TMI Blog2023 (2) TMI 1207X X X X Extracts X X X X X X X X Extracts X X X X ..... he particulars was not enough. As discussed in present case we note assessee company was formed during the year under consideration by taking running business of proprietary concern of promoter Shri Ramgopal Maheshwari. There were 8 parties who have given advance to the impugned proprietary concern which was converted into share capital on formation of assessee company. In case of Shri Ramgopal Maheshwari, the assessment u/s 153A was framed for the A.Y. 2010-11 and 2011-12 where genuineness of loan credit was examined and accepted by the AO. Therefore, in our considered view once the credit of such loan credit in erstwhile proprietary concern was accepted, then the conversion of such loan credit into share capital and premium thereon on subsequent occasion cannot be doubted. Coming the credit of share capital and premium thereon from the remaining parties, we find that during the assessment proceedings details such as name of investor, there address, copy PAN, ITR, share allotment letter etc were furnished. AO issued notices u/s 133(6)/131(1) for verification. AO recorded finding that in the second attempt the investors made reply in response to notices issued to them. Eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, we do not find any infirmity in the order of the learned CIT(A). Decided against revenue. - Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Assessee : Shri Sagar Shah, A.R. For the Revenue : Shri Shramdeep Sinha, CIT DR. ORDER PER BENCH : The captioned appeals have been filed at the instance of the assessee and the Revenue and the Cross Objection filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-11, Ahmedabad arising in the matter of assessment order passed under Section 143(3) of the Income Tax Act, 1961 (here-in-after referred to as the Act ) relevant to the Assessment Years 2011-12 to 2014-15. 2. First, we take up ITA No. 373/RJT/2015, an appeal by the Revenue for AY 2011-12. 3. The Revenue has raised following grounds of appeal: 1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in allowing addition of Rs. 13,41,60,000/- on account of unexplained capital introduction u/s. 68 of the Act. 2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original shares certificates were not issued to the investor. These shares certificates were still lying in the counterfoil. The promoter Shri Shri Ramgopal O Maheswari in the statement recorded under section 132 of the Act also admitted that shares certificates were not issued to the investors. Likewise, the AO noted that the shares were allotted as on 31-03-2011. Accordingly, the AO was of the view that investor made such a huge investment who were also not the family members of the promoter or known to them but nor the assessee company bothered to issue the share certificates neither the investor shown concern to collect such shares certificate after passing of 18 months. There was no justification and reasonableness why such physical shares were still lying in counterfoils. The contention of the assessee that mere physical certificate not issued to the subscribers will not make the allotment of shares as bogus is not acceptable in the facts and circumstances and without justification for not issuing the certificate to the concerned investors. Similarly, contention of the assessee that its directors were not qualified enough and the document were at the premises of consultant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made only in the second attempt, does not have any bearing on the issue. The core of the issue was correct addresses of the investors and service of notices to them. Moreover compliance by all of them to all the queries mentioned in the notice was of substance 8.2 It was evident from the assessment order that all the investors furnished replies of the queries raised by the AO in notice u/s 133(6) of the IT Act i.e. (a) how did the investors come in contact with the assessee, (b) if the IPO was made then how did they come to know about it, (c) copy of audit report, balance sheet and P L Account of the investor, (d) copy of ledger account of transactions. (e) copy of bank statement through which the transactions took place. (f) activities of the investors, (g) whether they have received any dividend on their investments, (h) what is the purpose of investment if not dividend is received and (i) whether shares have been issued pursuant to allotment and transferred to their names. 8.3 The investors appearing at S No 12,6 to 9 and 11,12, as mentioned in para 4 of the assessment order, were cash creditors of the erstwhile proprietary concern of Shri Ramgopal Maheshwari These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 98 Delhi wherein it was held that any violation of the provisional of the Companies Act was a matter of concern only of the appropriate authority under that Act. The Assessing Officer conducted enquiries about the investors through Investigation wing of the Department and also by issuing notice u/s 133 (6) of the IT Act and obtained replies of the investors However, he relied on the statements recorded of the directors of some investing companies and the reports of enquiry furnished by the Investigation Wing of the Department 8.6 The finding of the AO that high premium charged on the shares was not justified was also rebutted by the assessee in reply to show cause notice of the AO It was submitted that the assessee acquired the ongoing business of Siyaram Metal Udyog a proprietary concern of Shri Ramgopal Maheshwari with all its assets and liabilities This fact was evident from the Memorandum of Association The shares were allotted in lieu of his capital balance standing in the said concern. He enclosed copy of audited balance sheet at Page No 108 of the paper book in support of his explanation Shri Ramgopal Maheshwari was having capital worth of Rs 5.15 crore as on the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) How did the investors come in contact with the assessee, (b) If the IPO then how did they come to know about it, (c) copy of audit report balance sheet P L Account of the investor, (d) copy of ledger account of transactions bank statement rough which the transactions (e) copy of bank statement through which the transactions took place (f) activities of the investors (g) whether they have received any dividend on the investments (h) what is the purpose of investment if not dividend is received and (i) whether shares have been sued pursuant to allotment and transferred to their names The AO did not give any adverse finding about the explanation of the appellant that the company paid stamp duty and allotment intimation was filed with the office of the Registrar of Companies. 