TMI Blog2022 (5) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... he details such as P L A/c, balance-sheet, bank statements, confirmation letters, PAN, copy of acknowledgment of return, Memorandum and Articles of Association of Companies etc.to substantiate the identity and creditworthiness of the share applicants and genuineness of the transaction. Nothing has been brought on record to negate the various evidences filed by the assessee. A perusal of the audited balance-sheet of these Investor Companies shows that these companies are having sufficient capital and reserves to make the investment in the assessee company and the entire transactions have been made through banking channel. Merely because the Investor Companies have shown meager income during the impugned assessment year, the same in my opinion, cannot be a ground to doubt the creditworthiness of the said company especially when the said company is having sufficient funds in its account in shape of share capital and free reserves. Since the assessee in the instant case has proved the identity of the investors and filed sufficient details to substantiate the creditworthiness and genuineness of the transaction, therefore, hold that the Ld. CIT(A) was not justified in confirming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,00,000/- M/s Zeya Developers Pvt. Ltd. 12,500 10 70 1,25,000/- 8,75,000/- 10,00,000/- Total 57,500 5,75,000/- 40,25,000/- 46,00,000/- 2.2. On being asked by the A.O. to justify the issue of such shares at a premium of Rs.70/-, the assessee company filed various details such as Income Tax Return, Computation of Income, Audit Report, Balance Sheet, Bank statement, Return of Allotment of Shares, Confirmation of account from investor companies, their ITR, Computation of income, Audited Balance Sheet, Bank Statement, Share Certificates, Memorandum and Articles of Association etc. However, the A.O. was not satisfied with the arguments advanced by the assessee and noted that the share premium so received by the assessee is nothing but an accommodation entry and implies that the whole transaction is a sham one. According to the A.O. the investor companies could not furnish the requisite information. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.1 . The appellant has relied upon confirmed ledger account, copy of ITR, audit report, balance sheet and bank account in respect of share capital/ share premium received during the year. In order to examine their genuineness and creditworthiness, the documents submitted by the appellants/ furnished by the by the appellant have been gone through by the undersigned. A brief description regarding financial and other relevant details regarding the share applicants and the appellant as noted from the perusal of these documents is under: 1) M/s Pearl Multicon Pvt. Ltd., 341/36A, 2nd Floor, Mangal Sain Building, Bagh Kare Khan, Kishan Ganj, Delhi. This entity has made payment of Rs.7.5 Lacs in the F.Y. 2015-16 to the appellant during the previous year relevant to the assessment year under consideration. The appellant has not furnished any confirmation in respect of the said transaction. Therefore, genuineness of such transaction is not established. From its Balance sheet as on 31.03.2016, it is noted that it has shown paid up capital Rs.6.58 Lacs (Rs.5.68 Lacs as on 31.03.2015) with share premium of Rs.3.24 Crore (Rs.2.80 Crore as on 31.03.2015). It has shown accumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishi Credit Industries Ltd., 13, 6th Floor, Bonfield Lane, Kolkata This entity has made payment of Rs.15 Lacs in the F.Y. 2015-16 to the appellant during the previous year relevant to the assessment year under consideration. The appellant has not furnished any confirmation in respect of the said transaction. Therefore, genuineness of such transaction is not established. From its Balance sheet as on 31.03.2016, it is noted that it has shown paid up capital Rs.l Crore (Rs.l Crore as on 31.03.2015) with share premium of Rs.4.61 Crore (Rs.4.61 Crore as on 31.03.2015). It has shown accumulated loss for Rs. (-)814483/- as on 31.03.2016 (Rs.(-)894829/- as on 31.03.2015) in the reserve and surplus account. It has made investment of its fund mainly in shares of private limited companies and loans and advances to others. It has NIL fixed assets in its balance sheet. It has shown profit of Rs.116274/- as on 31.03.2016 (Rs.186574/- as on 31.03.2015). The only source of income is from interest and has not carried out any tangible business activities. Copy of bank statement has not been made available. Therefore, source of investment made could not be verified. The return of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant was negotiating with other companies to start business activities has remained unsubstantiated as no corroborating details have been furnished. During the appellate proceedings it has been gathered that till date no business activities have been commenced. From the above facts it can be safely concluded that though these are companies registered with ROC, having PAN, having bank accounts, filing their Income Tax Returns etc. but in fact these are just existing of papers. All the share applicants have been found audited by the common auditors, common directors and even common addresses. In fact transactions have been routed through banking channels to hide the real transactions. Therefore, the claim of the appellant hat it has proved the