TMI Blog2022 (12) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... investing companies based at Kolkatta, and the assessee company fails to prove the creditworthiness of these five investing companies as well genuineness of these transactions, and the requirements of Section 68 read with newly inserted proviso are not fulfilled/satisfied, and hence we uphold the appellate order passed by ld. CIT(A) which in turn confirmed the addition made by the AO in the assessment order, to the tune of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE of the 1961 Act. Addition u/s 56(2)(viib) with respect to 170000 equity shares of Rs. 10 face value issued by the assessee company at an issue price of Rs. 90 per share including share premium of Rs. 80 per share , issued by the assessee company during the year under consideration to thirteen investors - In a case of closely held company in which public is not substantially interested , which receives in any previous year , from any person resident any consideration for issue of shares that exceeds the FMV of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares, shall be treated as income from other sources and brought to tax. There are certain ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by: Shri. R. S. Agrawal, Adv. Vinay Goel, C.A. Respondent by: Shri A.K. Singh Sr.D.R. ORDER PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No.258/Alld./2018, is directed against an appellate order dated 17.04.2018in Appeal No. CIT(A)- 1/Knp/10070/2017-18/417, passed by learned Commissioner of Income Tax (Appeals)-I, Kanpur (hereinafter called the CIT(A) ),for assessment year(ay):2013-14, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 28th March, 2016 passed by learned Assessing Officer (hereinafter called the AO ) under Section 143(3)of the Income-tax Act,1961(hereinafter called the Act ). 2. The assessee has raised following Revised Grounds of Appeal with Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, U.P. (hereinafter called the tribunal ), in ITA no. 258/Alld./2018 for ay; 2013-14:- 1. That in any view of the matter assessment as framed on income of Rs.2,61,36,540/- by order dated 28.03.2016 passed u/s 143(3) is bad both on the facts and in law. 2. That in any view of the matter no notice u/s 143 (2) was served on the assessee nor the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iers and Commission Agent of Stone Grit and Bolder. The case of the assessee was selected by Revenue through CASS for framing scrutiny assessment under Section 143(2) read with Section 143(3) of the Act .Statuary notices were issued by AO to the assessee, from time to time as recorded in assessment order, which were claimed by AO to have been served. On perusal of Balance Sheet of the assessee company , the AO observed that the assessee has raised share capital amounting to Rs. 1,53,00,000/- during the impugned assessment year, which was raised at a share premium of Rs. 90/- (sic. Rs. 80) per equity share as against face value of Rs. 10/- per equity share. The AO asked assessee to furnish requisite details of share applicants and also to justify the charging of share premium taken by it especially in the light of the fact that no business activity had been carried out by assessee company during the year under consideration. The assessee company did not furnish any reply or explanation to justify the charging of share premium on the equity shares issued by it. The assessee submitted position of equity shares held as on 31st March, 2012 as well as 31st March, 2013, and from perusal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Ambika Prasad Tiwari S/o Ram PhalTiwari Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 7 Santosh Kumar S/o Mahadev Prasad, Gram Post-Imilia, Distt. Hamirpur 200 Cash 20.05.2012 18,000 8 Brajesh Kumar S/o Shiv Narain Gram Post- Imilia Distt- Hamirpur 200 Cash 20.05.2012 18,000 9 Suresh Kumar S/o Diwakar, Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 10 Smt. Priti Mishra D/o Suresh Kumar Mishra, 123/34, KBlock, Kidwai Nagar, Kanpur 400 Cash 20.05.2012 20.06.2012 18,000 18,000 11 Divakar S/o Ram Shankar, Gram Post- Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value Method (based on Balance Sheet values) for arriving at the FMV for the purpose of this clause (viia). NET ASSET VALUE OF SHARES OF COMPANY AS ON 31.03.2012 (BASED ON AUDITED BALANCE SHEET AS ON 31.03.2012) Nos. of shares Amount(Rs.) Net worth of company As on 31.03.2012 As on 31.03.2012 Issued share capital 62000 620000 Reserve Surplus 4761129 Total 5381129 N.A.V. per share 86.79 OR SAY 87.00 per share The AO observed from reply filed by assessee, that instead of following method of Fair Market Value of shares as prescribed under Rule 11UA of the Income Tax Rules, 1962, the assessee has worked out the value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Colony, Post-Nawabganj, Kolkata-743144 2 Sandal Wood Commercial Pvt. Ltd. Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 3 Zigzag Vanijya Private Limited Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 4 ShradhaVintrade Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 5 Champion Vintrade Private Limited 50-2, Cabin Road, Golghar Ward No. 15, Jagaddal, Kolkata-743125 The AO observed that all the aforesaid notices came back undelivered with remarks Not Known from the postal authorities. The assessee was confronted by AO with the envelops coming back from postal authorities. The AO requested assessee to produce Directors of the said investing companies .In response , the assessee submitted that these notices came back due to change of address of registered offices of these company, and the assesse furnished new addresses of the said companies as per MCA portal master data,as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed him to be present for personal attendance on 3rd March, 2016, but the said Shri Dinesh Kumar Mishra did not attended on the appointed date rather his AR appeared and sought extension which was granted by AO. Again ,Mr. Dinesh Kumar Mishra did not appeared before AO on appointed dates and time was extended by AO from time to time on his request. The AO issued summons u/s 131 to Mr. Dinesh Kumar Mishra, and finally on 16th March, 2016 said Mr. Dinesh Kumar Mishra, Director of the assessee appeared before AO, and his statement on oath was recorded by AO , gist of which is as under : The AO observed that the assessee has brought in share capital in the name of different companies purportedly, based at Kolkata and that too at significantly high premium which is neither justified nor in accordance with its Fair Market Value, despite the fact that the assessee has not been conducting any business activity as is evident from its Profit Loss Account which shows total revenue from running of Gitti business at Rs. 2,75,500/-. The AO observed that notices sent to the investing companies have been returned back undelivered . The AO observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red without trace after subscribing to its share capital at a premium , and then this is followed by another round of funding after few years, again at premium, from companies, which on investigation are untraceable. . The AO further observed that even in the case of the investing companies who responded to notices u/s 133(6), the total income is not commensurate with the level of investment made with the assessee company. The AO observed that M/s Champion Vintrade Pvt. Ltd. which has invested Rs. 36,00,000/- in the shares of assessee company, the total income from operations is only Rs. 1,16,611/- and profit before tax is Rs. 10,535/- , and thus no case is made out by assessee company which could explain the capacity of these companies to invest in its shares. The AO also observed that the confirmation letter given by the said company is unsigned , and even the Director of the assessee company in his statement could not identify the name of the Director of the said company and stated that the Director of the investing company was not known to him. The AO further observed that the copy of the bank account statement shows regular flow of funds in the form of transfer entries with ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68, although the total share capital including share premium raised by the assessee during the year was Rs. 1,53,00,000/- from 13 persons, while the total share capital including share premium raised by the assessee during the year was Rs. 1,51,20,000/- from 8 corporate entities. 