TMI Blog2023 (8) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., and failure of the same would justify the addition of the said amount to the income of the assessee. Also, the Hon'ble Apex Court had not found favour with the view taken by the lower appellate authorities, wherein they had observed that as the assessee company had filed all the documentary evidence in the course of assessment proceedings, therefore, the onus that was cast upon it to establish the creditworthiness of the investor companies stood discharged. Rebutting the aforesaid view taken by the lower authorities, the Hon'ble Apex Court had observed that the lower appellate authorities, while so concluding, had not even adverted to the field inquiry conducted by the A.O., which revealed that in several cases, the investor companies were found to be non-existent, and thus the onus to establish the identity of the investor companies was not discharged by the assessee. Considering the principles which the Hon'ble Supreme Court had laid down in the case of Pr. CIT, Circle-1 Vs. NRA Iron Steel Pvt. Ltd. (supra), we find that the facts involved in the present case befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 68 - Decided against assessee. - Shri Ravish Sood, Judicial Member And Shri Arun Khodpia, Accountant Member For the Assessee : Shri Harsh Vijayvargiya, CA. For the Revenue : Shri V.K Singh, CIT-DR. ORDER PER RAVISH SOOD, JM: The present appeal filed by the assessee company is directed against the order passed by the CIT(Appeals), Bilaspur, dated 29.12.2017, which in turn arises from the order passed by the A.O. u/s. 143(3) of the Income-tax Act, 1961 (for short 'Act') dated 28.12.2016 for A.Y. 2014-15. The assessee company has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us: 1 That the Learned Commissioner of Income Tax (Appeals), Bilaspur, erred in passing an order dated 29th of December, 2017 under section 250 of the Income Tax Act, 1961, dismissing the appeal of the Appellant without allowing reasonable opportunity of being heard. 2. That the learned Commissioner of Income Tax (Appeals), Bilaspur, erred in confirming the addition of Rs.1,12,37,50,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on irrelevant considerations and arbitrary grounds. 3. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The A.O. observed that it was beyond comprehension that the assessee company, which had hardly carried out any business and was running into losses, would have attracted investments without adequate protection and ensuring appropriate returns. The A.O., guided by the principle of preponderance of human probabilities, held a conviction that it was highly implausible that any investor without due diligence would have invested its hard-earned money with the assessee company which had no credibility. 4. The A.O., to verify the identity and creditworthiness of the 41 Kolkata-based share applicant/subscriber companies, issued a commission u/s. 131(1)(d) of the Act to the DDIT (Inv.), Unit-4(1), Kolkata on 21.11.2016. In reply, the DDIT (Inv.), Unit-4(1), Kolkata, reported that the aforesaid Kolkatabased share applicant/subscriber companies had doubtful credentials. He pointed out that the share applicant/subscriber companies lacked identity, genuineness, and creditworthiness. The A.O., in all fairness, provided a copy of the report received from DDIT (Inv.), Kolkata, to the assessee company. 5. Further, the A.O., to verify the identity and creditworthiness of the share applicant/su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The A.O. referring to the 1st proviso to Section 68 of the Act (as had been made available on the statute vide the Finance Act, 2012 w.e.f. 01.04.2013), observed that in the absence of an explanation as regards the source of the funds from where the share applicant/subscriber companies had made the respective investments with the assessee company, the onus that was cast upon the latter as regards proving the authenticity of the transactions of receipt of share application money from them was not discharged as per the mandate of the Act. Relying on the judgment of the Hon'ble High Court of Delhi in the case of CIT Vs. N.R. Portfolio Private Limited (2014) 42 taxmann.com 339 (Delhi), the A.O. was of the view that now when the assessee company had adopted an evasive approach and deliberately and intentionally failed to produce evidence before the A.O with the desire to prevent inquiry or investigation, then adverse inferences as regards its claim of having entered into genuine transactions of receipt of share application money from the investor companies were liable to be drawn. Apart from that, the A.O., on scrutinizing the documents that the assessee company had fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the bank statements of the share applicant companies, observed that the inflow of funds in their accounts was from certain other Kolkata-based briefcase companies, which in turn had allegedly received their liquidated investments. He further observed that the companies in which the share applicant/subscriber companies had earlier invested were also found to be companies having no substantial worth and were only entry providers. 