identity, creditworthiness and genuineness of transaction in respect of credits by furnishing copy of ITR, bank account, balance sheet, confirmations is not proved. Mere filing of ITR, PAN and transaction through banking channel is not enough to prove identity, genuineness and creditworthiness of the cash credits, It is also important to note that these alleged share applicants are corporate entities set up for earning of profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. From the above analysis in respect of the share applicants and the appellant, it is noted that the above share applicants' entities are not doing any tangible business activities to support the availability such large funds at their disposal to make such investment with the appellant. In the view of the above facts, it is noted that real identity, creditworthiness of the share applicants and genuineness of the above transactions has not been established from the above documents. The above entities have been found to have been existing only on papers without having any real or physical worth to support the alleged investments made with the appellant and are in the nature of shell companies. 10.4. In view of the above detailed facts, the reliance of the Ld. AR on the case laws referred above does not help its case as facts of this case are entirely different from the referred cases. It is relevant to mention here that many of the decisions as relied by the appellant relate to the period prior to insertion of proviso to section 68 of the Act i.e. prior to 01.04.2013 and therefore, are not applicable to the facts of the present case. 10.5 It has been held by Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of A. Govindarajulju Mudaliaar v. CIT (1958) 34 ITR 807, Commissioner of Income-tax vs Independent Media (P.) Ltd. 210 TAXMANN 14 (Delhi) (2012). 10.7. The AO has confronted the appellant through a detailed show cause on 07.12.2018 before making the addition. Various adverse findings have been confronted to the appellant during the assessment proceedings. Adequate opportunities of being heard have been provided during in the appellate proceedings. Therefore, there is no merit in such ground of appeal taken by the appellant. Further reliance is placed upon the decision of Hon'ble Supreme Court in the case of CIT vs Durga Parsad More 82 ITR 540 where it has been held that the apparent must be considered as real until it is shown that there are reasons to believe that apparent is not real. In this case enough material has been brought on record to show that the apparent is not real. Further reliance is placed upon the decision Hon'ble Supreme Court in the-case of Sumati Dayal vs. CIT (1995) 214 ITR 802 (SC). After going through the ratio of decisions as referred above, facts of the case, element of human probability and surrounding circumstances, it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant on account of share capital and securities premium thereon, made by Ld Assessing officer under section 68 of the act which is bad in law and liable to be set aside. 2. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in upholding the action of learned Assessing Officer of treating Rs.46,00,000/- as unexplained cash credit under section 68 of the Act without appreciating the fact that appellant had furnished the enough material to prove the identity, veracity and genuineness of the transaction at the Assessment proceedings or Learned Commissioner of Income Tax (Appeal). 3. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in upholding the exteriors consideration of the LD AO and not considered the evidences which was filed before the assessing authorities. 4. Without prejudice to the above grounds, on the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in confirming the addition under section 68 of the act in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the LD AO. Therefore, enhancing the addition on adducing a wrong presumption is wrong and bad in law. 8. Without prejudice to the Ground no 6 and 7, on the fact and circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in enhancing the assessment without appreciating the fact that there is enough material placed on record which is not only accepted by the LD AO but also not required by him to make the addition under section 56(2)(viib) of the act. Hence, enhancing the assessment order on protective basis is based on surmises, whims and conjectures. 4. Learned Counsel for the Assessee strongly challenged the order of the Ld. CIT(A) in upholding the addition made by the A.O. under section 68 of the I.T. Act, 1961. He submitted that assessee during the course of assessment proceedings have filed voluminous details to prove, identity, creditworthiness and genuineness of the share applicants and genuineness of the transaction. Relying on various decisions filed in the paper book and case law compilation, he submitted that since the assessee has discharged the onus cast on it by providing the identity, creditworthine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bench to the following details/calculation:- Book value of Assets Book value of liability x Total amount of paid up Paid up value of such shares equity share capital i.e., 2,33,83,034.23(-) 38,22,653)/23,81,250 x 10 =82.028 Book Value of Assets as on 31.03.2015 (Amount in Rs.) Cash and cash equivalent- 32,312.23 Short term loans and advances- 2,29,93,818.00 Other current assets- 3,56,904.00 Total 2,33,83,034.23 Book Value of Liability as on 31.03.2015 (Amount in Rs.) Trade Payables 37,37,500.