4. Being aggrieved by assessment order passed by AO, the assessee filed first appeal with ld. CIT(A). The assessee and/or its counsel did not appear before ld. CIT(A), but however, the assessee made following submissions, as detailed hereunder : Submissions One of the several issues involved in the present appeal relate to addition of share capital of Rs.1,51,20,000/- inclusive of premium charged u/s. 68 of the Act 1961 and also addition of the premium charged Rs. 1,10,00,700/- separately u/s.56(2)(vii). The AO has added a sum of Rs. 1,51,20,000/- u/s.68 which is inclusive of premium charged and Rs. 1,10,00,700/- again received as premium separately. Thus there is double addition to the extent of Rs. 1,08,71,280/- one added u/s. 68 as part of share capital of Rs. 1,51,20,000/- and then again added separately u/s 56(2). Against the total amount received Rs. 1,53,00,000/- addition has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod of Fair Market Value of shares as prescribed under rule 11UA of the Income Tax Rules, 1962, but has worked out the value of shares based on the NAV method. Since NAV Method of valuation of shares is not prescribed under the Income Tax Rules 1962 therefore, cannot be used for arriving at the value for the S. 56(2)(vii) of the Act 1961. It is a fact that no explanation for charge of premium on issue of shares has been furnished by the assessee company either before AO or during the appellate proceedings. Rule 11UA of the Income Tax Rules, 1962 prescribes a definitive method to arrive at Fair Market Value of the shares based on a mathematical formula. This has not been followed by the appellant. AO worked out the FMV of the shares of the assessee company under Rule 11UA at the time of issue of shares as only Rs. 25.29 per share. As against this, the assessee company had issued shares at Rs. 90 per share. In other words, the assessee company has received consideration for issue of shares which exceeds FMV of the shares by Rs. 64.71 per share. Rule 11UA of the Income Tax Rules specifies the method of calculating fair market value. The FMV of unquoted shares and securities other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate to whom the shares have been allotted have all accepted and confirmed therein share application. The letter and details as received from DDIT-Kolkata is self-explanatory. The AO has chosen to completely ignore the same. The record file may kindly be called for, examined it would be find that the same is explained. As regards the noncorporate applicants the same has not been disputed by the AO however while making the addition in respect of the share capital the AO has again added the premium amount received as unexplained. The AO accepts the premium of Rs.25.29 as reasonable and treats Rs.54.71 per share as excessive. Thus the addition of Rs.1,51,20,000/- consists of two parts namely the unexplained share capital of Rs.16,80,000/- (Rs. 17,00,000/- - 20,000/-) and the remaining amount of Rs.13,44,000 out of share premium amount of Rs. 1,36,00,000/-. Confirmation from individual applicant has been filed. In view of the above, it is submitted, that the addition made by the AO may kindly be deleted. The appeal may kindly be allowed. 4d. The ld. CIT(A) dismissed the appeal of the assessee and confirmed the additions as was made by the AO to the income of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in the business as per title (Reference: Reply to question No. 46 of statement dated 16.03.2016 where in reply to query about the business of M/s Sandal Wood Private Limited the Director only stated that it is engaged in the business of Wood.). AO has noticed that the assessee company is in the practice of receiving significant amount of capital at a premium from Kolkata based companies even in the past also without having any financial health which raises serious doubts over the conduct of the appellant, which is best known to them. A case in the point is raising of capital from one M/s. Bajrangbali Vincom Pvt. Ltd., which held 24.19% of its share capital and which has since been struck of from the register of ROC. It is from this company that the assessee company raised share capital during A.Y. 2010-11 at a premium of Rs. 65/- per share without having any net worth. Similar is the case of another investor company, M/s. Vrindavan Commodity Pvt. Ltd. which subscribed to 40.32% of shares of the assessee company which too has now gone without trace. In contrast to this, it is pertinent to note that in its reply dated 21.12.2015; the assessee company has not shown any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany has furnished the Balance Sheet and Profit Loss A/c for F.Y. 2010-11 only which is not relevant to the year under consideration and shows NIL income from operations. The copy of Bank A/c furnished shows similar trail of transactions as in the case of M/s. Champion Vintrade Private Limited where entries from one company to other have been used to layer in the investment in the shares of the assessee company. The facts above, as relied upon by AO clearly show that the identity genuineness of these transactions has not been established in these cases whereas in the other three companies the identity itself has been left to be proved as evident by the return of notices, not once but twice from the addresses given by the assessee company. The onus is on the assessee company to furnish a satisfactory explanation for the same, which he has failed to do so. This onus has become even more vigorous following the insertion of proviso to Section 68 of the Income Tax Act, 1961 which has come into effect by the Finance Act 2012 w.e.f. 01.04.2013 i.e. A.Y. 2013- 14, the year under consideration which is cited above. Appellant has simply submitted during the appellate proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 genuine or is not credit worthy. AO conducted enquiries and found that these share applicants are not existing at the addresses given in the papers submitted by them through post before AO, Hence the onus was shifted back to appellant for proving the ingredients of S. 68 as being fulfilled in these transactions. Appellant provided the new address of the lenders, shifting the onus back to AO who took the investigation further on these addresses also, but could not locate these share applicants, again shifting back the onus to appellant. Appellant has failed to shift back the onus on AO by failing to give