TMI Blog2021 (2) TMI 1077X X X X Extracts X X X X X X X X Extracts X X X X ..... share premium as mentioned above, the copy of Income Tax PAN card, copy of income tax return and bank statement reflecting the transaction was furnished. Karta of HUF is relative of Mr. Rajendra Jian who is director in the assessee company. So genuineness of transaction is proved being carried at through banking channel and with a related party who knows the assessee company. As regards the creditworthiness and the source of funds used to make investment tail of fund has been provided in this case. Details of funds leave no scope to doubt the genuineness of creditworthiness of the investor Pritesh Jain, HUF. Assessee has proved the identity of the alleged shareholders and there creditworthiness and has also proved the genuineness of transactions of applying for equity share along with share premium paid thereon. Since both the lower authorities have not found any iota of evidence to disprove the facts filed by the assessee to discredit the documents produced before them as well as before us, no addition was called for u/s 68 of the Act for the alleged amount of equity share capital and share premium received - no reason to interfere in the finding of Ld. CIT(A) and the same s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 649, and NRA Iron Steel Pvt. Ltd vs PCIT(2019),and their applicability in the case on hand. 5. The appellant craves leave to add to or deduct from or otherwise amend the above grounds of appeal. 3. Assessee has raised following Cross Objections:- 1. That on the facts and in the circumstances, the Ld. CIT(A) erred in not quashing the order passed by Ld. A.O u/s 143(3) of the Act, which is bad in law and void-ab-initio, since it is passed: a) Without following the guidelines issued by the CBDT in respect of limited scrutiny and converted the limited scrutiny in to full scrutiny without prior approval of the higher authority. b) Without verifying the submissions and evidences submitted by appellant. c) Without providing the statements recorded u/s131 and without giving opportunity of cross examination. 2. That on the facts and in the circumstances, the Ld. CIT(A) erred in not appreciating the contention of the appellant that the amount received as share capital and share premium is capital receipt and therefore cannot be added u/s 68 of the Act. 3. That the appellant craves leave to add, to alter, amend, modify, substitute, delete and/or resci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Reliance was also placed on plethora of judgments. Ld. CIT(A) after considering the same and analysing the facts in the light of the settled judicial precedence was of the view that Ld. Assessing Officer was not justified in making the addition u/s 68 of the Act at ₹ 3,47,01,225/-. Thus, on merit Ld. CIT(A) allowed the grounds raised by the assessee. However, assessee could not succeed on the legal grounds challenging the validity of assessment proceedings on the ground that the assessing officer has exceeded his jurisdiction and has gone beyond the powers provided for conducting the limited scrutiny as he did not took necessary approval from the concerned authorities. 5. Aggrieved revenue is now in appeal challenging the finding of Ld. CIT(A) on merits deleting the additions u/s 68 of the Act and the assessee has raised cross objection with regard to the dismissal of legal ground by Ld. CIT(A). We will first take up Revenue s appeal challenging the deletion of addition u/s 68 of the Act at ₹ 3,47,01,225/-. 6. Ld. DR vehemently argued supporting the order of the Ld. Assessing officer and also referred to the paper book filed on 10.12.2020 which merely contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Para 4.3 Page 11 Only a paper company which has been running solely for the purpose of laundering the promoter s unaccounted wealth and routing his unaccounted money back into the books of the assessee company. The company is a registered NBFC whose major source of income is interest on Loans Advances. No fresh funds have been received in the company since last 7-8 years and therefore no amount was brought in books. No evidence / information was given as to which money was laundered or how it was laundered. Para 4.8 Page 13 Exist entirely for the purpose of providing accommodation entries The rationale behind arriving at such conclusion was not given. From perusal of the computation interest income from the assessee, Pritesh Jain Accrual Estate Developers (a related concern). The share applicant is a HUF of the director of the assessee. Only source of income was interest income from associated concerns and capital gain on which due taxes have been paid and therefore there is no undisclosed income. Para 5.1 Page 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 16 Thus, Proviso to Section 68 is clear: the creditworthiness and genuineness of the subscriber entities needs to be proved in the year under consideration, the year in which they are paying that money. The Ld. AO has very categorically stated that the transactions needs to be tested within the vigor of Sec.68 during the year in which transaction is executed. The assessee and the share subscriber have furnished the source of money, source of source of money and source of source of source of money for more than three transactions and other details for the year under consideration. Despite of the