TaxTMI 
TaxTMI 
2023 (9) TMI 545
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....y failed to prove the identity, genuineness and creditworthiness of the investor company as per the parameters of the legal provisions u/s 68 of the Act?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) having concurrent powers of the AO u/s 250(4) of the Act, was justified in deleting the addition of Rs. 3,07,00,000/- made by the AO in the absence of satisfaction of parameters prescribed u/s 68 of the Act?" 4. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred by giving a finding which is contrary to the ratio of the decision of Hon'ble Supreme Court in the case of M/s Rajmandir Estates Pvt Ltd vs. PCIT-III, Kolkata (SLP No. 22566-22567 dt. 09.01.2017)" 5. "Whether on points of law and on facts & circumstances of the case, the Ld. CIT(A) has erred by giving a finding which is contrary to the ratio of the decision of ITAT, Kolkata 'B' Bench in the case of M/s Subhlakshmi Vaniya (P) Ltd. Vs. CIT-1, Kolkata in ITA No. 1104/Kol/2014 and other cases dated 30.07.2015?" 6. "Whether on points of law and facts & circumstances of the case, the Ld. CIT(A) has erred by giving a finding which is....
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....g shareholders from whom the assessee has claimed to have received share capital/premium aggregating to Rs. 1,10,00,000/- :- 1. Winsher Vinimay Pvt. Ltd. 2. Everlast Vinimay Pvt. Ltd. 3. Subhlabh Prints Pvt. Ltd. 4. Rajhans Dealers Pvt. Ltd. 5. Liberal Merchangs Pvt. Ltd. Therefore, in absence of establishment of genuineness of the receipt of share capital/premium, the AO added Rs. 3,07,00,000/- to the total income of the assessee u/s. 68 of the Act. 4. Against the above order of AO, the assessee preferred appeal before the ld. CIT(A) and the ld. CIT(A) allowed the appeal of the assessee and deleted the addition made by the AO. 5. Now, the revenue is in appeal before the Tribunal against the order of the ld.CIT(A). 6. Ld. CIT-DR, at the outset, submitted that the case of the assessee was selected for scrutiny under CASS. The assessment proceedings were initiated by issuing notice u/s. 143(2) of the Act, detailed questionnaire in terms of Section 143(2) & 142(1) of the Act were issued, hearings were conducted, the assessee had submitted its written replies against the above questionnaire. Ld. CIT-DR drew our attention to para 2 of the assessment order and reiterated th....
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....nt existence and the same cannot be considered as sufficient discharge of onus u/s. 68 of the Act. By stating so, and rightly, ld. AO added the entire amount of Rs. 3,07,00,000/- as income of the assessee from undisclosed source u/s. 68 of the Act. Ld. CIT-DR further submitted that the issue was raised by the assessee before the ld. CIT(A), wherein the ld. CIT(A) has granted relief to the assessee observing that the AO has discussed in the assessment order that no response was received from five shareholders to the notice u/s. 133(6) of the Act. Ld. AO without assigning any reason rejected the documents even for those companies from whom, the documents were received. It was the observation of the ld. CIT(A) that the ld. AO has not pointed out any defect in the document received and the adverse conclusion drawn by on the basis of fact in respect of those companies on which reply was not received. It was the observation of the ld. CIT(A) that the AO has mentioned about certain information received about genuineness of investment made by the Kolkata based companies, but the same information was never shared with the assessee, neither any opportunity has been provided to the assessee t....
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....ses it shows that the companies do exist. Ld. CIT(A) discussed as an example the balance sheet of M/s Apurva Bartar (P) Ltd. As on 31.12.2012 stating that it has interest income of Rs. 15,35,594/- and share capital and reserve of the company was Rs. 5,79,33,838/- out of which the share subscriber company has invested in long term loans, advances and shares of the companies. Ld. CIT(A) has observed that the picture is same in respect of other shareholders also. Thereafter applying certain case laws, ld. CIT(A) has deleted the addition. It was the submission of the ld. CIT-DR that the ld.CIT(A) has not discussed the financial statement of all the 12 companies whose financial conditions are apparently suggesting that the companies are shell or paper companies, no cognizance to the observations of the AO in the remand report was also given by the Ld CIT(A). Ld CIT(A) who poses the powers coterminous with that of the AO, was obligated to conduct enquiry, when a negative report was received with respect to such Kolkata based companies and informed by the AO, but Ld CIT(A) chooses to accept the submissions of assessee rather than that of AO. Such method of examination of facts by the ld. ....