8. In sum and substance, it was observed by the A.O. that the assessee company, in the guise of transactions carried out through banking channels, had tried to give the color of genuineness to the receipt of amounts from the aforementioned share applicant companies. The A.O. rebutting the support that the assessee company had sought to draw from the fact that the respective share applicant companies were registered with ROC, filing their returns of income, holding PAN and bank accounts, and had submitted share application forms, etc., therein relied on certain judicial pronouncements and observed that the said facts would by no means establish the identity of the companies which in reality might be existing only on papers and were factually non-exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kata seeking personal attendance of the principal officers of the said companies were either returned unserved by the postal authorities; while for in cases where those were served, they were never complied with. Further, the A.O. informed the assessee company that the fact that the Kolkata-based share applicant/subscriber companies had returned negligible/Nil income further fortified the serious doubts about their credibility. On the basis of the aforesaid facts, the A.O. called upon the assessee company to explain that now when the onus that was cast upon it as regards proving the identity and creditworthiness of the share applicant companies a/w. genuineness of its claim of having received share application money from them had not been established, then, why the same may not be treated as unexplained cash credits u/s.68 of the Act. In reply, the assessee company tried to dislodge the aforesaid adverse inferences that were sought to be drawn by the A.O. by submitting as under: With the reference to the above captioned subject, I on behalf of the assessee company do hereby submits following facts along with supporting documents are as under- In your letter dated 20/12/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and pre-fix mindset. Assessee company has submitted complete details of 48 companies before you at the time of recording of the statement under section 131 dated 13/12/2016. Details of the evidence submitted on 13/12/2016 are as under. - Directors have appeared and recorded statements and oaths for providing complete facts along with supporting documents which he possessed on 13/1212016. Active status of all the 48 companies from the Ministry of Corporate Affairs website (www.mcasov.in) wherein it clearly mentions the name of the company, its address, and the name of its directors as of today. Therefore identity of all the 48 companies were given with the authenticated documents is proved - Directors have furnished a copy of the memorandum of association of all the 48 companies, which is obtained from the authenticated website of the Ministry of corporate affairs, wherein details of the objects of the company and the name and address of its directors, authorized capital, issued capital, and its registered head office address are clearly mentioned. Therefore it proves that the identity of the alleged 48 companies is duly substantiated. - Directors have further f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit worthiness of all the 48 alleged companies has been proved and the report of Hon'ble DDIT(inv.), unit 4(1), Kolkata is issued without any basis and merely on presumptions. Moreover report of the Hon'ble DDIT (Inv.), unit 4(1), Kolkata is not specific on corroborative/cogent evidences and is based on their database not in the basis of current position of all the companies. Report also stated that out of 48 companies many of the summons issued under section 131 has been served to the many companies and the some of these summons under section 131 were unserved and returned back to them. Therefore, conclusion of the above mentioned report is confusing and without proper inquiry because of on the contrary all the 48 alleged companies have well responded directly to your office and submitted, all the supporting evidences to prove their identity, genuineness and credentials of their companies. 10. It was further stated by the assessee company that the Principal Officers/Directors of the 48 (sic) investor companies who were called upon to put up an appearance a/w supporting documents to substantiate the authenticity of their investments made with the assessee company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not conclusively establish the identity of the creditors or their creditworthiness. As regards the judicial pronouncements that were relied upon by the assessee company, the A.O. was of the view that as all of those were rendered before the amendment to Section 68 of the Act vide the Finance Act, 2012 w.e.f. 01.04.2013, i.e., before insertion of the 1st proviso to the said section; therefore, the same would not come to its rescue. The A.O. observed that the assessee company had, except for furnishing some documents, failed to file the other requisite details as were required per the mandate of Section 68 of the Act; therefore, the entire amount of share capital/premium of Rs.112.37 crore (approx.) received by it during the year under consideration was to be treated as unexplained cash credit within the meaning of the said section. Accordingly, the A.O. vide his order passed u/s. 143(3) of the Act dated 28.12.2016, after making the addition described above of Rs.112.37 crore (approx.) u/s.68 of the Act, brought the same to tax u/s 115BBE of the Act and determined the income of the assessee company at Rs.111.19 crore (approx.). 