above, the Ld. AO is seeking rationale behind investment by made Shri Rajendra Jain family in these companies way back in FY 07-08 which is not required by the Law. Para 5.5 Page 17 Further apprehension, such as ₹ 90 lakh given out as advance for purchase of property. What was this purchase of property? No explanation or corroborative evidence was provided at any stage The observation made is patently wrong and contrary to the actual state. Detail of the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the facts of the case. Details in respect of transaction of land was explained vide reply dt. 29.12.17 which is appearing at page no.79 of paper book. It was explained that the family members had earned a capital gain of ₹ 3,40,31,055/- on sale of land and the amount so earned and received during the year was utilized for making advances to various group entities. Therefore, this allegation of the Learned AO is not correct. 8. We have heard rival contentions and perused the records placed before us and carefully gone through the decisions referred by the lower authorities as well as the assessee in its written submissions filed before the Ld. CIT(A). The revenue s sole grievance is against the finding of Ld. CIT(A) deleting the addition of ₹ 3,47,01,225/- made by the assessing officer invoking the provisions of section 68 of the Act with regard to the cash credit received during the year in the form of equity share capital and share premium received from following parties: Name No. of shares subscribed Amount paid @ ₹ 75/- per share Pritesh Jain HUF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies in which director of the appe1lant company are also director. Further, Pritesh Jain HUF, is HUF of Pritesh Jain, who is also one of the director of the appellant companyL The two companies which have subscribed to the share application viz M/s. Armaan Barter Pvt. Ltd., Pushpak Pincon Pvt, Ltd. were already the share holders of the appellant company before the issuance of fresh shares under consideration. Further, Pritesh Jain is a director and shareholder of the appellant company and has subscribed to the share application of the appellant company in the capacity of Karta of Pritesh Jain HUF. None of the party from whom the share application money was received was a third party or an outsider. These facts are undisputed. 7.4 Identity of the share applicant established - All the share applicants are part of the group of the appellant which fact has been stated by the appellant company during the assessment proceedings and has been well accepted by the AO. Two out of the three share applicants were existing shareholders of the appellant and the third is a HUF of one of the director of the appellant. On the perusal of the submission, it is evident that during the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, the investor had reduced its investment in the partnership firm M/s. Accrual Estate Developers and withdrew an amount of ₹ 57 Lacs and had utilised the same for making investment in the appellant. Thus, at the end of the year out of the total funds of Rs.I00.07 Lacs, an amount of ₹ 97 Lacs was invested in share capital of the appellant firm. The company is an investment arm and the only activity undertaken is investment in the group concern. The appellant has also emphasized the fact that this share applicant has not introduced any fresh funds either in the form of share capital or in the form of loans during last ten years, which fact further substantiate the creditworthiness of the share applicant. b)Pushpak Fincon Pvt. Ltd. - The company was incorporated in March 1993 and was taken over by Shri Rajendra Jain, director of the appellant company and his family members during the FY 08-09. The company is registered as Non- Banking Finance Company (NBFC) with Reserve Bank of India which has acknowledged the change of management. Various documents have been filed which establishes that Shri Rajendra Jain and his family members have been controlling th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, from the perusal of which it is reflected that the funds have been flown from the associate concerns and there was no fresh funds received from any third party by these investors for making investment in the appellant. Further there were no instances of cash deposit in the bank. 7.8 Transaction established as genuine - The appellant company has furnished a pictorial chart as well as a tabular chart of the movement of funds to and from the share applicant~ which has also been abstracted by the AO in his assessment order and accepted as well which reflects that the amount which were utilized for. subscribing to the share application was already lying with the appellant company or its sister concern M/s. Vijayshri Note Books Pvt. Ltd. The appellant company and both the impugned share holder companies were partner in M/s. Accrual Estate Developers and M/s. Raj Enterprises. These firms are under the same management, in which the surplus funds available with the share applicant companies were invested earlier as their capital. The partnership firm in earlier year had given funds to the appellant company (which is also a partner in the firm] and was reflected as overdrawn amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In order to arrive at the price for the issuance of the shares, valuation as required u/s 56(2)(viib) r.w.r. rule -11UA(2) was