the current addresses of the various companies. Where the assessee does not furnish the new or current correct addresses, there is no duty on AO to bring any facts on record to show that conditions required u/s 68 are not satisfied but where appellant does, then AO need to bring more facts on record to show that conditions required u/s 68 are not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... room for intendment there is no equity about a tax. In taxing a transaction, no regard can be paid to 'substance or spirit or inference or analogy' when clear words exist to tax it. All that is required to be proved is that the transaction being taxed falls within the ambit of the charging section, however pedestrian an interpretation the same might be. It can be said that the maximum addition made in combination of both sections should not be more than the total share capital received. We can leave this question of law for the higher legal forums to decide as the law is yet to evolve on this point. But in such cases even if the receipt is found not taxable u/s 56[2][viib] for the reason that the FMV of the shares justifies the share premium being taken bythe appellant, the same amount received can be taxed u/s 68 if the statutory requirements of S. 68 are not fulfilled like identity, genuineness and creditworthiness of the share applicant and vice versa i.e. if a receipt is not found taxable u/s 68 for the reason that the identity, genuineness and creditworthiness of the share applicant is proved but if the FMV of the shares did not justifies the share premium being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by ld. Counsel for the assessee that the assessee had issued 1700000 equity shares of Rs. 10 each face value to 13 investors @ Rs. 90/- per share inclusive of share premium of Rs. 80/- per equity share, totaling to Rs. 1,53,00,000/-.Our attention was drawn by ld. Counsel for the assessee to assessment order. It was submitted that assessee followed NAV(Net Asset Value) method to determine Fair Market Value(FMV) of the equity shares. It was submitted that as per NAV method, FMV of shares comes to Rs. 87 per equity share , while issue price was Rs. 90 per share. It was submitted that the AO did not gave any working as to how FMV of Rs. 25.29 per share was arrived at by him. The ld. Counsel for the assessee submitted that as per Rule 11UA , the FMV of equity shares was Rs. 87.00 per share . Our attention was drawn to the Page No. 3 of the paper book ,where working of Fair Market value(FMV) of equity share is provided , which is reproduced hereunder: Working: Particulars Amount (Rs.) Total Value of Assets as per Balance sheet as on 31st March, 2012 2,04,44,467 Less: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applied DCF method to compute FMV. The assessee relied upon judgment and order of Hon ble Madras High Court in the case of CIT v. VVA Hotels Private Limited, reported in 429 ITR 69(Mad. HC), and our attention was drawn to page 120 of case law paper book filed by the assessee. The ld. Counsel for the assessee submitted that ld. CIT(A) confirmed the additions . It was submitted that no valuation report was filed by the assessee to determine the Fair Market Value. It was submitted that as per assessee Rule 11UA(2) is applicable for computing FMV under Section 56(2)(viib). It was submitted that NAV is taken at book value, and if present value is taken, then FMV will be higher. It was also submitted that the AO made additions w.r.t. 168000 equity share while making addition u/s 68 read with Section 115BBE, while the assessee issued 170000 equity shares during the year. It was submitted that so far as 2000 equity shares issued by assessee company to individuals is concerned, the same were accepted by the AO, and no additions were made so far as additions made u/s 68 read with Section 115BBE is concerned. While so far as additions made u/s 56(2)(viib), the additions wrt entire 170000 eq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order. It was submitted that details were furnished before the AO as to sources of raising share capital. It was submitted that in the earlier years, shares was issued to Kolkata based Companies and that too at premium. It was submitted that these companies are not traceable to whom shares were issued. Our attention was drawn to page 86 of paper book filed by department, and it was submitted that this is the list of shareholders, as at 31.03.2011 , 31.03.2012 and 31.03.2013,filed by assessee with department vide reply dated 21.12.2015. It was submitted by ld. Counsel for the assessee that jurisdiction of the assessee was transferred from ITO Kanpur to ITO Banda , and our attention was drawn to order passed u/s 127, dated 24.11.2015 placed in paper book filed by Department/page 76. Our attention was drawn to paper book filed by department/page 80-84 , which is a notice dated 11.12.2015 issued u/s 142(1). Our attention was drawn to page 85-90 of the paper book filed by department, wherein reply dated 21.12.2015 was filed by the assessee in response to aforesaid notice u/s 142(1) is placed , and in this reply the list of shareholders to whom shares were issued in the ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he report. Our attention was also drawn to the appellate order passed by ITAT Mumbai in the case of Royal Rich Developers Private Limited v. DCIT( in which one of us namely the Accountant Member was part of DB that pronounced the said order) in ITA No. 1835- 1836/Mum/2014, dated 24,08.2016 , which order of tribunal was affirmed by Hon ble Bombay High Court in (2019) 265 Taxman 99(Bom.). Our attention was also drawn to page no. 476 of the paper-book filed by department, wherein decision of Chennai-tribunal in the case of Shantananda Steels Private Limited v. ITO , reported in (2020)116 taxmann.com335(Chennai-trib.)in stay petition is placed ,In which one of us namely Accountant Member was part of DB that pronounced the order . Our attention was also drawn to the decision of Mumbaitribunalin the case of Pratik Syntex Private Limired v. ITO, reported in (2018) 94 taxmann.com 12(Mum-tribunal) in which one of us being Accountant Member was part of the Division Bench that pronounced the order , and it was submitted that merely because return of allotment filed with ROC/MCA is not filed before the authorities below, will not make these share investment as non genuine, as filing of return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Champion Vintrade Private Limited wherein bank entry of investment of Rs. 36,00,000/- by M/s Champion Vintrade Private Limited in the assessee company on 09th June , 2012 is reflected. This entry is preceded by a credit of Rs. 36,00,000/- on the same day in the bank account, which stood transferred to assessee company. The balance in the account was meager Rs. 19976/- . It was submitted that all other four investing companies were also shell companies based in Kolkatta , which are used to launder money. Our attention was drawn to page 146-151/paper book filed by department, and it was submitted that the AO made necessary enquiries, with respect to all the five investing companies. Our attention was also drawn by ld. Sr. DR to page 160 /paper book filed by department and it was submitted that when the letters issued u/s 133(6) to these investing companies returned undelivered by the postal authorities, the assessee furnished new addresses and explained that registered offices of these companies changed, and new