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TMI Blog2024 (1) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... n the other hand did not oppose the admission of appeal. Accordingly we find the reasons to be sufficient and therefore the delay is condoned. 3. The only issue raised by the assessee is against the order of Ld. CIT(A) upholding the order of AO where the AO has made addition of Rs. 5,10,00,000/- on account of unexplained cash credit u/s 68 of the Act. 4. Facts in brief are that the assessee filed return of income on 30.08.2012 declaring total income of Rs. 13,906/-. The case of the assessee was selected for scrutiny and statutory notices were duly issued and served upon the assessee. The upon perusal of the balance sheet observed that the assessee company has issued equity shares to 11 subscribers of face value of Rs. 10/- each at a premium of Rs. 990/- thereby raising Rs. 5,10,00,000/- towards share premium. The AO observed that the assessee is private limited company having a very meager income and thus there was no justification for issuing equity shares at such a high premium. The called upon the assessee to furnish the address proof , utility bills, if any, , net worth ,proofs of source of investments ,bank statements, photo identity and residential proof ,ITR with annual au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In making investigations in relation to authenticity of share capital/premium, it is imperative to keep the provisions of section 68 in mind. The initial onus for proving the identity and creditworthiness of the share applicants as well as the genuineness of the transaction lies upon the assessee who is claiming that such an investment was received by him. This can be done through the production of evidence in support of the identity and creditworthiness of such an applicant and also by providing sufficient evidence/ reasoning to establish that the said transaction was genuine and not bogus. This adducing of evidence and providing of cogent reasoning has to be such as to provide a satisfaction in the mind of the AO (a prudent person) regarding the bona fides of the transaction. Once this onus is discharged by the assessee, the burden shifts to the AO, who can either agree with the evidence /reasoning produced before him, or can disagree with it. In case of disagreement, the onus shifts to the assessing authority to provide cogent reasoning and/or concrete evidence for his reasons for doing so. In the present case it is found that the corporate share applicants are registered un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been invested as share premium. Therefore, in effect, he has doubted the creditworthiness of these share applicant companies. In this respect, it has to be noted that in order to prove the creditworthiness of a company, it is not always necessary to look only for these investments to have been made from the profits of the company. It is by now an accepted position in law that net profits are not the only indicators of the investment making capacity of an entity. What has to be examined is the net worth of entity as well the availability of money with it. There are plethora of judicial decisions that have expounded this proposition. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), has observed in this connection that, "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court." In the case of Carissa Investment (P) Ltd. Vs AC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "A copy of the chart of source of funds, ITR acknowledgment, Annual Accounts for the FY 2011 12 and the relevant Bank Statement are attached at Page 80108 of the Paper Book. On a perusal of the Balance Sheet, it can be seen that the own funds of the company is Rs. 9,83,20,364/-. This very clearly shows the high creditworthiness of the company to make investment in the assessee company. Further, the entire inflow and outflow of funds was made through regular banking channels as supported by Bank Statements of both the companies." Of particular import is the decision cited by the appellant in the case of ACIT Vs Supreme Placement Services (P) Ltd. (ITATDelhi) in ITA no. 5259/Del/2013 dated 17.03.2021; wherein it was held that: "6.16. The A.O. merely doubted the financial capacity of the Investors because they have reported low income in their return of income. This cannot be the sole basis to doubt the explanation of assessee. It may be suspicion of the A.O. only without bringing any evidence on record. Rather the documentary evidences produced on record clearly support the explanation of assessee. The Hon'ble Bombay High Court in the case of Ami Industries (India) Pvt. Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral judicial authorities have already been cited by the appellant in his submissions, while some of them have been discussed supra, I find that it is worthwhile to cite what the Hon'ble Jurisdictional Tribunal of Kolkata has stated on this subject in the decision of the Hon'ble ITAT Kolkata in the case of ITO vs. Goodpoint Commodeal (P) Ltd. in ITA No. 1204/Kol/2015 for AY 2012-13 order dated 07.06.2019: "6. Thus, we note that we find all the four share subscribers have been assessed by the Department and that too u/s. 143(3) of the Act and the genuineness of the transactions, cannot be disputed since the payments have been made through banking channel and we note that there cannot be any dispute in respect to worth/own fund in its kitty to invest in the assessee company. It would be creditworthiness of the share subscribing companies since they had sufficient net worthwhile to take note the observation by Hon'ble Justice A. K. Sikri while