TMI Blog2021 (3) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. - I.T.A. No. 2466/Kol/2018 - - - Dated:- 25-2-2021 - Shri J. Sudhakar Reddy , AM and Shri A. T. Varkey , JM For the Appellant : Shri Imokaba Jamir , CIT For the Respondent : Shri Bisweswar Ghosh , A. R ORDER Per Shri A. T. Varkey , JM : This is an appeal preferred by the assessee against the order of Ld. CIT(A)-5, Kolkata dated 31.08.2018 for Assessment year 2012-13. 2. The grounds of appeal raised by the revenue reads as under: i) That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 50,30,00,000/- under section 68 of the Act on account of unexplained share application money received during the FY.- 2011-12 related to AY.2012-13. ii) That in the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 50,30,00,000/- under section 68 of the Act on account of unexplained share application money received during the FY.- 2011-12 related to AY.2012-13 without considering the fact that the explanations regarding nature and source of share application money was not found to be satisfactory by the assessing officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither the directors of the assessee company nor the directors of the share subscribing company appeared before him to substantiate their identity, creditworthiness and genuineness of the transaction. Therefore AO was of the opinion that the assessee failed to satisfy the identity, creditworthiness and source of funds of share subscriber company and also the genuineness of the share subscription of transaction, so he are made an addition of ₹ 50.30 crores. 5. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition [after re-producing the remand report from AO] by holding as under: During the course of appellate proceedings, a remand report was sought from the AO vide letter dated 30.08.2016 in which the AO was directed to verify the authenticity of the documents filed with written submission filed by the appellant. In the forwarding letter the AO was directed to submit his comments on the claim made by the appellant that all the directors had appeared several time in response to notice u/s 131 of the I T Act but the deposition was not taken. The directors therefore had no alternative but to file written submission on 23.02.2015 along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its burden of proof to substantiate its claim of introduction of fresh share capital, even after several opportunities provided to it and forcing the A.O. to conclude that 'its purported fresh share capital, amounting to ₹ 50,30,00,000/- is nothing but assessee's own money conducted under the grab of fresh share capital into its Books of account. On perusal of relevant records, it is observed that during the remand stage while seeking remand report from the then A.O., the A.R. of the appellant assessee company, Sri R. Dubey appeared and filed details and document in support of the claim which is duly recorded in the order sheet noting dated 19.09.2016. Further, as per the order sheet noting dated 19.01.2017, the promoter directors of the appellant assessee company, namely Sri Hansraj Jain, Sri Sanjay Jain, Sri Ajay Kr. Jain and Sri Navin Kr. Jain appeared before the then A.O. in support of its claim and had furnished copy of respective Aadhar cards to substantiate their identities which were kept on record. During the present remand stage, the appellate assessee company filed one written submission along with relevant annexure vide its letter received by this o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty share of the Company to M/s Ganesh Cement Pvt Ltd. The appellant assessee company had submitted the relevant audited accounts of the relevant assessment year 2012-13 of M/s SKJ Coke Industries Limited along with copy of assessment order u/s 143(3) of the Act, passed by DC1T, Circle-1(2), Kolkata. The appellant assessee company also enclosed the copy of relevant ITR, copy of PAN. From the relevant audited account of M/s SKJ Coke Industries Ltd. it is further revealed that Sri Hansraj Jain, Sanjay Jain, Ajay Jain and Navin Jain were shown as shareholders having substantial shareholdings in the company. On perusal of the remand report, it is crystal clear that the promoters/directors of the company had appeared before the AO and had furnished copy of the Aadhar Cards to substantiate their identities. The promoters/directors had submitted the copies of PAN cards, ITR, balance sheet, copy of relevant ledger showing investment in shares of M/s Sri Ganesh Cement Pvt Ltd and also details of disclosing source of funds for payment of relevant share application by the four directors of the appellant company. All these details were confirmed during the appellate proceedings fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor is assessed under the Act, the Assessing Officer should enquire from the Assessing officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee 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. The appeal is thus devoid of any substance and is summarily dismissed. There is no material on record produced by the AO during the assessment and remand stage whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 15.05.2007 where the Hon'ble Court has held that: The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessees such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression the assessees offer no explanation means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax Vs. M/s Paradise Inland Shipping