8.9 There was no dispute about the fact that the investors furnished copy return, PAN share application forms, bank account statements audited to sheets and profit loss accounts copy of Incorporation Certificates res passed by the AGMs etc along with their replies to the questions in compliance to the notice us 133(6) The AO did not give any plausible reason as to how and these documents did not e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unsecured loans in the proprietary concern were found genuine but once they were utilized for purchasing shares, when the same proprietary concern was converted into a company, these loans became bogus investment. It was, thus, self-evident that the AO arrive at such an in comprehensible conclusion. 9. The finding of the AO regarding those investors, in whose cases the cash creditor in the proprietary concern of Shri Ramgopal Maheshwar were accepted as genuine transactions, was totally against the facts and circumstances of the case Once the identity of the depositors, their creditworthiness and genuineness of the transactions was accepted as genuine, the same cannot be termed as bogus when these funds were utilized by these depositors for acquisition of shares in the assessee company by virtue of conversion of the proprietary concern of Shri Ramgopal Maheshwari into a company 9.1 The appellant made submissions in response to show cause notice, during the assessment proceedings, to rebut the findings of the AO His submissions were made a part of the assessment order from page no 16 to 27 Thus, after taking into consideration the facts of the case, submissions of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Tribunal of Ahmedabad is very important as it has wide discussion and elaboration about the issue of onus on the assessee regarding share application money The decisions relied by the appellant as well as the AO have also been examined by the tribunal in this case it was held that the initial onus to prove the nature and source of amount credited in his books of account was discharged by the assessee by furnishing documents like MOA, AOA share application Board Resolution Certificate of Incorporation. Certificate of Commencement, acknowledgement of ITRS, audited accounts etc of concerned Companies, thereafter, the onus shifted upon the Department and it was for the Department to bring on record relevant material to show as to why in spite of the above stated documents the addition is still to be made in the hands of the assessee. The Department, in the instant case, made efforts to discharge its burden on the basis of only the statements recorded by it of the persons mentioned above and made addition by treating the share application money as bogus by paper companies 9.3 The assessee made a request for cross examination of the persons whose statements were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the materials available on record. The facts of the case are not in dispute, therefore, we are not inclined to repeat the same. The provisions of Section 68 of the Act fasten the liability on the assessee to provide the identity of the lenders/creditor/investor, establish the genuineness of the transactions and creditworthiness of the lenders/creditor/investor. These liabilities on the assessee were imposed to justify the cash credit entries under Section 68 of the Act by the Hon ble Calcutta High Court in the case of CIT Vs. Precision Finance (P) Ltd. reported in 208 ITR 465 wherein it was held as under: It was for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. On the facts of this case, the Tribunal did not take into account all these ingredients which had to be satisfied by the assessee. Mere furnishing of the particulars was not enough. 13. Now first we proceed to understand the identity of the party. The identity of the party refers existence of such party which can be proven based on evidences. As such, the identity of a party can be established by furnishing the name, address and PAN de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 153A of the Act was framed for the A.Y. 2010-11 and 2011-12 where genuineness of loan credit was examined and accepted by the AO. Therefore, in our considered view once the credit of such loan credit in erstwhile proprietary concern was accepted, then the conversion of such loan credit into share capital and premium thereon on subsequent occasion cannot be doubted. 19. Coming the credit of share capital and premium thereon from the remaining parties, we find that during the assessment proceedings details such as name of investor, there address, copy PAN, ITR, share allotment letter etc were furnished. The AO issued notices under section 133(6)/131(1) of the Act for verification. The AO recorded finding that in the second attempt the investors made reply in response to notices issued to them. Each and every queries raised by the AO were answered/ furnished along with necessary documents. However, the AO without pointing any deficiency in the above primary document held that the assessee failed to explain the genuineness of the credit of share capital for the reason that the physical share certificates were not issued to the investors, charging of premium was not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities Pvt. Ltd.