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue has to be determined only on that basis and not on assumption and presumption. He submitted that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 4.4. So far as the decision relied on by the CIT(A) in the case of Agro Portfolio Pvt. Ltd. vs. ITO vide ITA No.2189/Del/2018, order dated 16th May, 2018 is concerned, he submitted that the facts of that case is clearly distinguishable as, in that case, the shares were valued on the basis of discounted cash flow method and the Tribunal noted that the assessee did not produce any evidence to substantiate the basis of projections of cash flow but relied on the valuer s report vehemently contending that such a report cannot be disturbed by the ld. AO and at no point of time the assessee tried to explain where did the ld. AO went wrong in his comments on the figures reflected in the above valuation report of the expert. The ld. Counsel submitted that since the assessee had issued shares at fair market value computed in accordance with Rule 11UA of the Rules, no fault has been found in the method applied by the assessee and the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 on the ground that assessee could not substantiate with evidence to his satisfaction regarding creditworthiness of the 04 share applicants and genuineness of the transaction is doubtful. I find the Ld. CIT(A) upheld the action of the A.O, the reasons of which have already been reproduced in the preceding paragraph. While doing so, he held that the share premium received by the assessee in excess of the face value is liable to be held as income of the assessee under section 56(2)(vii)(b) of the I.T. Act, 1961 on protective basis. It is the submission of the Learned Counsel for the Assessee that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with the Rule 11UA of IT Rules, 1962. As per the said Rule, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. It is his submission that the assessee in the instant case has issued the share capital @ Rs.80 per share (face value of Rs.10 per share + premium at Rs.70 per share) as on 31.03.2015 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the valuation report for the premium charged of Rs.70/- on each share under Rule 11UA does not carry any force. 14. It is the submission of the ld. Counsel for the assessee that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with the Rule 11UA of IT Rules, 1962. As per the said Rule, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. It is his submission that the assessee in the instant case has issued the share capital @ Rs.80 per share (face value of Rs.10 per share + premium at Rs.70 per share) as on 31.03.2015 and the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 15. I find merit in the above argument of the ld. Counsel. The provisions of section 56(2)(viib) of the Act reads as under:- (viib) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares were valued on the basis of discounted cash flow method and it was found by the Tribunal that the assessee did not produce any evidence to substantiate the basis of projections in cash flow but relied on the valuer s report contending that such a report cannot be disturbed by the AO and at no point of time the assessee tried to explain where did the AO went wrong in his comments in the figures reflected in the valuation report. However, in the instant case, the assessee has issued the shares at fair market value computed in accordance with Rule 11UA(a) of the IT Rules 1962 and no fault has been found in the method applied by the assessee and the lower authorities have made the addition u/s 56(2)(viib) purely on presumptions and surmises. Therefore, in my considered opinion, such action of the lower authorities being not in accordance with law is unsustainable. I, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee are accordingly allowed. 18. In the result, the appeal filed by the assessees is allowed. 6.2. Since, the facts of the instant case are identical to the facts of the case decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.6. I find the Hon ble Delhi High Court in the case of CIT vs., Real Time Marketing (P) Ltd., 306 ITR 55 (Del.) has observed as under : 8. There is a finding of fact given by the two authorities namely CIT(A) and the Tribunal to the effect that :- The confirmation of M/s. ACL has been filed by the Assessee. The said company was assessed to tax. The source of ACL had been explained as out of transfer of funds from the accounts of M/s. BTL. Thus, the Assessee discharged its burden of proving identity, capacity and genuineness of the transaction. The Assessing Officer has not brought any material to show that the funds to ACL were provided by the Assessee. Under the circumstances, it cannot be said that the cash credit in question has remained unexplained. There is absolutely no material to link the Assessee with the sum of Rs.22,97,000/- deposited in cash in the bank account of M/s. FBSL. 9. In view of the concurrent findings of the fact given by the two authorities that there is no material to link the Assessee with a sum of Rs.22,97,000/- deposited in cash in the bank account of M/s. FBSL, as such, no case is made out for making addition under Section 68 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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