TMI Blog2023 (2) TMI 1233X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the assessee by carrying out any investigation. Merely for non-appearance of the directors, AO disregarded all these documents which have been placed before various statutory authorities including Registrar Of Companies, Income Tax Department and Schedule Banks. The assessee by way of filing all these documents necessary to prove identity, creditworthiness and genuineness of the alleged transaction, has discharged the initial burden casted upon it under the provisions of section 68 - Unless and until, the assessing authority finds any lacuna or adversity or defect in the said documents, the burden to prove remains on the Revenue authorities. In the instant case, ld. Assessing Officer failed to discharge the burden and summarily disregarded the documents filed by the assessee by merely referring to some decisions and not going into the facts of the case except referring to the price per share. Since the assessee has sufficiently explained the identity and creditworthiness of the share subscriber companies and the genuineness of the transaction of applying for the equity shares of the assessee company and since nothing contrary to the evidence filed by the assessee has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n so made. Aggrieved, Revenue is now in appeal before the Tribunal. 4. Before us, Shri Akkal Dudhwewala, AR represented the assessee and Shri P. P. Barman, Addl. CIT represented the department. 5. Before us, Ld. Sr. DR placed reliance on the order of the ld. AO. He also contended that assessee had not carried out any business activity during the year and the net-worth of the assessee company does not justify charging of huge share premium on the shares issued by the assessee. He thus submitted that addition so made is wrongly deleted by the Ld. CIT(A). 6. Per contra, Ld. Counsel for the assessee submitted that to establish the identity and creditworthiness of the shareholders and genuineness of the transactions, assessee has submitted all the relevant details and documents in the course of assessment proceedings in respect of all the five share subscriber companies, details of which are discussed in the order of Ld. CIT(A) in para 4.4(a) to (e) and is extracted below for the ease of reference: 4.4. In the appellant s case it is found that all five share subscribers in respect of whom addition u/s. 68 was made were corporate assessees. The assessee had furnished the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts made are supported by the shareholder company s net worth (2.28 crores) which is at Page No. 39 of the Paper book. The notice issued u/s. 133(6) by the AO on the shareholder company, was served and duly complied by the shareholder company, copy of which is provided at Pages 33-44 of the Paper book. In the said reply, the shareholder company furnished copies of IT Acknowledgment and audited financials, enclosed at Pages 38-44 of the Paper book. Bank statement were also provided (enclosed at page 37 of paper book), evidencing that funds were transferred to the appellant company on 17.10.2011, 25.10,2011, 27.10.2011 28.10.2011, through proper banking channels. Copy of the allotment advice was also submitted. The shareholder company has also furnished explanation regarding the source of these funds, viz., share application money received from Hornbill Vinimoy Pvt. Ltd. and DP Eminent Computer Sales Pvt. Ltd. The AO has not pointed out any defect in the documents furnished by the shareholder company in response to notice u/s. 133(6) of the Act. (c) In the case of Divinity Vintrade Pvt. ltd. it is noted that the share applicant is assessed under the PAN AADCD8671L. It has inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P Eminent Computer Sales Pvt. Ltd., it is noted that the share applicant is assessed under the PAN AADCD8068P. It has invested sum of Rs. 20,00,000/- in the appellant company s share during the relevant FY 2011-12. The investments made are supported by the shareholder company s net worth (1.73 crores) which is at page No. 80 of the Paper book. The AO issued notice u/s. 133(6) on the shareholder company, which was served and duly complied by the shareholder company, copy of which is provided at pages 73-87 of the paper book. In the reply, the shareholder company furnished copies of IT Acknowledgment and audited financials, enclosed at pages 77-87 of the paper book. Further, copies of relevant and corresponding bank statement were submitted (enclosed at page 76 of paper book), evidencing that funds were transferred to the appellant company on 20.10.2011, through proper banking channels. Copy of the share allotment advice was also submitted. The shareholder company has also furnished explanation regarding the source of these funds, viz., share application money received from Mithaso Sales Corporation. No defect or infirmity has been pointed out by the AO in these documents furnished b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. 88,45,575 49,50,000 2. S D Vinimoy Pvt. Ltd. 2,28,20,552 43,00,000 3. Divinity Vintrade Pvt. Ltd. 2,54,95,495 47,00,000 4. Hornbill Viminoy Pvt. Ltd. 3,80,05,335 23,00,000 5. DP Eminint Computer Sales Pvt. Ltd. 1,73,20,825 20,00,000 6.5. It was further submitted on the aspect of genuineness of the transactions that the amounts were invested by the subscribers through proper banking channel which is duly reflected in the respective audited financial statements of the subscribers. It was thus contended that since the investment reflected in the respective financial statements and the source of such investment duly explained by them, the genuineness cannot be doubted. 