12. Aggrieved, the assessee assailed the order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d information to establish identity, creditworthiness, and genuineness. The Ld. A.R. wants the Department to accept a certain set of papers on the ground that similar papers were accepted in earlier years also. However, estoppels do not apply in I.T. proceedings, and each assessment year is separate and exclusive from earlier years. Moreover, there was no inquiry caused through the DDIT Inv at Kolkata in earlier years as has been caused in the current year with findings adverse to the assessee. If, on an inquiry, different facts are found, and it is revealed that the directors and persons related to the purported share application companies have accepted having provided accommodation entries to the assessee company, then the share application money of the assessee company becomes doubtful, and unexplained. Once doubt is cast on the genuineness of a fact this year, the very documents become suspicious and unacceptable, and it cannot be accepted for the reason that similar documents were accepted in earlier years also. To mitigate the doubt and establish genuineness, the appellant must furnish further evidence. The A.O. has provided the opportunity to the appellant to produce directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ants has appeared and explained its finances, out of which the amount was advanced to the assessee. In conclusion, the credit in the assessee's books as share application money is unexplained. The addition of the amount of Rs.112,37,50,000/-in the hands of the assessee, made in the assessment order, is hereby sustained, and the ground of the assessee is dismissed. 13. The assessee, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before us. 14. On 05.06.2023, the assessee company had moved an application seeking adjournment of the appeal on the ground that as the appeal in the case of its sister concern, viz. M/s. Jayganga Exim India Pvt. Ltd for A.Y. 2012-13 involving identical facts was pending before the ITAT, Kolkata Bench, therefore, the hearing of the appeal in its case be adjourned till disposal of the appeal of the sister concern. Along with the application for adjournment, the assessee company had placed on record certain documents/orders pertaining to M/s. Jayganga Exim India Pvt. Ltd. (supra), viz. assessment order, CIT(A) s order, Form-36 filed before the ITAT (Kolkata), status of appeal before the ITAT, Kolkata, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid application filed a short synopsis/written submission in support of the grounds raised in the memorandum of appeal a/w an affidavit of Shri Rohit Darak, director of the assessee company. 16. As the aforesaid application seeking to place on the record the written submission/synopsis a/w. the affidavit of the director of the assessee company after the culmination of the appellate proceedings was not in conformity with the procedure contemplated in Rule 18 of the Income Tax (Appellate Tribunal) Rules, 1963, regulating the mode and manner for an appellant or a respondent who proposes to refer or rely upon any document or statements or other papers on the file of or referred to in the assessment or appellate orders; therefore, initially, we were of the view that the same did not merit admission. Our conviction above was fortified by sub-rule (7) of Rule 18, as per which any paper/paper book filed in a manner that does not conform with that prescribed under Rule 18 is to be ignored. For the sake of clarity, Rule 18 of the Income Tax (Appellate Tribunal) Rules, 1963 is culled out as under: 18. Preparation of paper books, etc.- (1) If the appellant or the respondent as the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the appeal, therein merit admission, had relied on the judgment of the Hon ble Apex Court in the case of Aurangabad Electricals Ltd. Vs. Commissioner of Central Excise Customs, Aurangabad (supra). 17. We have perused the aforesaid judgment of the Hon ble Apex Court in the case of Aurangabad Electricals Ltd. Vs. Commissioner of Central Excise Customs, Aurangabad (supra), and the facts/issues therein involved are for the sake of clarity being culled out by us, as under: Facts in the case before the Hon ble Apex Court Re: Aurangabad Electricals Ltd.: 18. In the case before the Hon ble Supreme Court, the allegation against the appellants, viz. Aurangabad Electricals Ltd., who were manufacturers of Magneto Assemblies, was that they were receiving inputs from M/s Bajaj Auto Ltd., which was the primary consumer of their goods, at an under-valued landed cost by not including an element of the landed cost of inputs incurred on account of Sales Tax, Octroi, Freight, Insurance, loading, unloading and handling charges. It was alleged that the appellant company was further undervaluing the clearances effected by them to M/s Bajaj Auto Ltd. since they were already receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant company in support of their defense. Respectfully following the aforesaid observation of the Hon ble Apex Court, we find substance in the claim of the assessee-appellant that the written submission/synopsis/affidavit placed on our record, though after the conclusion of the hearing of the appeal, requires to be considered to verify as to whether the same in any way supports its claim that has been raised in the present appeal before us. 20. We have heard the ld. Authorized representatives of both parties, perused the orders of the lower authorities and the material available on record a/w. the synopsis/written submissions filed by the assessee appellant (received through post), as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 21. Although we, in terms of our observations above by relying on the judgment of the Hon ble Supreme Court in the case of Aurangabad Electricals Ltd. Vs. Commissioner of Central Excise Customs, Aurangabad (2011) 1 STD 118 had admitted the synopsis/written submissions/affidavit that the assessee appellant had filed a/w his letter seeking permission for admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om them could be proved. However, it transpires on a perusal of the record that the directions of the A.O. were not complied with by the assessee company. Shri. Sarad Kumar Darak (supra), in his attempt to discharge the onus that was cast upon the