TMI Blog2023 (1) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri T. James Singson, CIT-DR ORDER PER ASTHA CHANDRA, JM 1. The appeal by the Revenue is directed against the order dated 29.03.2018 of the Ld. Commissioner of Income Tax Appeals-3, Delhi ( CIT(A) ) pertaining to assessment year ( AY ) 2010-11. 2. The Revenue has taken the following ground of appeal: 1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is correct in deleting the addition of Rs. 190,00,00,000/- made as per provisions of section 68 of the I.T. Act on account of credit of share capital and share premium in the books of account of the assessee. 2. Whether on the facts and in the circumstances of the case, Ld. CIT(A) is correct in holding that provisions of section 68 of the I.T. Act, 1961 does not attract in this case as the assessee has not received actual cash or the cheques were not credited in the bank accounts of the assessee. 3. Briefly stated, the assessee company e-filed its return for AY 2010-11 on 11.09.2010 declaring a loss of Rs. 2,214/- which was processed under section 143(1) of the Income Tax Act, 1961 (the Act ). Thereafter the case was selected for scrutiny under CASS. During assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that section 68 of the Act is not attracted in the case of the assessee by observing as under: 3.3 I have carefully considered the submissions of the appellant, assessment order, the remand report of AO and the rejoinder filed by appellant. It has been vehemently argued by Ld. AR of appellant that during the year under consideration the appellant company has shown an increase of Rs. 1,90,00,000/- towards authorized share capital / issue subscribed and paid up capital and Rs. 188,10,00,000/- towards share premium account which happened as a result of endorsement of Co cheques between 4 companies viz. Sayaji Marketing Pvt. Ltd., Blessings Commercial Pvt. Ltd., Stephens Financial Services Pvt. Ltd. and appellant. The nature of transactions took place in a manner that the Co crossed cheque issued by one company after a series of endorsements to other companies was finally endorsed to the issuer company whereby the issuer company while making a payment to the endorsee company treated the money as share application paid and when finally the cheque was received, it was treated as share application money received. In view of the endorsement by different companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al genuine business activity of the above corporate entities from whom the alleged amount in consideration of shares shown to had been received by the assessee company. The share subscriber did not have its own profit making apparatus and was not involved in business activity . They merely endorsed cheque, which was coming through the bank accounts. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction. The assessee did not give any share-dividend or interest to the said entry operator/subscriber. The profit motive normal in case of investment is entirely absent. In the present case, no profit or dividend was declared on the shares. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining creditworthiness and genuineness of the transactions. 3.5 Section 68 of the Income Tax Act, 1961 is reproduced herein below for your ready reference:- 68. Where any sum is found credited in the books of an assessee maintained For any previous year, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically carries the heading cash credit . If there is no cash credit this section does not get triggered. 9. In the appellant s case credit worthiness of the shareholders cannot be suspected as they have in effect not advanced even a single penny to the appellant. 10. Identity of the shareholders was indisputably established. 11. Section 68 essentially addresses the situations where moneys or sums are received by the taxpayer, credited in the books of accounts but source of the moneys/sums received is not satisfactory. 12. The transactions have not resulted into any inflow or outflow to the appellant company or any of the transacting company. In that sense, the transaction is cash neutral. The learned assessing officer has, in his zeal to make the maximum addition has been driven by only one aspect of the transaction. The AO has himself noted repeatedly in the assessment order that the premium at which shares have been allotted by the appellant is not justifiable on account of it not having any asset or business or even a bank account. The AO has also noted again repeatedly that the shares which have been purchased by the appellant from the investing compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: - 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 sources 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 evident from the perusal of this provision that section 68 can be invoked only if any sum is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. Sum denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,00,00,000 made u/s. 68 of the IT Act, the amount of Rs.25,00,00,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15.00.00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the same does not lead to conclusion that share capital shown to be received in this manner can be treated as unexplained cash credit. As per provisions of section 68 of the I.T. Act, 1961, where any sum is found as credited in the books of the assessee in any previous year and the assessee offers no explanation about the nature and source thereof or 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 income of the assessee in that previous year. In the appellant s case capital of Rs. 190 crores has been shown to be received in the books of the appellant. However, the assessing officer himself has observed that no money as such has been received by the appellant. Rather the increase in capital is by way of book entries. The amount of capital has been counter-balanced by simultaneous investment in share capital of other companies, again without any actual movement of funds. On face of it, all the parties involved in subscription of capital, as well as investment have confirmed the transactions. All of them are assessed to income tax and have also informed their source of (on paper) funds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Sayaji Marketing Pvt. Ltd. in coming to the conclusion that the provisions of section 68 of the Act are not attracted. However, the Ld. DR has placed on record the decision of Calcutta Bench of the Tribunal in the case of M/s. Blessings Commercial Pvt. Ltd. in ITA No. 271/Kol/2014 which has been rendered on 28.06.2017. On perusal thereof, we notice that the Tribunal has recorded the finding that the case of Jatia Investment Co. (supra) and Kerala Transport Co. (supra) were distinguishable on facts and held that the provisions of section 68 of the Act applied and reversed the findings of the Ld. CIT(A) by observing as under: 9. . Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record as well as of the order of the Authorities below and case laws cited, we hold as follows:- 9.1. Section 68 of the Act, reads as follows: 68 . 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, satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon‟ble Tribunal was in that considering a case where accounting entries were passed by debiting accounts of sister concerns without actual inflow of cash. Here a valid cheque was received and credited in the books of account as valuable consideration for allotment of shares. 9.4.2. Similarly, in the case of ACIT vs. Mahendra Kumar Agarwal (supra), the Jaipur Bench of the Tribunal was considering a case of unexplained investment, where there were certain journal entries passed without any cash transactions. It was not a case where cheques have been issued. Thus, on facts this case law does not apply. 9.4.3. In the case of Jatia Investment Co. (supra), the facts were that entries were made in the books of account so as to comply with the directions of RBI given to NBFC‟s. These directions were in the public domain. The RBI had directed the three companies belonging to Jatia Group to maintain a particular ratio of loans to share capital and reserves. This required discharge of loans and through a transparent arrangement these three companies sold shares held by them in various other companies of Jatia Group and the consideration received through book entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not more than a couple Hundreds of rupees or few thousands of rupees. No figures are in lakhs also, except the cheque issued. Bank Balance are around Rs.12,000/- Thus in our view the creditworthiness is not proved. As the genuineness of the transactions and the creditworthiness of the parties have not been proved, the addition has been correctly made u/s 68 of the Act by the A.O. 13. The last contention of the ld. Counsel for the assessee is that, if these credits as well as investments are sham, then no addition whatsoever can be made as these are not real transactions. He submits that when the A.O. gives a categorical finding that these are fictitious book entries, then logically no additions should be made. In our view, this argument has to be dismissed for the reason that credit entry has been made in the books of account consequent to receipt of cheques against which share capital has been allotted by the assesse company which, by the admission of the assessee, are legally valid transaction. The requirements of the Negotiable Instruments Act and the Companies Act are fulfilled in this case. Shares have been legally allotted. Amounts have been validly received by cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de u/s 68. We dismiss this argument as devoid of merit. 15. The B Bench of the ITAT, Delhi in ITA No. 378 2164/Del/2008, Assessment Year 2000-2001, ITO vs. M/s. SBS Properties Finvest Pvt. Ltd.., order dt. 30.05.2016, wherein one of us is the author of the decisions, has held as follows: 27. We now consider the merits of the addition without taking into consideration the statement of Shri S.K. Jain or the material found during the search of Shri S.K. Jain. On a perusal of the documents submitted by the assessee, we are of the considered opinion that the genuineness of the transaction and the creditworthiness of the creditors has not been demonstrated by the assessee. The AO in his order at page 7 has clearly recorded that the assessee company has no financial base or business and the money received by it was withdrawn the very same day or the next day. More important he has recorded that the assessee has not given any, let alone satisfactory explanation for the high premium charged on the shares. When shares are allotted within a span of less than one month, the reason for charging high premium in the case of VPC Financial Services P Ltd. , Killa Financial Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In CIT v . Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under:- Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperly instructed as to the relevant law would have come to the determination in question. In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 / 126 Taxman 365 , the Supreme Court again reiterated the aforesaid position and held as under: - As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see. 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined, not superficially, but in depth and having regard to the test of human probabilities and normal course of human conduct. When we do so in this case we have to uphold the action of the AO. 31. In the case of CIT vs. Global Securities Finance (P) Ltd. (2014) 264 CTR 481 (Delhi) it is held as under :- 11. The respondent assessee is a private limited company. It is not the case of the respondent that their Directors or persons behind the companies, who had purportedly made investment in the shares were related or known to them. In the present case substantial investment has been made in a private limited company which includes share premium @ Rs.40/- per share amounting to Rs.41 ,88,000/-. It is not a case of the respondent assessee that they had a proven good past track record justifying a hefty premium, four times the face value. What was placed on record were certain papers which showed that the respondent assessee had taken care to ensure legal compliances. The said evidence is primarily documentary evidence. But, what the tribunal has noticed but not given due credence to are the surrounding circumstances which include a huge premium i.e. four times of the face ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section is to provide that the Court shall take judicial notice of certain facts rather than exhaust the category of facts of which the Court may in appropriate cases take judicial notice. Recognition of facts without formal proof is a matter of expediency and no one has ever questioned the need and wisdom of accepting the existence of matters which are unquestionably within public knowledge . .......... ........ No Court therefore insists on formal proof, by evidence, of notorious facts of history, past or present. The date of poll' passing away of a man of eminence and events that have rocked the nation need no proof and are judicially noticed. Judicial notice, in such matters, takes the place of proof and is of equal force. In fact, as a means of establishing notorious and widely known facts it is superior to formal means of proof..... 13. It is important, to segregate cases of bonafide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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