6.6. Ld. Counsel also submitted that notice u/s. 131 of the Act was issued to the director of the assessee for personal appearance, who was requested to produce all the directors of the subscriber com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng cheques to the assessee, (vii) all the share applicants are having substantial creditworthiness represented by their capital and reserves. 7.2. We also take note of the elaborate and well reasoned findings and decisions arrived at by the Ld. CIT(A) by taking into consideration all the details and documents placed on record. The relevant findings and decisions from the following paras are extracted as under: 4.5. To sum up the foregoing, it is observed that all the notices u/s. 133(6) were served at the respective addresses of ach of the five shareholders by registered post. The share subscribers had furnished copies of income-tax Acknowledgments which showed that each of them were regular income-tax assessees who were assessed in their own rights with reference to their audited financial results. These facts established the identity of the share applicants. It is further noted that each of the share subscriber had furnished copies of the audited accounts for the FY 2011-12. Examination of these accounts revealed that each share subscribing company was having substantial own funds in the form of capital reserves which were several times more than the share subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns before the AO with regard to immediate sources from which share subscription amounts were paid. On these facts therefore, I find that in terms of section 106 of the Evidence Act, the creditworthiness of the share subscribers and the genuineness of the transactions could not have been doubted by the AO merely on the ground that Directors of the share subscribers did not appear before the AO for verification. Gainful reference in this regard may be made to following observations made the Hon ble Bombay High Court in the case of CIT Vs. Orchid Industries Limited (397 ITR 136). 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 produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons disclosed that these per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the above judicial decisions, it has been held that before an addition u/s. 68 is made, it is necessary for the AO to bring on record irrefutable material or evidence which would prove that there was no valid issuance of the shares and for that reason the assessee had failed to prove identity creditworthiness of the shareholders and also failed to substantiate genuineness. If these touchstones are applied to the appellant s case then I find that the copies income tax acknowledgments and service of notices at their addresses established the identity of all the share subscribers. In the balance sheets of the respective share subscribers, the investments in assessee s share were recorded and each subscriber in its balance sheet had disclosed sufficiently large investible funds. The assessee had also filed copies of the bank statements of the respective share subscribing companies which established that the share subscription amounts were received through banking channel. The sources of making payment were also furnished and the entries in bank statements indicated that there was no deposit of cash prior to clearance of the cheques in assessee s favour. All these facts and docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the explanation of the creditor and arrive at a conclusion as to whether the explanation was satisfactory. The conclusion arrived by the Assessing Authority is to be communicated to the assessee if such explanation is not considered satisfactory. If thereupon the assessee submits any comments or furnishes further information, in that event, the Assessing Authority has to examine the same and arrive at his own conclusion. The inbuilt safeguard provided in section 68 cannot be ignored by the Assessing Authority at his sweet will. The Assessing Authority can add the share capital as undisclosed income if no explanation is offered by the assessee. But since the details/explanations were offered, it was incumbent on the Assessing Authority to examine the same and arrive at a cogent conclusion. Assessing Officer having failed to discharge such obligation the addition is not sustainable in law.., case of CIT vs. Lovely Exports Ltd. (2008) 216 CTR 195 (SC) that where share application money. 7.4. In the course of assessment proceeding, Ld. AO directed the assessee to produce the director of the assessee and also the directors of the subscriber companies along with relevant documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities. In the instant case, ld. Assessing Officer failed to discharge the burden and summarily disregarded the documents filed by the assessee by merely referring to some decisions and not going into the facts of the case except referring to the price per share. 9. We further observe that provision for examining the source of source under the provisions of section 68 of the Act has been brought in by Finance Act 2012 w.e.f. 01.04.2013 as per which where an assessee is a company (not being a company in which public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory unless: a) the person being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited and b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory. Since the instant appeal pertains to assessment year 2012-13, and the said amendment brought in by Finance Act 2012 is effective fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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