furnished during the assessment proceedings which works out to ₹ 76.06 per share as on 31.03.14. Thus, the price at which shares have been allotted by the appellant company is in accordance with the provisions 1pf Income Tax Act and the Rules framed there under and the amount so received was not excessive. The valuation worked out by the appellant stand accepted by the AO in para 2.2 of the assessment order and there are no adverse comments in this regard. During the course of the discussion it was emphasized that the price at which the shares have '!been issued is the lowest price at which the shares could have been allotted, as it was based 'upon, the b.9ok values of various assets and liabilities of the appellant company which did not factor in the goodwill, technical knowhow, appreciation in the value of the assets which could have been used for augmenting the price had the appellant company obtained a valuation certificate from the accountant or merchant banker. 7.13 Source of Source and so on - The appellant company during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has time and again alleged that unaccounted funds have been brought into the books through the impugned share allotment transactions. From the observations made in Para 4.1 to 4.3 of the assessment order regarding the share applicant M/ s Pushpak Fincon Pvt. Ltd. it is seen that the share applicant is assumed to be a paper company and a serious allegation is made that the company is solely running for the' purpose of routing unaccounted money into the books of the appellant company. Identical observations have been made in respect of Arman Barter Pvt. Ltd. in Para 4.4 to 4.6 of the assessment order. 7.16 However, neither there is any cogent material brought on record nor any other basis given in the order which could support such serious allegation. In fact, the flow of funds i.e. the initial point from where the funds moved to the final destination has been properly substantiated by the appellant. The chain of events culminating into the final receipt of funds by the appellant has also been abstracted on page 6 7 of the assessment order by the AO himself, from where it is seen that there is no scope for infusion of any fresh funds into the system in the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s attempted to cast a doubt in respect of shares issued by Pushpak and share premium received thereon six years back and on the basis of this doubt has tried to hold that the money introduced SIX years ago in Pushpak is the source of the money being introduced in the year under consideration in the appellant company in the form of share capital and share premium, This observation establishes the contention of the appellant that no fresh funds have been introduced in the share applicant companies during last many years and also suggests that this fact was also clear in the mind of the AO. In my considered view raising any doubt in respect of transactions which took place six years ago cannot justify the addition made in the year under consideration. 7.21 The AO has further observed that in terms of section 68 the creditworthiness of the subscriber entities and genuineness of the transactions needs to be proved in the year under consideration i.e. the year in which they have made investment in the appellant. I fully agree with this contention of the AO which is the crux of the matter while dealing with the transactions covered u/s 68. The appellant is required to explain the ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in the assessment order regarding the office premises of the two share applicant companies are also too farfetched in the light of the fact that the identity of both the companies was established on record being existing shareholders and also being part of the promoter group and is undisputed. The submission of the appellant on this issue with regard to shifting of the registered office of both the share applicant companies to Indore and the explanation filed during the assessment proceedings (at page no. 85 of paper book) sufficiently takes care of the concerns raised in this behalf. 7.24 It is seen that in Para 5.12 the AO has stated that looking at the source, source of source, and so on, of the funds made available to all the three share applicants, they can all be traced eventually to the funds of the appellant company or its sister concerns M/s Vijayshri Notebook Pvt. Ltd. The appellant emphasized that this observation of the AO in the assessment order explained the entire case of the appellant and categorically establishes that the source and also source of source stood examined and accepted by the AO. In my opinion once the appellant has explained not only the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received an application of ALP. Therefore, absent express legislation.. no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. Court finds considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equ.ity shares to its holding company, a non resident entity, nor the alleged short [all between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act. (ii) The CBDT vide instructions No - 02/2015 dated 29/1/2015 directed the revenue not to file the SLP before directed Ld .AOs to accept the HIgh Court order. The relevant instructions is as under:- 1n reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case Of Vodafon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A. y. 2014-15, In so Jar as the year under consideration is consideration is concerned, the transaction has to considered in the light of the provision of Sec, 68 of the Act, There IS no dIspute that the assessee has given details of names and addresses of the shareholders, their PAN Nos, the bank details and the confirmatory letters. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, 'if the identity is proved, no addition can be made u/ s: 68 of the Act. We draw support from the- decision of the Hon'ble Supreme Court in the case of Lovely Exports Put Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings of the Ld CIT(A). Ground No.l is acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscribers to the increased capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for. (vii) In the case of CIT vs. Expo Globe India Ltd reported in 361 ITR 147, Hon'ble Delhi High Court decided that It has been held by Hon'ble Supreme Court and various High Courts that no addition can be made on account of share application money once the names of the share applicants are given. In the instant case, identity of these persons are not on doubt and assessment particulars of all the persons are on record and there is no material to hold that creditworthiness of these persons are not established. The judgment of Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also the judgment of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt Lid 307 ITR 334 are relevant on this issue. It was held by Hon'ble Madras High Court in the case of CIT vs. Eleciro polychem Ltd. 294 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961. of the three (3) subscriber entities which had introduced share premium and share capital during KY 2014-15. Therefore, the amounts received from these entities, under the garb of share capital and securities premium, i.e. ₹ 3,47,01,225/L, was treated as unexplained cash credits u/s 68 of the IT Act, and added to the total income of the assessee. A detailed speaking order has been passed in this ease which has conclusively established the bogus nature of the share premium and share capital. Remand reports have also been sent in this case on two earlier occasions, as per your directions. In furtherance of the above. 1 would like to draw your honour's attention to the recent landmark judgment of the Hon'ble supreme Court dated 05.03.2019. wherein the order of the AO was upheld and restored by the Apex Court despite being dismissed by the Hon'ble High Court, and previously by the Hon ble ITAT and the Ld. CIT (A).L This is in the case of Pr. CIT Central vs. NRA Iron and Steel Put Ltd. / TSL 106-SCL 2019]. In this case, addition was made u/ s 68 of share capital and premium received from Kolkata based companies. As the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not consider the above and conducted independent field enquiries with respect to the identity and creditworthiness of the investor and genuineness of the transaction. The AO issued summons to the representative of the investor companies and none appeared and in few cases, submissions were received only through DAK without justifying making the investment at such a high premium of ₹ 190/ - and nor produced bank statements to substantiate the source of funds for making such a huge investment in shares while they were declaring a very meagre income in their returns. Hence, the AO. held that the assessee failed to prove the identity and creditworthiness of the investor co. and genuineness of the transaction and hence added back the amount of ₹ 17,60, 00,000/L to the total income of the assessee co. d. On appeal by the assessee co., the CJT (A) deleted the addition made by the A.O. by following the decision of the Delhi High Court m the case of CIT v Lovely Exports Ltd. (2008) 299 JTR 268 (Del.)on the ground that the assessee , had filed confirmations from investor companies, their income tax return acknowledgements with PAN, copies of their bank account to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ite notice, the Supreme Court laid down three principles after analyzing various decisions with reference to treatment of sums of money credited as Share Capital/ Premium: (i) The _Assessee is under a 1egal obligation to prove the genuineness of the transaction, the identity of the creditors, and the credit worthiness of the investors who should have had 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 ID investigate the creditworthiness of the creditor / Subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or there are bogus entries of name- lenders. (iii) if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit worthiness, then the genuineness of the transaction would not be established. The Supreme Court applied the aforesaid principles of the facts and concluded that (i) There was no material to prove or to suggest that the share money was received from independent entities. The genuineness of the transaction was found to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. issued and some of the share holders who . responded did not produced their bank: statements. Therefore, the facts of the appellant are clearly distinguishable and are on a very strong footing. (ii) With respect to the financial capacity/ Source of investment, the appellant co. has submitted clear explanation before the AD. alongwith the documentary evidences such as