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.... filed by the investors in their individual returns, which has been accepted without any dispute in their case. Availability of funds in the hands of such investors could not have been doubted in the case of assessee without disturbing the assessments of the investors. iv) Reliance on: - - CIT vs Vrindavan Farms (P) Ltd., in ITA 71, 72 & 84/2015 of Hon'ble Delhi High Court dt. 12.08.2015. - Anjani Associates vs ITO in ITA No. 27/RPR/2018 dt. 10.08.2018 of Raipur Bench of ITAT. - Prabhatam Investment P. Ltd. vs ACIT. (2017) 49 CCH 299 (Del. Trib.). - Pr. CIT vs AMI Industries (India) P. Ltd. (2020) 424 ITR 219 (Bom.) 9. Burden was on the AO to disprove the legal & cogent evidences. Burden not discharged and so addition could not be made. 10. Although requisite compliance was made by all the investors, even if some of the investor did not respond, no addition could be made only on this account. 11. In ACIT vs R. N. Navnirman Pvt. Ltd. in ITA No. 143/RPR/2018 dt. 23.09.2022, relying upon Pawan Kumar Agrawal vs ITO (Hon'ble Chhattisgarh High Court), it was held by the Raipur Bench of the Honorable Tribunal that when the assessee discharged its burden, the AO could not h....
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....to Rs. 3,07,00,000/- to the total income of assessee as unexplained credit u/s 68 of the IT Act, 1961 on arbitrary basis, unjustified and bad in law, and should be deleted. 3. That the CIT(A) after taking extensive note of the observations made in the assessment order and oral & written submissions made on behalf of the assessee, found substantial merits in the plea of the assessee and reversed the additions so made by passing a self speaking and self explanatory appellate order dated 05/07/2018.3 4. That against the aforesaid appeal order dated 05/07/2018, assessing officer has filed an appeal before the honorable tribunal. 5 That point wise objections raised by the department in its appeal paper book (Form-36 read with statement of fact and ground of appeal) and assessee's submission against those objections is put before your honor in tabular format as under: Sr. No. Department's Objection raised in appeal paper book (Statement of Facts and Grounds of Appeal) Assessee's Submission against respective objections 1. The Ld. CIT(A) has erred in deleting the entire addition of Rs. 3,07,00,000/- made by the AO. (Para- 3.1 of SOF) The Ld. CIT(A) has also given the findi....
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.... by giving a finding that the assessee has furnished the details and documents such as ROC registration, PAN, Audited accounts and bank accounts evidencing the transaction and as per bank statements, payment have been received by the assessee from shareholder's account to assessee's account. Therefore genuineness of the transactions cannot be doubted. But the Ld. CIT(A) has ignored the other parameter of creditworthiness of investor company which was raised by the AO in assessment order. (Para-3.8 of SOF) The Ld. CIT(A) has not appreciated the fact that how such a weak balance sheet commands such as high premium. (Para-3.2 of SOF) Here, the allegation of Ld. AO that Ld. CIT(A) ignored the findings of the AO which was given after enquiries that the genuineness as well as creditworthiness of the investor companies were not proved is also not correct as Ld. CIT(A) himself has gone through the relevant case in detail along with relevant enquiries being made by the AO and has categorically observed that: * no report is available regarding any enquiry conducted by the AO which she was alluding at Para-6 of the assessment order * Probably she is referring to certain other enquiries c....
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....e in the law and facts of the case. 3. The fact of investor companies being shell or jamakharchi companies has been established in enquiry conducted by the Department. In search and seizure action, one of the entry provider of named Sh. Vinod Kumar Jajoo was recorded and he admitted that the companies were managed by him for the purpose of providing accommodation entries various beneficiaries companies. Sh. Vijay Jajoo has clearly accepted that entities and their respective bank account were managed and controlled by him through a number of Dummy Directors to provide accommodation entries to various beneficiary companies in lieu of commission. The relevant part of the statement are also scanned below for ready reference. Thus, it is established that the share capital taken in the name of such investor companies are unaccounted money of the assessee which has been credited in the accounts of the assessee in the form of share capital. (Para-3.7 of SOF) Your honor, at the outset the assessee wishes to challenge the admissibility of statement of Sh. Vinod Kumar Jajoo on following grounds: ❖ As evident from the copy of Statement of Facts submitted by the department, the said....