Pvt. Ltd. , tax Appeal no. 66 of 2016, Order dated 10.04.2017, the Court held that: 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for the Appellants was unable to point out that any of such findings arrived at by the authorities below were on the basis of misleading of evidence or failure to examine any material documents whilst coming to such conclusions. Under the guise of the substantial question of law, this Court in an Appeal under Section 260A of the Income Tax Act cannot re-appreciate the evidence to come to any contrary evidence. Considering that the authorities have rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al proceedings and relevant submissions during assessment proceedings Including remand report, clearly absolves the appellant of non cooperation, as held by the AO in the assessment order passed under section 143(3) of the Act, which was the main plank for the addition of share capital as unexplained cash credit u/s 68 of the I T Act, 1961. A conspectus of the transactions involved indicates that M/s SKJ Coke Industries Ltd has transferred stake in its unit M/s Jupiter Cement Industries in lieu of shares of the appellant company. These transactions come within the definition of barter/exchange. Section 68 would therefore not apply on these transactions as discussed hereinabove. This is not a case where shares have been subscribed by shell companies at a premium. Therefore, in light of the submission made by the A/R of the appellant, relevant judicial decisions and perusal of the remand report and assessment records, the addition of ₹ 50,30,00,000/- is deleted. These grounds of appeal succeed and are therefore allowed. The A.O. is directed accordingly. 4. In the result, the appeal is allowed.[Emphasis given by us] 6. Aggrieved by the aforesaid action of Ld. CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd of Directors of the assessee company vide Resolution dated 26.11.2011 resolved to increase the authorized share capital from ₹ 20 lakhs to ₹ 50,50,00,000/-. And Form no. 5 was duly filed with ROC West Bengal on 28.11.2011. The assessee company had paid ROC fees of ₹ 25,85,000/- for increasing authorized share capital by ₹ 50,30,00,000/-. The payment was made vide demand draft No. 024621 dated 26.11.2011 which was deposited on 28.11.2011. The Board of Directors subsequently vide resolution dated 28.11.2011 had resolved to issue 5 crores equity shares of ₹ 10/- each equivalent to share capital of ₹ 50 crores in favour of M/s SKJ Coke Industries Ltd in lieu of purchase of the undertaking namely M/s Jupiter Cement Industries from the said company. The respective Form 2 has been filed with ROC West Bengal and ROC fees paid on 07.12.2011. In Form No. 2, it was clearly mentioned that the shares were allotted for consideration otherwise than by cash. The assessee company had also amended its objects in the Memorandum of Association of the Company to incorporate the control/management of M/s Juptier Cement Industries and filed respective Form 23 along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f M/s Jupiter Cement Industries to M/s Ganesh Cement Pvt Ltd vide a deed of agreement dated 28.11.2011. It was further stated that M/s Ganesh Cement Pvt Ltd agreed to satisfy the Liabilities of M/s SKJ Coke Industries Limited as on date of dissolution (28.11.2011) by allotting Equity share of the Company to M/s Ganesh Cement Pvt Ltd. The appellant assessee company had submitted the relevant audited accounts of the relevant assessment year 2012-13 of M/s SKJ Coke Industries Limited along with copy of assessment order u/s 143(3) of the Act, passed by DC1T, Circle-1(2), Kolkata. The appellant assessee company also enclosed the copy of relevant ITR, copy of PAN. From the relevant audited account of M/s SKJ Coke Industries Ltd. it is further revealed that Sri Hansraj Jain, Sanjay Jain, Ajay Jain and Navin Jain were shown as shareholders having substantial shareholdings in the company. 9. From a perusal of aforesaid facts it is discerned that the share applicant M/s SKJ Coke Industries Ltd. had common directors and had made investment amounting to ₹ 50 crores in M/s Jupiter Cement Industries Ltd. for AY 2007-08 to AY 2012-13 (upto 26/11/2011) and agreed to give control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the SECOND PART. 7. That this Supplemental Deed of Agreement is integral Part of the Original Deed of Agreement dated 28.11.2011. From a perusal of the agreement [28.11.2011 and 09.12.2011] it is noted that the assessee company [M/s Shri Ganesh Cement Pvt. Ltd.] issued /allotted on 28.11.2011 ₹ 50 crores worth equity shares of face value of ₹ 10/- each to M/s SKJ Coke Industries in lieu of tangible and intangible Assets of M/s Jupiter Cement Industries. From the remand report it is noted that the AO has taken note of the audited accounts of M/s SKJ Coke Industries Ltd. for AY 2012-13 along with copy of scrutiny assessment order u/s 143(3) of the Act passed by DCIT, Circle-1(2), Kolkata. The AO notes that the copy of relevant ITR, copy of PAN was also brought to his notice. The AO notes from the audited accounts of M/s SKJ Coke Industries Ltd. that Shri Hansraj Jain, Shri Sanjay Jain, Shri Ajay Kumar Jain and Shri Navin Kr. Jain were share holders in the said company having substantial share holdings in the company, so it proves that it was arrangement within the group. Based on the aforesaid remand report as well as documents produced before him the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade any enquiries in respect of this addition made. The Ld. CIT(A) took note of the decision of the Hon ble jurisdictional High Court in the case of CIT vs. Data ware Pvt. Ltd. in ITAT No. 263 of 2011 [GA No. 2856 of 2011] wherein the Hon ble High Court has stated that when the assessee has given the PAN details of the share subscribers, the AO could not draw adverse inference against the share subscribers who are income tax assessee, unless the AO of the share subscribing companies rejected their return of income and cannot brand share subscribers as unworthy of credence. In the words of Hon ble High Court .after getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing Officer should enquire from the Assessing officer of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar addition u/s 68 of the Act treating it as cash credit in the nature of share application /premium coming from group entities as under: Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad Bench { Tribunal for short} raising the following substantial question for our consideration : Whether Appellate Tribunal has erred in law and on facts in deleting the addition made by the Assessing Officer on account of ₹ 9,99,99,900/= as per the provision of Section 68 of the Income-tax Act, without properly appreciating the facts of case and the material brought on record ? The issue pertains to the share application money received by the respondent-assesseecompany. The Assessing Officer added a sum of ₹ 9.99 Crores [rounded off] in the hands of the assessee with the aid of Section 68 of the Income-tax Act, 1961 [ the Act for short]. CIT [A] deleted such addition primarily on the ground that the assessee had established the source, genuineness of the transactions and the creditworthiness of the investors. In further detailed consideration, the Tribunal confirmed the view of CIT [A], making the following observations :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing channel. The director of the investing company had also appeared before the Assessing Officer and also confirmed the transactions. The CIT [A] and the Tribunal also did not confirm the Assessing Officer's finding that the assessee failed to establish the creditworthiness or genuineness of the transactions. No question of law arises. Tax Appeal is dismissed. [Emphasis given by us] 11. Further the Ld. CIT(A) has noted that the transaction involved in this case that M/s SKJ Coke Industries Ltd. has transferred its stake in its unit M/s Jupiter Cement Industries in lieu of shares of assessee company to the tune of ₹ 50 crores. Thus, this transactions are barter/exchange and therefore section 68 of the Act is not applicable. We note that similar issue had arisen in the case of M/s V R Global Energy Pvt. Ltd. vs. ITO in Tax case (Appeal) No. 246 of 2017 before the Hon; ble Madras High Court and by judgment dated 06.08.2018 it was decided in favor of the assessee. The facts of the case [M/s V R Global Energy Pvt. Ltd] is that the assessee was a Company carrying on business of manufacture of Wind Electric Generators and parts of Wind Electric Generators. The assessee M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to allot its shares to Smt. Vathsala Ranganathan in settlement of the amount due to her. The assessee allotted 1,19,000 shares with face value of ₹ 10/- at a premium of ₹ 5400/- and, therefore, the allotment of shares by the appellant to Smt.Vathsala Ranganathan was in settlement of the pre-existing liability of the assessee company to Smt.Vathsala Ranganathan. 14. According to the assessee, shares were allotted against the liability that had accrued to the assessee from transfer to it of the assets being receivables and preference shares of equal value and correspondingly there was a liability created in favour of the transferors, viz., M/s.Shriram Auto Finance. Further it was stated that the apportionment between the paid up capital and the share premium was on the basis of the agreement between the shareholders and the company and hence there is no scope for addition under Section 68 of the said Act. According to assessee, when liability has been created equal to amount of assets transferred and shares allotted in settlement of this liability, there can be no addition under Section 68 of the said Act as unexplained cash credit. It was an admitted fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. When the assessee assailed the decision of the Tribunal, on the aforesaid facts, the Hon ble Madras High Court over-turned the decision of the lower authorities, and allowed the appeal of assessee by deleting the addition of ₹ 91,06,12,134/-has held as under: 18. Assailing the said order, the appellant assessee has filed the present appeal raising, inter alia, the following questions of law: (i) Whether the learned Tribunal erred in confirming the valuation of shares allotted in settlement of the pre-existing liability taxable as unexplained cash credit? (ii) Whether the learned Tribunal erred in holding that value of shares allotted to individuals would amount to unexplained cash credit? 19. The learned counsel for the appellant assesses contended that shares were allotted to Smt Vathasala Ranganathan and others in settlement of pre-existing liability and, therefore, it will not amount to unexplained cash credit. 20. Counsel argued, and rightly, that when there was no cash involved in the transaction of allotment of shares, provisions of Section 68 of the said Act treating it as unexplained cash credit are not attracted. 21. Learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, (Order dated 24.4.2017 in T.C.(A) No. 1498 of 2007; and (vi) Rajmandir Estates Private Limited v. Principal Commissioner of Income Tax, reported in (2016) 386 ITR 162 (Calcutta), cited on behalf of the respondent are distinguishable, in that the cash credits towards share capital were admittedly only by way of book adjustment and not actual receipts which could not be substantiated as receipts towards share subscription money. 28. The appeal is, thus, allowed and the judgment and order of the learned Tribunal dated 1.9.2016 is set aside for the reasons discussed above. Additions under Section 68 of the 1961 Act are also set aside. The questions of law are answered against the Revenue. No costs. Consequently, CMP No.9496 of 2017 is closed. 18. On similar issue, the Hon ble Calcutta High Court in the case of M/s Jatia Investment Co vs. CIT reported in 206 ITR held as follows: 6. The matter came up in appeal before the Tribunal and it was also argued that the companies had to reduce their indebtedness in view of rule 58A of the Companies Act. The Tribunal held as follows : We have considered the rival submissions. The case sought to be made out in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The letters addressed by the three limited companies attempting to explain that the entries in their books were adjustment entries were not believed by the Inspecting Assistant Commissioner, as they were contrary to facts. The Commissioner of Income-tax (Appeals) also told that, having regard to the clear narration in the stock account of the various concerns, the assessee's story that no cash passed but only contra entries were made had to be rejected. The Tribunal agreed with this finding. In fact, the notice with which the limited companies attempted to reduce their borrowings does not explain the cash entries. What the assessee was required is to prove the source for the purchase of shares. In this attempt, the assessee has failed. We, therefore, do not find any mistake in our order. 8. At the hearing, Mr. Bajoria, learned counsel appearing for the assessee, summed up the facts at the outset. 9. The partners of the assessee-firm are members of the Jatia family running several businesses and industries through numerous firms, concerns and companies commonly known as the Jatia Group. The three companies of the group, viz., Jatia Industries Pvt. Ltd., Praise C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee became a debtor to GB and Co. in place of the said three companies of the group. 10. This is the crux of the whole matter. The Income-tax Officer's case is that the transactions were recorded in the cash book through a circuit, but at no point in the circuit there was cash. In the words of the Income-tax Officer, the position found by him that warranted the addition of this amount of ₹ 11.20 lakhs in the hands of the assessee is as under : In view of the transactions recorded above, it is apparent that the money flowing amongst the parties including the assessee-firm cannot be explained as belonging to Messrs. GB and Co. The same cannot be said to have belonged to Messrs. Jatia Industries Pvt. Ltd., Messrs. Onkar Industries Pvt. Ltd., and Messrs. Praise Co. P. Ltd., as they did not have their own cash balance for advancing money to Messrs. GB and Co. 11. What the Officer drives at is that each of the parties made entries in the cash book in spite of their not having any cash to pass on. 12. Therefore, the advance of loan in cash by GB and Co. to the assessee-firm, as reflected in the entry in the cash book of the assessee-firm, is unexp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to be debtors and, to that extent, the magnitude of its loan fell within the prescribed ratio. 16. It is finally emphasised by learned counsel for the assessee that the ultimate result is that the firm becomes a debtor to GB and Co. and the three non-financial companies of the group got discharged. Learned counsel also emphasised that, at the worst, it can be said that the assessee-firm has received valuable assets being the said shares of the equivalent value of the debt taken over by it from the companies, i.e., ₹ 11.20 lakhs. 17. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. It was contended that the fact that the entries passed through the cash book could not detract from or efface the essential nature of the entries. It was also urged that the entries were passed through the cash book so that the repayment of loans by the said three companies could be established before the Reserve Bank of India. But, according to Shri Bajoria, that does not mean that it amounts to an artifice employed to deceive any authorities, because the transactions sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order is that the entries not involving the passing of cash should not have found a place in the cash book, but in the ledger account through journal entries. There is another self-contradiction in the Income-tax Officer's finding that, if there was no real cash entry on the credit side of the cash book, but merely a notional or fictitious cash entry, as admitted by him, there is no real credit of cash to its cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise. 20. One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital. 21. Again, as regards the Tribunal's refusal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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