Balance sheet / bank statements of the subscribers to state that the investors M/ s. Pushpak Fincon Put. Ltd. had assets worth ₹ 4.33 crores and M/s. Armaan Barter Put: Ltd. had assets worth Rs.l.00 crores which by no imagination can be stated nominal (Refer para 2.10 on page 4 and 2.15 on page 5 of the 6th submission before the A. 0.). Apart from the creditworthiness, the appellant also explained the source of the source, that these funds were lying in the group only, which have been optimally utilized and transaction rerouted so that the different balance lying in various companies/ firms are reduced. Also that there are no outside party involved in the transaction. And the sources of capital of the subscribers were established during the respective assessment proceedings and hence the appellant co. h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st decision as already discussed above. 7.31 In my considered view, the appellant has clearly demonstrated that the ratio propounded by the Hon'ble Apex Court in the case of NRA Iron and Steel Pvt. Ltd. cannot be applied in its case as the facts or are on a totally divergent alley. The undisputed facts are that in the case of NRA Iron and Steel Pvt. Ltd. shares were issued to as many as 19 companies which were all outsiders and not related to the assessee at all and on top of this when summons were issued to the investors companies, nobody appeared on their behalf. In some cases, submissions were filed through dak. Even on making independent filed enquiries, some of the notices were not served as the entities were not found at the given address, in some cases in spite of service of notice, the same were not responded and replies were not filed. These facts are in clear contrast to the facts of the present case before me where the investors are not only clearly identified entities, in fact they were already existing shareholders of the appellant even prior to the issuance of share capital under consideration and all of them produced themselves before the AO and their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish the genuineness of the transactions and creditworthiness of the subscriber. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors / subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. Thus element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order that lender is not credit worthy. It is noted that that the AO has doubted the transaction and tried to establish that the companies are not creditworthy as there was no rationale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. No. Particulars Arman Barter Pvt. Ltd Pushpak Fincon Pvt. Ltd. 1 Date of Incorporation 09/03/2007 31/03/1993 2 Present address Amalgamated with Pushpak Fincon Pvt. Ltd. w.e.f. 01/04/2016 61/4, R. R. Industrial Park Near Super Corridor ROB Village Bardari 3 Directors Rajendra Jain Pritesh Jain Rajendra Jain Pritesh Jain 4 Owned by Shri Rajendra Jain family since 09/02/2009 31/03/2009 5 Net Worth as on 31.03.2014 1,00,37,394/- 4,29,69,238/- 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to prove creditworthiness of the two investors Private Limited Companies has furnished the trail of the funds invested by these two investor companies were filed before the lower authorities and before us reads as under: For Armaan Barter Private Limited Vijayshri Packaging Limited ₹ 145 Lacs (Repayment of debit balance in firm) Accrual Estate Developers ₹ 57 Lacs (Repayment of credit balance in firm) Armaan Barter Pvt Ltd ₹ 57 Lacs (Share Application money given to the assessee) Share capital of Vijayshri Packaging Limited For Pushpak Fincon Private Limited Transaction 1 Vijayshri Packaging Limited ₹ 145 Lacs (Repayment of debit balance in firm) Accrual Estate Developers ₹ 88 Lacs (Repayment of credit balance in firm) Pushpak Fincon Private Limited ₹ 87 Lacs (Share Application money given to the assessee) Share capital of Vijayshri Packaging Limited Transaction 2 Vijayshri Note Books Private Limited ₹ 140 Lacs (Repayment of debit balance in firm) Accrual Estate Developers ₹ 134 Lacs (Repa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he settled judicial precedence applicable in the case of assessee which was found to be in the favour of assessee by Ld. CIT(A) who has dealt with the decision in detail as referred by us in the preceding paras and has also differentiated the facts with the cases relied by the assessing officer. Thus, we are of the view that the assessee has proved the identity of the alleged shareholders and there creditworthiness and has also proved the genuineness of transactions of applying for equity share along with share premium paid thereon. Since both the lower authorities have not found any iota of evidence to disprove the facts filed by the assessee to discredit the documents produced before them as well as before us, no addition was called for u/s 68 of the Act for the alleged amount of equity share capital and share premium received at ₹ 3,47,01,225/-. Thus, there is no reason to interfere in the finding of Ld. CIT(A) and the same stands confirm. Accordingly all the grounds raised by the revenue stands dismissed. 16. As regards, Cross Objection filed by the assessee challenging the validity of assessment proceedings, on the ground that the assessing officer has exceeded the po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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