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....3(6) notices * The investor companies were identified as shell companies. * Therefore, it is respectfully be submitted here that the ratio of the case of Hon'ble ITAT, New Delhi (A Bench) in the case of M/s Pee Aar Securities Ltd. Vs. DC1T- Circle-14(l), New Delhi in ITA No. 4978/Del/2014 is distinguished and therefore not applicable in assessee's present case. 5. The assessee has submitted only the documents, but he could not establish the source of share capital as the investor companies has no creditworthiness to make investment in assessee company. The assessee could not explain the fact how the share capital was generated by such investor companies which are not financially sound. Hence, the same was added by the AO during assessment proceeding by treating as unexplained credit u/s 68 of the Act. (Para-3.8 of SOF) It is respectfully be submitted here that no legal obligation is prescribed upon assessee in law to prove the 'source of source' of such share capital receipts in view of the prospective insertion of proviso to section 68 of the Act from AY 2013- 14 foisting such obligation. A reference may be made to the decision of Hon'ble Bombay High Court in the case of CI....
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.... * The question before the court was leg4ality of invocation of section 263 where assessee with a small amount of authorised share capital, raised a huge sum on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees. * Further in that case, Assessing Officer did not hold requisite investigation except for calling for records, he also did not interrogate persons behind assessee company and persons behind subscribing companies which was essential to unearth truth * Further, in that case, the decision of Calcutta High Court was only in respect of whether commissioner was justified in treating assessment order erroneous and prejudicial to interest of revenue, against which SLP was dismissed by the Apex Court. However there is no decision as far as genuineness of sharecapital/ premium are concerned. Therefore, based on above, ratio of the case of M/s Rajmandir Estates Pvt Ltd Vs PCIT-III, Kolkata is not applicable in assessee's present case. 2 ITAT, Kolkata 'B' Bench in the case of M/s Subhlakshmi Vanijya (P) Ltd. Vs. CIT-1, Kolkata in ITA No. 1104/Kol/2014 The facts of instant case of assessee is clearly di....
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....rving of any such notices. Further, all those shareholders has duly responded to notices issued to them u/s 133(6), copy of which is also in record of AO as well as CIT(A). The current MCA status of all the investor companies are "Active" and none of those companies are there in the list of shell companies as identified by the government. Whereas in the case of M/s Pee Aar Securities Ltd. Vs. DCIT- Circle-14(l), New Delhi: * The assessee was not able to produce the brains behind these companies and the documents with respect to their financials either. * No such notice u/s 133(6] was issued for conducting enquiry and no such responses was made by the investor companies against 133(6) notices * The investor companies were identified as shell companies. Therefore, it is respectfully be submitted here that the ratio of the case of Hon'ble ITAT, New Delhi (A Bench) in the case of M/s Pee Aar Securities Ltd. Vs. DCITCircle- 14(l), New Delhi in ITA No. 4978/Del/2014 is not applicable in assessee's present case. 7. That the Ld, AO overlooked various jurisdictional binding pronouncements on the issue as given by the Raipur Bench of the Tribunal as well as by the Chhattisgarh hi....
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....shares at high premium - Assessing Officer asked assessee to furnish complete details of persons from whom share capital and share premium had been received - Assessee furnished PAN details along with copies of audited financial statements and copy of bank statements in case of all share applicants - Assessing Officer, however, taking a view that share applicant companies were mere paper companies, added amount in question to assessee's income under section 68 - It was noted that Assessing Officer had not made any enquiry in respect of share applicant companies - Assessing Officer had merely made addition by discarding/disbelieving documentary evidences filed by assessee - Moreover, Assessing Officer had not demonstrated that share applicant companies fulfilled requirement of shell company - Whether impugned addition made by Assessing Officer was to be set aside - Held, yes 7.4. The jurisdictional Raipur ITAT on the basis of similar facts in the case of ITA No. 225 to 231/RPR/2014 DCIT, Central Circle, Raipur Vs. R.R. Energy Ltd. has ruled in favour of the assessee and deleted the additions on account of share capital & premium by observing as under: "It is an undisputed fa....