address as per MCA portal was furnished by assessee.Our attention was drawn to page 179- 189 of paper book filed by department, and it was submitted by ld. Sr. DR that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment, and our attention was drawn to comparative details of income of the assessee , since ay s: 2009-10 to 2019-20, to contend that the assessee was having meager income and by no stretch of imagination, the chargeability of huge share premium of Rs. 80 per equity share as against face value of Rs. 10 per equity share, is justified. It was submitted that there was no business activities of the assessee since its incorporation in 2009 until financial year 2015-16. Our attention was drawn by ld. Sr. DR to the detailed comparative chart of all these five investing companies which is placed in page 426/paper book filed by department , which included their registration number with MCA, date of incorporation, their share capital, share premium reserves, investments made by these company , bank details as on 31.03.2014. It was also submitted that they have nil turnover and nil income , except Champion Vintrade Private Limited which has meager gross income of Rs. 1,16,611/- and taxable income of Rs. 10,540/- . Our attention was drawn to investment made by these companies in the assessee company. The detail of Director of these companies on the date when investment was made in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not replied by ADIT(Inv.), Kolkatta. Our attention was drawn to page 579C , wherein ld. Sr. DR has written letter F.No. Addl.CIT/Sr. DR/ITAT/Govind Stone/2022-23/193 dated 01.09.2022 to ADIT(Inv.) HQ, Kolkatta asking for details of all these five investing companies which are based at Kolkatta. It was submitted by ld. Sr. DR that ld.ADIT(Inv.), Kolkatta replied vide reply dated 20.09.2022, which is placed in paper book at page 579E to 579L. It was submitted that these are additional evidences filed by department, and as per the enquiry conducted by ADIT(Inv.) Kolkatta , these companies are not existing as of September, 2022 , and in any case the assessee failed to prove creditworthiness of these investing companies and genuineness of the transaction of raising of share capital at huge share premium, in aggregate to Rs. 1,51,20,000/- . It was submitted that the assessee failed to satisfactorily explain the source of source of raising share capital at a huge share premium and proviso to Section 68 is applicable , and hence the AO has rightly made additions by invoking provisions of Section 68 read with Section 115BBE. Alternatively, it was submitted that the AO also invoked provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed any appeal against the appellate order passed by ld. CIT(A) nor any Cross objections(C.O.) were filed by department. Reference was made to provisions of Section 253(2) and 253(4) of the 1961 Act. It was submitted that department is now filing additional evidences. Our attention was drawn to Rule 27 and 29 of Income Tax (Appellate Tribunal) Rules, 1963. It was submitted that records of the assessee was transferred from ITO, Kanpur to ITO, Banda, and our attention was drawn to page 76/paper book filed by department, wherein the order u/s 127(1) r.w.s. 127(3) for transfer of jurisdiction is placed. It was submitted that ITO, Kanpur issued notices u/s 133(6) , and information was sent by these investing companies to ITO, Kanpur , and in between there was transfer of jurisdiction , and if the department had not received the letters sent by investing companies, the assessee cannot be blamed. Our attention was drawn by ld. Counsel for the assessee to page 53-62/paper book filed by department, wherein information u/s 133(6) were called by ITO, Kanpur from these five investing companies, vide letter dated 28.09.2015 and 05.10.2015. It was submitted that replies were duly filed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e request of the assessee, jurisdiction was shifted to ITO, Banda , vide orders dated 19.11.2015 u/s 127(1) and 127(3) passed by ld. PCIT, Kanpur(refer page 74-75/paper book filed by department). Statutory notices were issued by AO from time to time to assessee, and claimed by AO to have been duly served on the assessee. The assessee participated in the assessment proceedings. During assessment proceedings, the AO observed from Balance Sheet of the assessee company that the assessee has raised Rs. 1,53,00,000/- by way of share capital and share premium, wherein 170000 equity shares of Rs. 10 each of par/face value were issued by assessee at a share premium of Rs. 80 per equity shares, i.e. at issue price of Rs. 90 per equity share, during the year under consideration . The AO observed that the assessee has raised share capital at consideration price of Rs. 90 per equity share including share premium of Rs. 80 per equity shares, from the following persons: S. No. Name and Address of Shareholders Nos. of shares issued Mode of payment Date of payment Amount Received (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Divakar S/o Ram Shankar, Gram Post- Kamokhar, Distt- Hamirpur 200 Cash 20.05.2012 18,000 12 Anupam S/o Suresh Kumar, Gram post- Imilia Distt- Hamirpur 200 Cash 20.05.2012 18,000 13 Smt. Pushpa D/o Shiv Shankar Gram Post- Imilia Distt-Hamirpur 400 Cash 20.05.2012 20.06.2012 18,000 18,000 Total 170000 1,53,00,000/- As could be seen from the above chart, the assessee had received Rs. 1,51,20,000/- towards share capital and share premium by issue of 168000 equity shares of face value of Rs. 10 each at a share premium of Rs. 80 per equity shares i.e. issue price of Rs. 90 per equity shares from five corporate entities listed at S.No. 1-5 in the above chart , and all the aforesaid five companies are based in Kolkatta. The assessee has also received Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings which were conducted before the AO and ld. CIT(A) in the preceding para s of this order. Before proceedings further , it will be profitable at this stage to reproduce the provisions of Section 68 and Section 56(2)(viib) as were applicable for relevant year under consideration. It is pertinent to mention that Section 68 was amended by Finance Act, 2012 w.e.f. 01.04.2013 wherein proviso was added to Section 68. Further Section 56(2)(viib) was inserted vide Finance Act, 2012 wef 01.04.2013 , which reads as under: Cash credits. 68.Where any sum is found credited in the booksof 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, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : The following provisos shall be inserted in section 68 by the Finance Act, 2012, w.e.f. 1-4-2013 : Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b) venture capital company , venture capital fund and venture capital undertaking shall have the meanings respectively assigned to them in clause (a), clause (b)and clause (c) of Explanation 1 to clause (23FB)of section 10; It will be appropriate at this stage to refer to Memorandum and Notes on Clauses as is referred in Finance Bill, 2012, which reads as under: Memorandum SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head Income from other sources . It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder. However, even in the case of clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head Income from other sources . However, the said new clause shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. It is further proposed that the company receiving the consideration for issue of shares shall be provided an opportunity to substantiate its claim regarding the fair market value of the shares. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years. Clause 22 of the Bill seeks to amend section 68 of the Income-tax Act relating to cash credits. The existing provisions of the aforesaid section 68 provide that where 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, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. It is proposed to insert two new provisos to the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the definition of person u/s 2(31) , where cash credit is found credited in the books of an taxpayer and the taxpayer offers no explanation or an explanation offered by taxpayer is found not satisfactory by the AO, then by deeming fiction , the said cash credit is brought to tax as deemed income u/s 68. However, by amendment made by Finance Act, 2012, as applicable from ay: 2013-14, a proviso is inserted in Section 68 which stipulates that in the case of closely held companies where public is not substantially interested and where the tax-payer has raised share capital, share application money, share premium etc., the taxpayers being closely held company are required to explain source of source of said raising of share capital, share application money, share premium etc. . We are presently concerned with assessment year 2013-14 and newly inserted proviso to Section 68 is applicable. Section 68 of the Act cast obligation on the tax-payer where any sum is found credited in the books of an tax-payer maintained for any previous year, and the taxpayer offers no explanation about the nature and source of credit thereof or the explanation offered by the taxpayer is found not sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as required u/s. 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. The onus of widely held company could be discharged on the submissions of all the information contained in the statutory share application documents and on not being satisfied the AO may proceed against the shareholders u/s. 69 of the Act instead of proceeding against the company, but in the closely held companies as in the instant case before us the share capital are mostly raised from family, close relatives and friends and the assessee is expected to know the share subscribers and the burden is very heavy on the assessee to satisfy cumulatively the ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s. 68 of the Act as unexplained cash credit. With newly inserted proviso to Section 68, the burden is now more heavier to explain source of source of raising of share capital, share application money, share premium etc. . The use of the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 56(2)(viib) which was placed in statute by Finance Act, 2012 wef 01.04.2013, as against Section 68 which was in statute since 1961, could be invoked only when the tests and satisfaction u/s 68 stood complied with. Thus , there cannot be double addition both on account of Section 68 as well Section 56(2)(viib), as both are mutually exclusive. The ld. Counsel for the assessee rightly relied upon the judgment and order of Hon ble Kerala High Court in the case of Sunrise Academy of Medical Specialities (India) Private Limited(supra),is reproduced hereunder: 9. Any premium received by a Company on sale of shares, in excess of its face value, if the Company is not one in which the public has substantial interest, would be treated as income from other sources, as seen from Section 56(2) (viib) of the Act, which we do not think can be controlled by the provisions of section 68 of the Act. Section 68 on the other hand, as substituted with the provisos, treats any credit in the books of accounts, even by way of allotment of shares; for which no satisfactory explanation is offered, to be liable to income-tax. Clause (viib) of Section 56(2) is triggered at the stage of computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered as income from other sources. 13.ag. This provision mandates that where a closely held company receives any consideration for issue of shares in any previous year from any resident and the consideration received for issue of shares exceeds the face value of such shares, then the aggregate consideration received for such shares, as exceeds the fair market value of the shares, shall be chargeable to income-tax under the head Income from other sources . A bare perusal of this provision makes it explicit that a new obligation has been put on the closely held companies which issue shares for a consideration greater than the fair market value of its shares. When the shares are so issued at a higher price, then such excess becomes income from other sources in the hands of the company. This amendment is obviously prospective as the position of law before such amendment was different. Such share premium was always considered as a capital receipt not chargeable to tax. Since this insertion has increased the ambit of income of such companies henceforth for the first time, which was not the position hitherto, it ceases to be clarificatory and hence cannot be construed as retrospe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the excess shall be chargeable to tax. Thus, there cannot be double additions with respect to invocation of Section 68 and 56(2)(viib) simultaneously, as explained above. Coming back , now we will firstly see whether the assessee is able to satisfy the ingredients as are stipulated u/s 68. The AO has accepted issuance of 2000 equity shares of face value of Rs. 10 each , issued at Rs. 90 per equity shares inclusive of share premium of Rs. 80 per equity shares , aggregating to Rs. 1,80,000/- , issued by assessee to eight individuals and no addition were made by AO by invoking provisions of Section 68. The ld. CIT(A) also did not interfere with the assessment order passed by AO so far as 2000 equity shares issued by assessee to 8 individuals are concerned, and hence the same has attained finality . The dispute which is between the rival parties is as to additions of Rs. 1,51,20,000/- made by the AO w.r.t. 168000 equity shares of face value of Rs. 10 each issued by assessee to five corporate entities based at Kolkatta , at an issue price of Rs. 90 per equity shares inclusive of share premium of Rs. 80 per equity share, which stood added to the income of the assessee by AO by invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As could be seen from the above statement given by Mr. Dinesh Kumar Mishra, Director of the assessee company, that he has given an evasive replies to various questions put to him by AO, with respect to investments to the tune of Rs. 1,51,20,000/- made by these 5 investing companies based at Kolkatta. He could not explain satisfactorily his knowledge about the affairs / business of these companies, as well Directors of these five investing companies. He could not explain as to even their current addresses and whereabouts of these five investing companies , all based at Kolkatta. It is incomprehensible that these 5 investing companies who invested in the assessee company in the year 2012 by making substantial investments to the tune of Rs. 1,51,20,000/- by subscribing to the 168000 equity shares of face value of Rs. 10 each at share premium of Rs. 80 per shares, would not have taken keen interest in the working of the assessee company in which they had made substantial investment s. These 5 investing companies held 168000 equity shares , while the total share capital post investments by all thirteen investors in May/June 2012, was to the tune of 232000 equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further, it is also pertinent to mention that the assessee company was incorporated on 23.06.2009. The assessee company audited accounts for the year under consideration , are placed on record by the assessee at page number 9-24 in the paper book filed by the assessee. The said accounts are having comparative figures for the preceding year also. On perusal of the audited accounts , it transpires that the assessee income from operations were Rs. 2,75,600/- during the year under consideration, while the same was Rs. Nil for the year ended 31.03.2012. The assessee has also earned interest income of Rs. 5,17,956/- during the year under consideration , which was Rs. 5,40,947/- during preceding year. The interest expenses outgo during the year under consideration was Rs. 3,44,528/- (preceding year Rs. Nil) . The assessee has declared profit before tax of Rs. 15,836/- during year under consideration, while in preceding year the profit before tax was Rs. 15,664/- . Thus, it could be seen that there are meager income earned by the assessee. On the other hand , the assessee has issued equity shares of Rs. 10 each at share premium of Rs. 80 per equity shares , at issue price of Rs. 90 per sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nil during financial year 2009-10. It is also pertinent to mention that the assessee has filed details of shareholders as on 31.03.2011 before AO in its reply dated 21.12.2015 , wherein the total share capital of the assessee is shown at the same figure of Rs. 6,20,000/- (page 86 of paper book filed by department) but the names of these investing companies who were holding more than 80% shares as on 31.03.2010 were completely missing , and instead the shareholding as on 31.03.2011 was stated to be as under: S.No. Name of Shareholder Shareholding as on 31.03.2011 1. Mr. Dinesh Kumar Mishra 5000 shares 2. Smt. Malti Mishra 5000 shares 3. Mrs. Ambika Prasad Tiwari 400 shares 4. Mr. Santosh Kumar 400 shares 5. Mr. Brajesh Kumar 200 shares 6. Mr. Suresh Kumar 200 shares 7. Smt. Priti Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with is handed over simultaneously all the necessary blank signed documents to reverse the transaction at the date convenient to the invested company , so that the actual promoters can transfer the shares allotted to these companies engaged in money laundering at later date ,to themselves or their nominees /relatives at a throw away prices and consideration for reversal is also paid in cash and no money trail through banking channel will be available when the transactions are reversed. This will then enable the actual promoters and/or their nominees/relatives to wrest back control of their company , and at the same time unaccounted money are brought into the company by way of share capital allotted at huge premium for which laundered money comes through banking channel through these investing companies , and while on reversal the shares are transferred at throw away price to promoters of the invested company and /or their nominees/relatives for which all blank transfer documents are obtained at the initial stage of investment itself , which are used at a later convenient date to transfer shares in favour of promoters of the invested company and/or their nominees/relatives. That is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 each at a share premium of Rs. 65 per equity share to three Kolkatta based investing companies which held as high as 80%+shares, and it is pertinent to mention that the assessee has purchased the plot of land of 800 square yards in financial year 2011-12 , as is reflected in ITR for ay: 2012-13 as no such property was there in the accounts until financial year 2010-11. Thus, even when there was no business was carried out by the assessee and no plot of land was available with assessee company to undertake any real estate project, the assessee company raised share capital at a premium of Rs. 65 per share , at issue price of Rs 75 per share in financial year 2009-10 i.e. the year of incorporation from these Kolkatta based company as against face value of Rs. 10 per equity share, and hence to say that the assessee issued shares at Rs. 90 per share including share premium of Rs. 80 per share in financial year 2012-13 because of real estate project is preposterous. Much is said about NAV of Rs. 87 per share , while issuing equity shares of Rs. 10 each face value at Rs. 90 share inclusive of share premium of Rs. 80 per share, but the NAV computed of Rs. 87 per share based on audited fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in paper book at page number 85-212 (paper book filed by the assessee with tribunal), which is disputed by Revenue that said replies were not filed before the authorities below. Now, let us analyse all these documents pertaining to these five investing companies, as claimed by the assessee to have been filed before authorities below in its defense albeit disputed by Revenue : a) Champion Vintrade Private Limited This investing company has confirmed that it invested Rs. 36,00,000/- in the assessee company via RTGS sent on 09.06.2012 through Indusind Bank, Burra Bazar, Kolkatta, for subscribing to 40000 shares of Rs. 10 each at premium of Rs. 80 per share of the assessee company. The source of investment is shown to be advance received against sale of shares from M/s Avtar Suppliers Private Limited to the tune of Rs. 25,50,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 10,50,000/- . The investing company has furnished its ITR for ay : 2013-14 in which income is reflected as Rs. 10540/-. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 36,00,000/- on 09th June, 2012 through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by it for year under consideration is from interest income . Thus, the company did not consider investment in quoted shares/Mutual Funds , which are liquid and scope of growth is higher if investments are made in blue chip companies. The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the Company s performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta. b) Aparajita Vanijya Private Limited This investing company has confirmed that it invested Rs. 25,20,000/- in the assessee company via RTGS sent on 12.05.2012 through I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of share/MF in preceding year. This company has paid up share capital of Rs. 19,53,750 as at 31.03.2012 and also at 31.03.2013, while Reserves and Surplus were to the tune of Rs. 36,88,13,930.05 as at 31.03.2012 and Rs. 36,88,21,899.12 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. 36,88,54,010 as at 31.03.2022 as well at 31.03.2013. Thus, as against share capital of Rs. 19,53,750 consisting of 195375 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 36,88,21,899.12 translating into average share premium of Rs. 1887.76 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1898 per share keeping in view business of the said investing company . This company has majorily one asset which is investment in equity shares of other companies , which stood at Rs. 37,48,85,000/- as at 31.03.2012 and Rs. 35,64,85,000/- as at 31.03.2013. It is interesting to note that the majority of investments made by it are in unquoted shares , and only Rs. 4 crores of the investments are in quoted shares. Thus, the company did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of credit of amount in bank account , so that balance maintained is merely Rs. 10,000/-. The source of investment is shown to be receipt from M/s Shivdarshan Commodeal Private Limited to the tune of Rs. 7,00,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 18,20,000/- . It has passed a Board Resolution dated 19.07.2011 authorizing Mr. Arvind Pandit, Director to invest the fund of the company and to do all necessary documentation with respect thereto on behalf of the company The investing company has not furnished its ITR for ay : 2013-14 , while ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 16,210. The income from operation in financial year 2010-11 was Rs. Nil. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 and also at 31.03.2013. The income from operations from sale of share in the financial year 2012-13 was Rs. 14,83,953/- , while other income from interest was Rs. 8,65,828/- , while for financial year 2011-12 there were purchase /sale of shares/Mutual Fund routed through Profit and Loss Account. It has declared post tax profit of Rs. 22,657.8 for the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital and share premium raised by invested company through these investing companies based at Kolkatta. d) Shradha Vintrade Private Limited This investing company has confirmed that it invested Rs. 25,20,000/- in the assessee company via RTGS sent on 22.05.2012 through Indusind Bank. The reply was claimed to be sent on 20.11.2015 to ITO, Kanpur, but on 19.11.2015, the jurisdiction of the case stood shifted from ITO, Kanpur to ITO, Banda. The revenue has denied to have received the said reply. The jurisdiction was shifted at the behest of the assessee company. The assessee has enclosed reply of said company before ITO. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 25,20,000 on 22nd May, 2012 through RTGS , for making investment in the assessee company . This debit of Rs. 25,20,000/- is preceded by credit entry of Rs. 25,20,000/- on same day from Russle Mercantile Private Limited. The balance prior to this credit was Rs. 12010.95 and the average balance maintained in this account was meager Rs. 12,000/-. The source of investment is shown to be receipt from M/s Russle Mercantile Private Limited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the company s performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. The name of the assessee was also struck off from Register of ROC/MCA. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta. e) Sandalwood Commercial Private Limited This investing company has confirmed that it invested Rs. 39,60,000/- in the assessee company via RTGS sent on 21.05.2012 and 09.06.2012 in two tranches through Indusind Bank, Burra Bazar, Kolkatta, for subscribing to 44000 shares of Rs. 10 each at premium of Rs. 80 per share , of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- consisting of 206350 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 39,06,92,500/- translating into average share premium of Rs. 1893 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1903 per share keeping in view business of this investing company . This company has majorly one asset which is investment in equity shares of other companies , which stood at Rs. 39,18,90,000/- as at 31.03.2012 and Rs. 37,14,80,000/- as at 31.03.2013. It is interesting to note that the entire investments made by it are in unquoted shares , and none of the investments are in quoted shares/mutual funds which are liquid form of investments. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well preceding year, as the income of Rs. 4,56,164.00 declared by it for year under consideration is from interest income . Thus, the company did not consider investment in quoted shares/Mutual Funds , which are liquid and scope of growth is higher if investments are made in blue chip companies. The company has not declared any dividend during the year as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Our view is fortified by the decision of Mumbai-tribunal in the case of Pratik Syntex Private Limited v. ITO, reported in (2018) 94 taxmann.com 12(Mum.) , in which one of us being Accountant Member was part of the Division Bench which pronounced the order. Our view is further fortified by the decision of Hon ble Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, wherein Hon ble Supreme Court held as under: Now the contention of the appellant is that assuming that he had failed to establish the case put forward by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STEPS OF MONEY-LAUNDERING Although money-laundering often involves a complex series of transactions, it generally includes the following three basic steps: 1. Placement It involves introduction of the proceeds of crime into the financial system. This is accomplished by breaking up large amounts of cash into smaller sums that are then deposited directly into a bank account, or by purchasing monetary instruments, transferring the cash overseas for deposit in banking/financial institutions, use for purchase of high value things such as gold, precious stones, art works etc. and reselling the same through cheques or bank transfers etc. 2. Layering This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the audit trail. In this process a series of conversions or transactions are involved for moving the funds to places such as offshore financial centres operating in a liberal regulatory regime. Often front companies are formed to accomplish this task. These companies obscure the real owners of the money through the bank secrecy laws and attorney-client privilege. The techniques used for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the requisite fund by selling shares. The rest of the applicants of shares, in the share capital of the assessee company, did not disclose the nature of receipt at their end though the source of fund was identified. What has not been specified is, as to on what account was the money received. (c) The forms of share application purporting to have been signed by the applicant companies have also been disclosed from which it appears that the date of allotment, number of allotment, number of shares allotted, share ledger folio, allotment register folio, application number, have all been kept blank. These particulars, Mr. Poddar, submitted should have been filled up by the assessee, but that has not been done. (d) Another significant fact admitted by the assessee in reply to the notice to show cause under Section 263 is that the shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends . (e) From the bank statements disclosed it appears that to have the cheques issued in favour of the asseessee honoured, matching amounts were credited to the accounts of the subscribers shortly before the cheques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Each one of them received from somebody and that somebody received from a third person. Therefore, prima facie, the share-holders are mere name lenders. 