assessee company to substantiate the authenticity of receipt of the share application money from the investor companies, furnished copies of PAN, returns of income, audit reports, and bank statements, etc. of the share applicant/subscriber companies. Regarding the A.O.'s direction to produce the directors of the share applicant/subscriber companies for necessary examination before him, Shri Sarad Kumar Darak (supra) expressed his inability to do so and requested the A.O. to summon them. However, the A.O. not losing sight of the fact that the summons that were earlier issued u/s.131 of the Act by the DDIT (Inv.) Unit-4(1), Kolkata (on a commission issued to him u/s 131(1)(d) of the Act) seeking personal attendance of the directors/principal officers of the aforesaid share applicant/subscriber companies were either not complied with or were returned unserved, thus, knowing well that the repetition of the said exercise of summoning the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A.R. for the assessee vehemently submitted that the A.O. had grossly erred in law and facts of the case in not considering the substantial documentary evidence that was filed before him to substantiate the identity and creditworthiness of the share applicant/subscriber companies, and also the genuineness of the transactions of receipt of the share application money from the said investor companies. The Ld. AR drew our attention to the assessment order, wherein the A.O. had observed that he had received bundles of papers through post from the assessee company. Referring to the documents mentioned above, it was submitted by the Ld. A.R. that the view taken by the A.O. without addressing the contents of the said documents, which in turn substantiated the authenticity of the transactions of receipt of share application money by the assessee company, was in clear violation of the basic principles of natural justice. Based on his contentions above, it was submitted by the Ld. A.R. that the matter, in all fairness, be restored to the file of the A.O. with a direction to him to re-adjudicate the same after duly considering the documents that the assessment company had filed before his pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details about the share applicant/subscriber companies as was reported by the DDIT(Inv.)-4(1), Kolkata, pursuant to a commission issued to him u/s 131(1)(d) of the Act, and the factum of the poor financial credentials of the said share applicant/subscriber companies, which, as could be gathered from their financial statements, were not involved in any real business activities, the A.O., in our considered view, was duly justified in carrying serious doubts as regards the authenticity of the claim of the assessee company of having received genuine share application money from the aforementioned share applicant/subscriber companies. In so far furnishing of the copies of PAN, income tax returns, audit reports, and bank statements by the assessee company in its attempt to discharge the primary onus that was cast upon it to prove the authenticity of its claim of having received genuine share application money from the investor companies, we concur with the view taken by the CIT(Appeals) that as held by the Hon'ble High Court of Delhi in the Case of CIT Vs. N.R. Portfolio Private Limited (2014) 42 taxmann.com 339 (Delhi), that in a case where the assessee had adopted an evasive appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are applicant/subscriber companies, and harping on the fact that transactions were carried out through banking channel, had however failed to substantiate the set of conditions envisaged u/s. 68 of the Act, i.e. (i) proving the identity and creditworthiness of the share applicant/subscriber companies; and (iii) establishing the genuineness of the transactions under consideration based on irrefutable supporting documentary evidence. As the DDIT(Inv.), Unit-4(1), Kolkata had vide his report dated 21.11.2016, i.e., pursuant to the commission issued u/s.131(1)(d) of the Act by the A.O., therein stated that share applicant/subscriber companies had doubtful credentials and lacked identity, creditworthiness, and genuineness, which fact was brought by the A.O. to the notice of the assessee company, therefore, in our considered view a very heavy onus was cast upon the assessee company to dispel the said adverse observations by placing on record supporting documentary evidence, and such other material which would have substantiated the authenticity of the transactions of receipt of genuine share application money from the said share applicant/subscriber companies. However, we find that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mium. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the Case of Pr. CIT, Circle-1 Vs. NRA Iron Steel Pvt. Ltd. (2019) 103 taxmann.com 48 (S.C.). In the said case, the Hon'ble Apex Court had observed that where the assessee company had received share capital/premium but had failed to establish the creditworthiness of the investor company, then the A.O. was justified in treating the said amount as an unexplained cash credit u/s.68 of the Act. The Hon'ble Apex Court, while concluding as hereinabove had, inter alia observed that the A.O. is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. The Hon'ble Apex Court, while concluding as hereinabove, had laid down the principles which emerge where sums of money are credited as Share Capital/Premium, as under: 11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditworthiness, then the A.O. must conduct an inquiry, and call for more details. It was further observed that if the assessee is not able to provide a satisfactory explanation of the nature and source of the