-Mumbai, Lexus Infotech Ltd.-Mumbai, Nicco Securities Pvt. Ltd. Mumbai but no reply was received. (ii) The address with respect to a company namely Real Gold Trading Co. Pvt. Ltd.- Mumbai was not correct. (iii) The notice could not be served on two investor companies, namely Hema Trading Co. Pvt. Ltd.- Mumbai, Eternity Multi Trade Pvt. Ltd.-Mumbai. (iv) Submissions from nine companies were received (Neha Cassettes Pvt. Ltd.-Kolkata, Warner Multimedia Ltd. Kolkata, Gopikar Supply Pvt. Ltd. Kolkata, Gromore Fund Management Ltd. Kolkata, Bayanwala Brothers Pvt. Ltd. Kolkata, Shivlaxmi Export Ltd. Kolkata, Natraj Vinimay Pvt. Ltd. Kolkata, Neelkanth Commodities Pvt. Ltd. Kolkata, Prominent Vyappar Pvt. Ltd. Kolkata), however, they had not given any reasons for paying such a huge premium. Furthermore, they had declared very low income in their respective returns of income. (v) The details of share purchased and the amount of premium were not specified by certain companies namely Super Finance Ltd. Kolkata, Ganga Builders Ltd. Kolkata. Furthermore, these companies had not enclosed the bank statement. (vi) In addition to above, ld. AO found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase on hand has sufficiently furnished the details of the parties which have been elaborated somewhere in the preceding paragraph. Therefore in our humble understanding the principles laid down by the Hon'ble Apex court in the case of NRA Iron steels (P.) Ltd. (supra) are not applicable to the facts of the case. 12.4 It is also pertinent to note that various Hon'ble court after considering the judgment of Hon'ble Supreme Court in the case of NRA Iron Steel (P.) Ltd. (supra) has deleted the addition made by the AO under the provisions of section 68 of the Act. In this connection we draw support and guidance form the judgment of Hon'ble Bombay High Court in case of Pr. CIT v. Ami Industries (India) (P.) Ltd. [2020] 116 taxmann.com 34/271 Taxman 424 ITR 219 where it was held as under: 21. From the above, it is seen that identity of the creditors were not in doubt. Assessee had furnished PAN, copies of the income tax returns of the creditors as well as copy of bank accounts of the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. In so far credit worthiness of the creditors were concerned, Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch vouchers are maintained with respect to purchases of brass items from unregistered dealer for A.Y. 2011-12 to 2013-14. The AO noted that all these purchase were made in one or two moth of each year and having purchase value of less than 20,000/-. These voucher were not supported by other documentary evidences such as bills or receipt etc. it was also found that as per these vouchers total purchases from unregistered dealer (URD) for the year under consideration was of Rs. 2,90,23,395/- whereas the assessee in the books of account claimed purchases from URD Rs. 3,01,00,245/- only. Therefore, the AO in view of the above held that whole amount of purchases claimed from URD cannot be accepted as genuine. Thus, the AO estimated profit embedded in such URD purchases @ 6 % and made addition of Rs. 18,06,014/- to the total income of the assessee. 24.1 The aggrieved assessee preferred an appeal before the learned CIT(A) who restricted the addition to the extent of 0.24% by observing as under: 15. The facts of the case, findings of the AO and submissions of the appellant have gone through. It was a fact that assessee was having purchases from unregistered suppliers in a considerab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt craves leave to amend alter or delete any of the above grounds of cross objection. 26. The learned DR before us contended that the assessee was not eligible for the deduction with respect to the purchases which were not supported by the documentary evidence. However, the AO was kind enough to restrict the disallowance to the small extent representing the element of profit embedded in such purchases from the unregistered parties. 27. On the other hand, learned AR submitted that the ld. CIT-A has rightly given the benefit of the gross profit already offered to tax with respect to the purchases from the unregistered parties. 27.1 Both the learned DR and the AR before us vehemently supported the order of the authorities below to the extent as favourable to them. 28. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case revolves with respect to the purchases made by the assessee from the URD. Undeniably, the URD purchases were not supported by the proper documents except the self-made vouchers which were also defective insofar no detail of the vendor was not mentioned and no signature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the facts noticed by the AO which have been elaborately discussed in the preceding paragraph. Thus, it is justifiable to add some margin to the taxable income of the assessee on account of such purchases from the unregistered parties. In the present case, in our considered view, the difference between the estimated profit determined by the AO on such URD purchases viz a viz the gross profit declared by the assessee, is liable to be added as income of the assessee in the given facts and circumstances. Hence, we do not find any infirmity in the order of the learned CIT(A). Thus the ground of appeal of the revenue and the cross objection of the assessee are hereby dismissed. Coming to CO. No. 58/RJT/2015 in ITA No. 373/RJT/2015 by the assessee for AY 2011-12 31. At the outset, we note that the issue raised by the assessee vide cross objection has been dealt along with grounds of appeal raised by the Revenue in ITA No. 373/RJT/2015, where we have decided the issue against the assessee vide paragraph number 30 of this order. For detailed discussion, please refer the mentioned paragraph of this order. Hence, the ground of cross objection of the assessee is hereby dism ..... X X X X Extracts X X X X X X X X Extracts X X X X
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