25. For the reasons discussed in the preceding paragraph, we are satisfied that the judgement in the case of Steller Investment (supra) has no manner of application to the facts and circumstances of this case. The question as to whether there has been a device adopted for money laundering also did not crop up for consideration in that case. The Prevention of Money Laundering Act, 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investment Ltd. was dismissed by the Apex Court, the question had cropped up in the case of Sophia Finance Ltd. (supra) wherein a special bench held as follows:- As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. CIT (ITA No.1104/Kol/2014) dated 30.07.2015 for the A. Y. 2009-10. Both the sides have fairly admitted that facts and circumstances of the cases under consideration are mutatis mutandis similar to those decided earlier, except for certain issues which we will advert to a little later. In our aforesaid order in Subhalakshmi Vanijya Pvt. Ltd. v. CIT (ITA No. 1104/Kol/2014 A.Y. 2009-10), we have drawn the following conclusions:- ** ** ** It is noticed that all or some of the above conclusions are applicable to the appeals in this batch. The appellant has disclosed a copy of the judgement delivered by the learned Tribunal in Subhalaxmi Vanijya (P.) Ltd. v. CIT. The learned Tribunal in paragraph 17.i. opined as follows:- All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of 'no enquiry' conducted by the AO, what to talk of charactering it as an 'inadequate enquiry'. In our considered o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted by the learned advocate, prejudicial to the interests of the revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. If so and we think it is so the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income- tax authorities is liable for the income thereof. The reasoning advanced by their Lordships in respect of an alleged revenue receipt is, according to us, equally applicable to an alleged capital receipt which, in fact, was received only in papers. The attempt of the assessee, it was apprehended in the case of Smt. Tara Devi Aggarwal (supra) was to assist someone else. An identical attempt is involved in this case. Who is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry are pursued the enquiry cannot be said to have been faithfully conducted. In a different context the apex court observed contra veritatem lex nunquam aliquid permittit : implies a duty on the court to accept and accord its approval only to a report which is the result of faithful and fruitful investigation (See Sidhartha Vashisht alais Manu Sharma v. State (NCT of Delhi) reported in [2010] 6 SCC 1 paragraph 200 at page 80)' In the case of N.R. Portfolio (P.) Ltd. (supra) the following views were expressed:- What we perceive and regard as correct position of law is that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of Precision Finance (P.) Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that the ITO may even be justified in trying to ascertain the source of depositor . Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue No. (b) and (d) in the negative. In the result the appeal fails and is dismissed. It is clarified that the views expressed herein are for the purpose of disposal of this appeal and shall not preclude the statutory authority from arriving at its own conclusion in accordance with law. The ld. Sr. DR has relied upon number of case laws to support its contentions, which we have reproduced in the preceding para s of this order. The ld. Counsel for the assessee relied upon decision of Hon ble Supreme Court in the case of P Mohankala(supra) and Sreeleathers(supra) , to contend that the assessee has offered proper and reasonable explanation before the AO and it is not a case that no explanation was offered , the AO was required to objectively consider the explanation. We are afraid that the contentions of the assessee cannot be accepted as proper explanation was not provided, as the assessee could not explain the creditworthiness of the investing companies as well genuineness of the transactions of raising equity share capital of face value of Rs. 10 each at a huge premium of Rs. 80 per share. These investing companies were not having any business and even there was no fixed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- are merely shell /conduit companies created to launder illgotten money to convert and bring back into the books of the assessee under the garb/shell of legitimate share capital and hence it is a fit case for making additions u/s 68 read with Section 115BBE of the 1961 Act. The detailed analysis was made by us in preceding para s of this order. The ld. Counsel for the assessee has relied upon the decision of ITAT-Mumbai in the case of Pratik Syntex Private Limited(supra) to contend that merely because the assessee has not filed Form No. 2 i.e. return of allotment, no adverse view may be taken. Firstly, the assessee is not able to prove creditworthiness of these five investing companies as well genuineness of the transactions of raising equity share capital of face value of Rs. 10 each at a huge premium of Rs. 80 per share, as discussed above in preceding para s which triggered addition u/s 68. Moreover, proviso to Section 68 is also applicable , and the assessee also could not prove source of source. Secondly , the assessee did not file return of allotment in form no. 2(New Form PAS 3 under the Companies Act, 2013) which establishes to whom shares were allotted by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Section 56(2)(viib) of the 1961 Act, with respect to 170000 equity shares of Rs. 10 face value issued by the assessee company at an issue price of Rs. 90 per share including share premium of Rs. 80 per share , issued by the assessee company during the year under consideration to thirteen investors. We have already held in the preceding para s of this order that so far as issue of 168000 equity shares of Rs. 10 each face value at an issue price of Rs. 90 per equity share inclusive of share premium of Rs. 80 per share , by assessee to five corporate entities based at Kolkatta is concerned, the assessee is not able to satisfy the creditworthiness of these five investing companies nor genuineness of the transaction could be proved , and we have already affirmed the additions to the tune of entire amount of Rs. 1,51,20,000/- raised by the assessee company from these five investing companies inclusive of share premium , as income of the assessee u/s 68 read with Section 115BBE of the 1961 Act. Thus, so far as addition of Rs. 1,08,71,280/- made by AO by invoking provisions of Section 56(2)(viib) of the 1961 Act , with respect to issue of 168000 equity shares to these five investi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .05.2012 18,000 7 Anupam S/o Suresh Kumar, Gram post- Imilia Distt- Hamirpur 200 Cash 20.05.2012 18,000 8 Smt. Pushpa D/o Shiv Shankar Gram Post- Imilia Distt-Hamirpur 400 Cash 20.05.2012 20.06.2012 18,000 18,000 It will be profitable at this stage to refer to provisions of Section 56(2)(viib) of the 1961 Act, which were inserted by Finance Act, 2012 , w.e.f. 01.04.2013, which reads as under: Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources , if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely :- *** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax under the head Income from other sources . However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value- (i) as may be determined in accordance with the method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets, including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. Simultaneously , sub-clause (xvi) was inserted in Section 2(24) by Finance Act, 2012 w.e.f. 01.04.2013, which stipulated, as under: (24) income includes- *** *** ..... X X X X Extracts X X X X X X X X Extracts X X X X
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