investments made, it is open to the revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. The Hon'ble Apex Court had further observed that the Department is obligated to carry out careful scrutiny of a private placement of shares, and the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., and failure of the same would justify the addition of the said amount to the income of the assessee, observing as under: 14. The practice of conversion of unaccounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of a private placement of shares, where a higher onus is required to be placed on the assessee since the information is within the personal knowledge of the assessee. The assessee is under a legal obligation to prove the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transactions under consideration. Also, we may observe that as the aforesaid judgment of the Hon'ble Apex Court in the Case of Pr. CIT, Circle-1 Vs. NRA Iron Steel Pvt. Ltd. (supra) was rendered in the context of pre-amended Sec. 68 of the Act; therefore, pursuant to the insertion of the 1st proviso to Sec. 68 of the Act vide the Finance Act, 2012 w.e.f 01.04.2013 which applies to the case of the present assessee company before us, a much heavier onus was therein cast upon it to substantiate the authenticity of the share application money that was credited in its books of accounts. Apropos the claim of the assessee company that the lower authorities had miserably failed to establish that the assessee s unaccounted money was routed back to its coffers in the guise of share application money received from the share applicant/subscribers companies, therefore, the amount so received could not be held as its unexplained cash credit u/s.68 of the Act, we are unable to concur with the same. We, say so, for the reason that as held by the Hon ble Supreme Court in the case of NRA Iron Steel Pvt. Ltd. (supra), if the assessee is not able to provide a satisfactory explanation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 41 share applicant/subscriber companies did further cast an obligation upon it to mandatorily supplement the same with the explanations of the respective investor companies about the nature and source of such sum credited against their names in the books of account of the assessee company. However, we find that in the present case before us, not only the assessee company had failed to substantiate to the hilt the nature and source of the amount credited in its books of account based on any clinching documentary evidence, but also, there is no whisper in the orders of the lower authorities about any explanation of the respective investor companies about the nature and source of such sum so credited against their names in the books of account of the assessee company. 34. Now, we shall deal with the judicial pronouncements pressed into service by the Ld. AR to support his contentions above, as under: (A) Chhattisgarh Metaliks and Alloys (P.) Ltd. Vs. ITO, (2023) 147 Taxmann.com 441 (Raipur-Trib) 35. Referring to the order above, the Ld. AR had tried to impress upon us, that as the onus cast upon the assessee company to prove the authenticity of the transactions of rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m recorded against their name in the books of the assessee company; therefore, the reliance placed by the Ld. AR on the aforesaid order passed in the case of Chhattisgarh Metaliks and Alloys (P) Ltd. Vs. ITO (supra) would not come to its rescue. (B) Pr. Commissioner of Income-tax Vs. Chain House International (P) Ltd. (2019) 103 taxmann.com 435 (SC) 37. In the aforesaid case, it was observed by the Hon ble High Court that once the genuineness, creditworthiness, and identity of investors were established, no addition could be made concerning the cash credit on the ground that the shares were issued at an excess premium. The Hon ble High Court had observed that as there was no dispute about the identity, creditworthiness, and genuineness of the investors which was established beyond any doubt, therefore, there could be no question or dispute about the premium paid by them and thus, no justification for the A.O to have doubted the authenticity of the transaction and drawing of adverse inferences on the ground that the investor as a prudent businessman could have managed by paying lesser premium. 38. Once again, unlike the facts involved in the present case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account; and (ii) explanation by the investor companies as regards the nature and source of the sum so credited against their name in the books of account of the assessee company - therefore, finding no infirmity in the view taken by the lower authorities who had rightly held the entire amount as unexplained cash credit u/s. 68 of the Act, we uphold the same. Thus, the Grounds of appeal No(s). 2 to 4 raised by the assessee company are dismissed in terms of our observations above. 42. Ground of appeal No.5, being general, is dismissed as not pressed. 43. Although the assessee company has also assailed the order of the CIT(Appeals) on the ground that he had erred in dismissing the appeal without allowing a reasonable opportunity of hearing, we are unable to persuade ourselves to concur with the same. On a perusal of the CIT(Appeals) order, it transpires that the assessee company, during the proceedings before him, was duly represented by its C.A., viz. Shri Dinesh Kumar Agrawal, FCA, who had argued the matter and filed written submissions during the proceedings before the said first appellate authority. Also, a perusal of the CIT(Appeals) order reveals that he had duly con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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