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....r augmenting the investment in the business has flown from appellant's own money which is an essential prerequisite for making addition in such cases. I am convinced that the case of the appellant is squarely covered by the decisions rendered by the Hon'ble Apex Court in the case of the CIT vs. Lovely Exports (P) Ltd. reported in 216 CTR 195 and the jurisdictional High Court viz. the Chhattisgarh High Court in the case of the ACIT vs. Venkateshwar Ispat (P) Ltd. reported in 319 ITR 393 for the reason that the facts in such cases are entirely same, particularly, when no differentiation could be effectively demonstrated and brought on to the record by the A.O. The submissions of the AO that the decision of the Hon'ble Supreme Court in the case of Lovely Exports (P) Limited was rendered in the light of different facts inasmuch as the said judgement was rendered by the Hon'ble Supreme Court in the context of public issue, is devoid of merit because the decision was rendered by the Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd. which is a Private Limited Company and which cannot bring public issue of shares. I find that the investments made by the share ap....
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....tical facts. Hence it is impermissible to deviate from the ratio laid down therein and against the law of judicial precedents. In view of the above and respectfully following the ratio of the binding judgements, the addition of share application/capital money of Rs. 12,71,00,000/- in A.Y 2006-07 and Rs. 6,51,50,000/- in A.Y 2007-08 as unexplained cash credits under section 68 are uncalled for and hence, deleted." 7.5. Honorable Supreme Court in the case of Lovely Exports Pvt. Ltd. 319 ITR 5 (SC) held held that If share application money is received by assessee-company from alleged bogus shareholders, whose names are given to Assessing Officer, then Department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of assessee-company. 8. In support of its case, the assessee inter-alia wishes to rely on some recent judicial pronouncements on similar facts as under: Sr. No. Case Reference Decision laid down by the Judiciary 1. Calcuttta HC in the case of PRINCIPAL COMMISSIONER OF INCOME TAX - 9, KOLKATA VERSUS M/S. SREELEATHERS ITAT/18/2022 (IA NO: GA/02/2022) Th....
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....tion 68 in respect of said sharecapital and premium amount received by assessee was unjustified. 5. ITAT KOLKATA BENCH 'C' Tradelink Carrying (P.) Ltd. V. Income Tax Officer, Ward 4(1), Kolkata [2020] 113 taxmann.com 520 (Kolkata - Trib.) Assessing Officer had acknowledged that in compliance of notice issued under section 133(6) all share applicants filed evidences in form of balance sheets, ITR acknowledgement and bank statements Identity of share applicants was proved by furnishing name, address, PAN of share applicants together with copies of their respective balance sheets and income tax returns - It was further found that these individuals were having capital in lakhs of rupees and investment made in assessee-company was a small part of their capital - Thus, creditworthiness of share applicants was also established - Further, sharecapital monies were directly paid to assessee by cash out of sufficient bank balances available in their bank accounts - Whether assessee had discharged its onus to prove identity and creditworthiness of share subscribers and genuineness of transactions, therefore, addition made under section 68 was unjustified. 6. ITAT PUNE BENCH 'A....
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....acts and in law. It is therefore submitted before your honor that no interference is called for on the order of CIT(A) on merits. 11. Further, the ld. AR of the assessee placed reliance on the decision of CIT Vs. M/s Orchid Industries Pvt. Ltd., passed in Income Tax Appeal No.1433 of 2014, order dated 5th July, 2017, and drew our attention to para 5 to 7, which read as under :- 5] The Assessing Officer added Rs. 95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account. 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produ....
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....ertificate etc for the 5(five) companies. In remand report Ld AO allegedly mention that "It is beyond one's comprehension as to what prevented appellant to produce the same before the AO during the assessment proceedings." And has further stated that "on perusal of assessment order it is amply clear that the AO had not disallowed the investment of the companies, which failed to respond to the notices u/s 133(6), rather she had disallowed the share capital and share premium introduced by all the 12 companies aggregating to Rs. 30700000/- in view of inquiries conducted by her wherein it was revealed that the companies are merely paper companies, and the investment does not commensurate with their financial status." On such comments by the AO in remand report Ld CIT(A) observed that such documents were submitted by the assessee before the AO also which she had ignored. At appellate stage also AO has adopted an evasive approach, has not thrown any light about the inquiry conducted about Kolkatta based companies. (v) CIT(A) observed that once the assessee has discharged its onus by furnishing the details and documents, onus shifts back to AO to make enquiries/investigation to establis....