in the bank statement (h) Copy of Income tax return acknowledgement. (i) Evidences of source of source of the share holders j) PAN Number (address proof), documents filed with ROC. 13. The Ld. Counsel submitted that the details of PAN, IT Acknowledgment, and the Form 18 furnished by the share applicant with the ROC duly proved the identity of the share subscriber. The Ld. Counsel thereafter invited our attention to the respective balance sheet of the share applicant to show that share applicant had sufficient funds available at their disposal to make investment in the assessee company. Referring to the respective bank statements, it was further pointed out that the transactions were conducted through proper banking channel and that there were no cash deposits in any of the bank account of the share applicant. He also invited our attention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved the identity, creditworthiness and genuineness of the transaction. We note that in such a case the Hon'ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523, has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word may in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:- Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld as under:- The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank' accounts was generated from the appellant and/or from its associates, in any manner. The certificates issued by the banks are construable as evidence about the ownership of the transferors or their respective bank accounts, as per s.4 of the Bankers' Books evidence Act 1891, which read as under: 4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom.361 : 1987 Mah. 725: 1987 Bank J 552. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act which reads as follows: Burden of proving fact especially within knowledge.-When any fact is especially within the knowledge of any person, the burden) of proving that fact is upon him. ******** What, thus, transpires from the above discussion is that white section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had' with the creditor and he may not know what transaction(s) had taken place b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from. undisclosed sources merely on the failure of the subcreditors to prove their creditworthiness. 18. In the case of CIT Vs Jalan Hard Coke Ltd (95 taxmann.com 330), the Hon ble Rajasthan High Court noted that the assessee had furnished the details of the share applicants but expressed its inability to produce the share applicants before the AO for examination. The Hon ble High Court held that mere non-appearance of share applicants could not be reason enough to assess the share application monies received by way of unexplained cash credit. The SLP filed by the Revenue against this judgment has been dismissed by the Hon ble Supreme Court. The relevant extracts of the judgment are as follows: 6.2 Taking into consideration the aforesaid decision we are of the considered opinion that company cannot be assessed for the income tax to find out the person who has applied as sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principle which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities. 21. Our attention was also drawn to the decision of the Hon'ble Supreme Court while dismissing SLP in the case of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295: Can the amount of share money be regarded as undisclosed income under section 68 of the Income tax Act, 1961? 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 alleged bogus shareholders, whose names are given to the AO, 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. 22. Our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. Our attention was also drawn to the decision of the Hon'ble High Court, Calcutta in the case of Commissioner Of Income Tax vs M/s. Nishan Indo Commerce Ltd in ITA No. 52 of 2011 dated 2 December, 2013 wherein the Court held as follows: The Assessing Officer was of the view that the increase in share capital by RS.52,03,500/- was nothing but the introduction of the assessee's own undisclosed funds/income into the books of accounts of the assessee company. The Assessing Officer accordingly treated the investment as unexplained credit under Section 68 of the Income Tax Act and added the same to the income of the assessee. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) being the First Appellate Authority and contended that the Assessing Officer had no material to show that the share capital was the income of the assessee company and as such the addition made by the Assessing Officer under Section 68 of the Act was wrong. The learned Commissioner of Income Tax (Appeals) after hearing the department and the Assessee Company deleted the addition of ₹ 52, 03,500/- to the income of the assessee company d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (2003) ITR 3000 where a Division Bench of this Court held that when Section 68 is resorted to, it is incumbent on the assessee company to prove and establish the identity of the subscribers, their credit worthiness and the genuineness of the transaction. The aforesaid judgment was rendered in the context of the factual background of the aforesaid case where, despite several opportunities being given to the assessee, nothing was disclosed about the identity of the shareholders. In the instant case, the assessee disclosed the identity and address and particulars of share allocation of the shareholders. It was also found on the facts that all the shareholders were in existence. Only nine shareholders subscribing to about 900 shares out of 6, 12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment. By an order dated 2nd May, 2001, this Court admitted the appeal on three questions which essentially centre around the question of whether the Appellate Commissioner erred in law in deleting the addition of ₹ 52, 03, 500/- to the income of the assessee as made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m legitimate sources. The objective of section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed, the investigation report which was specifically called from the concerned department was available but not discussed by the Assessing Officer. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants particulars were available with the Assessing Officer in the form of balance sheets income-tax returns, PAN details etc. While arriving at the conclusion that he did, the Assessing Officer did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee's account to the share applicants' account. As held concurrently by the Commissioner (Appeals) and the Tribunal, these conclusions were clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per law as it stood/ applicable in this assessment year. The share applicant has confirmed the share application as well as the payments made to the assessee company, which are duly corroborated with their respective bank statements and all the payments are by account payee cheques. We note that section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicant. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we delete the addition made by the assessing officer to the tune of ₹ 45,00,0000/-. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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