delivering the judgment in CIT Vs. Mayawati when His Lordship then was in Hon'ble Delhi High court reported in 338 ITR 563 (Del) observed that "The capacity of any person does not mean how they earn monthly or annually but the term cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the identity of the share applicants, their creditworthiness and the genuineness of the transaction and the mode of the transaction. The AO has nowhere made a comment regarding the fact that all the share applicants explained the source of funds in their respective replies filed in response to summon u/s 131 of the Act and also by appearing personally before the AO. The facts furnished on record by the share applicants, in the context of the aforesaid discussions, clearly bring on record their capacity for making such payments and accordingly the criteria of their creditworthiness is also explained. As already discussed above that it is uncontroverted that all the 11 share applicants in their respective replies furnished copies of their income tax return acknowledgements evidencing filing of income tax return, copies of their audited accounts including Balance Sheet wherein such investments, made by each of them by virtue of the subscription of share capital issued by the appellant, are duly reflected and also copies of their bank statements for the relevant period from which such subscription monies were paid by them respectively and copy of the allotment advise received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case were that during the previous relevant to the subject Assessment Year the assessee had increased its share capital from Rs.2,50,000/to Rs.83.75 lakhs. During the assessment proceedings, the Assessing Officer noticed that the respondent had collected share premium to the extent of Rs.6.69 crores. Consequently he called upon the respondent to justify the charging of share premium at of the share application form, copy of share certificate and Form no.2 filed with the Registrar of Companies. The justification for charging share premium was on the basis of the future prospects of the business of the assessee. The Assessing Officer did not accept the explanation/justification of the respondent and invoked Section 68 of the Act to treat the amount of Rs.7.53 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of Section 68 of the Act. This addition was deleted by the CIT(A) and the Tribunal. Before the High Court, the department contended that the proviso to Section 68 of the Act which was introduced with effect from 1st April, 2013 would apply in the facts of the present case even for A.Y. 2008-09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e explanation offered by the appellant, when the latter was explaining the source of source. Therefore, even though there was no legal requirement cast upon him to do so, the appellant has nevertheless provided the AO with the source of source without eliciting any adverse comment from him. In these circumstances it cannot be held that the appellant did not discharge the onus cast upon him u/s 68 of the Act. Per contra, I find that there is no evidence on record to show that the identities of the share applicants are doubted by the AO and / or that anything has been brought on record by him to show that the introduction of share capital by them was not genuine and / or the source of investment was not fully explained by the appellant to the satisfaction of the AO. Once the appellant has duly discharged the onus cast upon him in this context, it was incumbent upon the AO to bring evidence and/or reasoning on record to show that the explanations offered by the appellant were not satisfactory and could not be accepted by a prudent reasonable person. A close the remand report does not reveal that documents filed by the appellant to establish perusal of observations and findings recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, since the said amount of share premium could not be added u/s 68, it could have been added u/s 56(2) of the Act; since section 56(2) (viib) envisages a situation where a company receives consideration for issue of shares which is in excess of the fair market value of the shares, then such consideration can be added to his income under this clause as income from other sources. The appellant, in this connection, has explained that although the justification for premium was not a requirement of law during the relevant assessment year but even then the share premium has been justified by the appellant with reference to the explanation filed by it with reference to relevant facts and figures. It has been explained that this premium was paid on account of the anticipated future prospects of the appellant company and the fact that it was felt by the investing companies' Boards that it would be prudent to invest in the appellant company. I find that this case relates to assessment year 2012-13 and clause 56(2) (viib) of the Act was introduced in the statute only from AY 2013-14 onwards. Thus, this matter relates to periods before the introduction of section56(2)(viib) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction insofar as it relates to the share premium, without bringing on record compelling reasons for doing so. This last has neither been done in assessment or in remand or is indeed discernible from the entire material on record. Further the AO's reliance upon the decision of Supreme Court in Principal CIT vs. NRA Iron & Steel (P) Ltd reported in 412 ITR 161 is in my opinion misplaced, even though the addition made towards cash credit was rendered in favour of the revenue in that case. It is noted that the said decision is factually