TMI Blog2024 (1) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... other parties held that the assessee failed to properly explain the nature and sources of credit of share capital. In our considered opinion, the approach taken by the AO is not justified. AO failed to appreciate the facts/ materials provided by the assessee company. It is pertinent to mentioned that the assessee company is mainly engaged in making strategic investment in subsidiary or group companies and this fact was also explained that the amount collected from allotment of preference share has been utilized for making investment in/extending loans to subsidiary or group companies. Thus, in our considered opinion the assessee has provided necessary detail and the onus shifted on the revenue to carry out independent inquiry/investigation and bring contrary material, but the AO failed to do so. DR before us has contended that transaction of preference share capital is circular in nature - If we see the transaction on a particular day i.e. 22-09-2017 then it seems like the transaction is circular in nature. But if we look at the transaction as whole from the beginning of the year to the end, then we find that there were regular transactions of loans advances between CLPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capaxo Logistics Pvt Ltd (hereafter CLPL) and the proceeds from impugned allotment of preference shares were utilized for making investment in or extending loans to subsidiary group companies. The AO found that the investing company was showing very meager income in the last three assessment years and the profit declared was also very low as compared to gross revenue declared. The amount credited from the investor company was immediately debited to other companies. Therefore, the AO was of the view that the genuineness of transaction was also not established based on surrounding circumstances and human probabilities. The documentary evidence placed on record cannot be blindly relied upon for holding the genuineness of transaction in the light of the prevalent concept of paper companies. Thus, the AO held that the assessee failed to establish the creditworthiness of the party and genuineness of transaction. Accordingly, the AO treated the amount of preference share capital for Rs. 14 crores as unexplained cash credit under section 68 of the Act and added to the total income of the assessee. 5. On appeal by the assessee, the learned CIT(A) found that the assessee during the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orthy. 6.2.4 Further, it is seen from the perusal of the statements of bank account, M/s.Capaхо Logistics Private Limited, has transactions of varying amounts of loans given and received at interval of time throughout the accounting year relevant to impugned assessment year, 2018- 19 and the funds for acquiring the preferential share of the appellant company has been transferred to appellant's account by account payee cheque. In the Annexure to Independent Auditor's Report dated 4th September 2018, at Clause No.13, it is stated that the company has entered into transactions with related parties in compliance with the provisions of section 177 and 188 of the Act. The details of such related transactions have been disclosed in the financial statements as required under Accounting Standard (AS)18, Related Party Disclosure specified under section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. Besides the share certificate dated 22 September 2017 issued to M/s.Capaxo Logistics Private Limited and resolution passed at the meeting of Board of Directors of the appellant held on 13th day of January 2020 to process dematerialisation of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of unsecured loan received from three entities, namely, Shaan Leisure Ltd., GSM Infra Projects Ltd. and Manibhadra Tradelink Pvt. Ltd.? (B) Whether the Appellate Tribunal has erred in not appreciating that mere factum of filing return of income does not ipso facto lends credence to the creditworthiness of a party? (C) Whether the Appellate Tribunal has erred in law and on facts in deleting the addition by ignoring that the lenders had filed Return of Income declaring very meagre taxable/operational income which casts aspersions on the capacity of such lenders to advance such huge amounts to the assessee? 4. We could notice that the assessee and the Revenue preferred cross appeals against the order of CIT(Appeals), Ahmedabad-II for the assessment year 2012-13. In Revenue's appeals, the Tribunal examined the grievance of the Revenue of CIT(Appeals) having deleted the addition of Rs. 4,03,34,000/- which was added by the Assessing Officer with the aid of section 68 of the Act. It was revealed to the Assessing Officer that assessee had taken unsecured loans of the said amount from the following persons: - (1) Mit G. Shah - Rs. 5,75,000/-, (2) Sejal Shah - Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly allowed the appeal of the appellant. 4.4 The ITAT on detailed representation of this, concluded thus: 11. A perusal of the finding of the ld. CIT(A) extracted (supra) it would reveal that the ld. CIT(A) has examined each transaction in detail in the light of conditions enumerated in section 68. For example, in the case of Shri Mit Gopalbhai is concerned a sum of Rs. 5,75,000/- was taken by the assessee as unsecured loan during this year. The ld. CIT(A) as a matter fact found that there was an opening balance as on 1-4-2011 at Rs. 1,77,24,000/-. Source of this opening balance was not doubted in the earlier assessment year. He has confirmed the transaction. He has given his identity and other details. The ld. CIT(A) was of the view that when such a huge amount received from this person in the last year can be treated as genuine, then why to doubt a small amount of Rs. 5,75,000/- in this year. It is also pertinent to note that the assessment order of Shri Mit G. Shah for the Asstt. Year 2012-13 passed under section 143(3) r.w.s. 147 of the Act has been placed on record by the ld. DR. This order has been passed on 3-10-2019 i.e. after decision of the ld. CIT(A) and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainable. I, therefore, direct the Assessing Officer to delete the addition of 14 crores made under section 68. Accordingly, ground 2 is allowed. 6. The learned DR before us submitted that there was not enough credit worthiness of the party justifying the investment in the assessee company by acquiring the shares. Furthermore, the transaction on hand is a circular transaction. Therefore, the genuineness of the transaction is not free from doubt. Likewise, there is an increase of loan of the party in the books of the assessee as evident from the financial statement of the assesses and the party which are available in the paper book. But the same was not verified and therefore the matter should be set aside to the AO for fresh verification. The ld. DR supported the order of the AO. 7. On the other hand, the learned AR before us filed a paper book running from pages 1 to 271 and compilation of case laws. It was contended by the ld. AR that the assessee has discharged the onus imposed under section 68 of the Act by furnishing the necessary details, justifying the identity, credit worthiness and genuineness of the transactions. Besides the above, it was also submitted by the ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the facts available on record or without bringing contrary material to from the belief that primary document or explanation furnished by the assessee is not satisfactory. 8.1 Undeniably, the assessee during the assessment proceeding in support of genuineness of credit of preference share capital has furnished copies of audited financial statements, ITRs and banks statements for 3 years of the investor company CLPL, copy of board resolution approving the investment in the assessee company etc. The money credited in the books of the assessee was through the banking channel. The learned CIT(A) based on evidence provided by the assessee found that the investor company has been engaged in the business of providing warehousing facility since year 2003 and having shareholder fund (share capital + Reserve) at Rs. 14.8 crores. The investor company has been gradually closing its warehousing business. Still, the company CLPL has shown revenue from operation for more than 2 crores in the year under consideration as well as in the immediate 2 preceding years. The learned CIT(A) also found that the investor company, after reducing its business operation of warehousing facility decided to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts of loans advances received back on various dates including the amount of Rs. 14 crores on 22-09-2017 which was transferred to assessee company on the same day. Similarly, there were also fresh loans advances extended by the CLPL to TSPL on different dates. As such as on 22-09- 2017, there was still outstanding loan advances of 32 Lakhs from TSPL and thereafter further fresh loans was extended and closing balance of the same was at Rs. 22.2 crores. From the above it is transpired that if we see the transaction on a particular day i.e. 22-09-2017 then it seems like the transaction is circular in nature. But if we look at the transaction as whole from the beginning of the year to the end, then we find that there were regular transactions of loans advances between CLPL and TSPL. As such the CLPL had extended loans advances to the TSPL on earlier occasion out of which it received back amount of Rs. 14 crores for the purpose of investment in the preference share of assessee company and thereafter further extend fresh loans to the TSPL. Therefore, in our considered opinion, no inference can be drawn against the assessee in the given facts and circumstances. Therefore, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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