distinguishable as in the appellant's case all the share applicants appeared personally u/s 131 and filed documentary evidences and the AO after conducting independent enquiries has accepted the share capital from the same set of share applicants. In the instant case, all the share applicants had confirmed their investment with the appellant and as such, there was no basis for the AO to come to any adverse conclusion and accordingly, the entire amount received by the appellant on account of share application as well as share premium monies could not have been regarded as undisclosed income u/s 68 of the Act. The only question that could h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way before the Hon'ble Delhi High Court before whom the revenue preferred an appeal. The following substantial question of law is framed: "Whether the Tribunal was right in law in upholding the order of the CIT(A) deleting the addition made u/s. 68 of the Act on the ground that the assessee has proved the nature and source of the share subscription amounting to 1,47,00,000/- and has established the identity and creditworthiness of the share subscribers and the genuineness of the transactions?" The revenue contends that the Tribunal failed to appreciate that the assessee could not establish satisfactorily the nature and source of the monies received as share capital nor could it discharge the onus of proving the identity and creditworthiness of the share subscribers and the genuineness of the transactions which are the fundamental requirements of section 68. The Hon'ble Court made the following observations in this regard: "......... 7. We are in agreement with the contention of the revenue. Under Section 68 the onus is upon the assessee to prove the three ingredients, i.e., identity and creditworthiness of the person from whom the monies were taken and the genuinene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an assessee can take such an unreasonable attitude towards his onus u/s. 68, little realising that when the finding is that the subscribing companies have not been found existing at the addresses given by the assessee, it is open to the AO to even hold that the identity of the share-subscribers has not been proved, let alone their creditworthiness and the genuineness of the transactions. It was not open to the assessee, given the facts of this case, to direct the AO to go to the website of the company law department/ROC and search for the addresses of the share-subscribers and then communicate with them for proof of the genuineness of the share subscription. That is the onus of the assessee, not of the AO." It is clear from the above pronouncement that an appellant is duty bound to explain the identity, creditworthiness of the share applicants and the genuineness of the transaction. In the circumstances of investments in private limited companies made through private endeavors and personal basis it is obligatory for the appearance of the share investors. In the instant case there was full compliance by the directors of the appellant as well as directors of investor companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of returns, copy of audited accounts or bank statements could not automatically prove the genuineness of the transactions and creditworthiness of the subscribers. The Ld. D.R stated that these companies have meager sources to invest in the assessee company. Moreover there was no justification for the assessee to issue shares at such a high premium. Therefore the Ld. CIT(A) has wrongly allowed the appeal which may kindly be reversed and the order may kindly be restored. 7. The Ld. A.R vehemently submitted before us that in the remand proceedings, the AO has not carried out any further verification however reiterated his opinion that the premium paid by share subscriber were not justified and stated that with the share capital may be treated as expenditure whereas the share premium may be treated as unexplained cash credit u/s 68 of the Act. The Ld. CIT(A) dismissed the appeal of the assessee without doing any further verification or given its finding on the issue. 8. Per contra , the Ld. A.R while admitting that though the assessee could not file any evidences in the scrutiny proceedings and the assessment was framed u/s 144 of the Ac, however in the remand proceedings all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellate proceedings the Ld. CIT(A) called for these evidences from the assessee and which were duly filed comprising of copy of ITR, audited report and audited financial statements, summons u/s 131 and reply thereto copy of MCA data and copy of bank statement highlighting the transaction in respect of each subscribers. The Ld. CIT(A) called for a remand report which was filed by the AO vide letter dated 12.07.2022 a copy of which is filed at page 21 to 27 of PB. We note that in the remand report the AO has examined the directors of most of the share subscribing companies. We even note that the assessment u/s 143(3) were framed in 8 subscribers which were also filed before the AO during the remand proceedings. Finally the AO stated in the remand report that share capital may be treated as explained whereas the share premium charged by the assessee is without any justification and may be treated as unexplained u/s 68 of the Act. The Ld. CIT(A) ,after looking into various evidences and also the remand report filed by the AO and contentions of the assessee, came to the conclusion that the assessee has satisfied all the ingredients of Section 68 of the Act while allowing the appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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