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TMI Blog2024 (9) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. They were asked to appear personally before the undersigned and to produce/ furnish details / documents in support of the justification for the investment made by them in the assessee company and other details as asked for. but, none of them appeared before the undersigned. Hence, genuineness of the said transaction and identity & creditworthiness of the shareholders of the assessee could not be verified. After that a letter was issued to the assessee on 18.02.2015 informing the said facts and was asked to produce the directors of the shareholder companies and to prove the genuineness of the said transaction and identity & creditworthiness of its shareholders. Vide this letter assessee was also asked to show cause as to why share application money received by it should not be treated as bogus and why the same should not be treated as its unaccounted money introduced in its books of accounts as share application money. Assessee was also asked vide this letter as to why the said share application money should not be treated as unaccounted cash credit in its books as per the provisions of section 68 of I.T. Act. But, assessee failed to put forward any explanation Lill the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deserve to be extracted: "4. To establish identity, creditworthiness and genuineness of share application from above parties, the appellant furnished the areas documents as specified against each which are shown below: Sl. No. Name List of documents furnished 1. ARATI DEALERS PVT.LTD. I.T. Acknowledgement, Audited Balance Sheet, Share Application (Form No. 2), Bank Statement. 2. BETTERCHOICE MERCHANTS PVT.LTD. - DO - 3. CHATURBHUJ SUPPLIERS PVT.LTD. - DO - 4. MATESHWARI AGROTECH PVT.LTD. - DO - 5. NAVNITA DEALCOMM PVT. LTD. - DO - 6. ODYSSEY TRADECOM PVT.LTD. - DO - 7. PEARLVINIMAY PVT.LTD. - DO - 8. YASHASWINI COMMOSALE PVT.LTD. - DO - 9. ZEUS VINIMAY PVT.LTD. - DO - 5. The appellant has furnished complete evidences in discharge of its own. All the shareholders are body corporate and duly incorporated under the Companies Act, 1956. It cannot be said that they have no identity of their onus. The share applicant companies are also independently assessed to Income Tax. 6. Regarding the genuineness of the share transaction undertaken with the said applicants such subscriptions were received by account payee cheques through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Directors of allottee company since all possible evidences of the existence, creditworthiness and genuinity was furnished on record. There is nothing more for the Directors to state in this respect. Moreover the provisions of section 68, do not suggest any essential relation of the Director of share holder company. ......................................................... ......................................................... 22. lt is submitted that there is not ground to draw adverse inference for non-appearance of Directors of allottee company since all possible evidences of the existence, creditworthiness and genuinity was furnished on record. There is nothing more for the Directors to state in this respect. Moreover the provisions of section 68, do not suggest any essential relation of the Director of share holder company. This A.O. error in disallowing the P/L of expenditure to the tax tune of Rs. 37,375/- notionally although all relevant papers and documents were produced by the assessee to prove the expenditure to be allowable as per provisions of sec 14A, of I.T. Act read with rule 8D of I.T. Rules." 2.2. Regarding the addition of Rs. 1,57,50,000/- u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndisclosed cash credit was justified. The relevant portion from this order deserves to be extracted as under: "36. In Swati Bajaj, the court held that based on the foundational facts the department has adopted the concept of "working backward" leading to the assessee. The department would be well justified in considering the surrounding circumstances, the normal human conduct of a prudent investor, the probabilities that may spill over and then arrive at a decision. 37. Thus the CIT(A) was right in adopting a logical process of reasoning considering the totality of the facts and circumstances surrounding the allegations made against the assessee taking note of the minimum and proximate facts and circumstances surrounding the events on which charges are founded so as to reach a reasonable conclusion and rightly applied the test that a reasonable/prudent man would apply to arrive at a conclusion. On facts we are convinced to hold that the assessee has not established the capacity of the investors to advance moneys for purchase of above shares at a high premium. The credit worthiness of those investors companies is questionable and the explanation offered by the assessee, at any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. Merely, proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. [Para 8.3] The Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the instant case, the Assessing Officer made an independent and detailed enquiry, including survey of the socalled investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the shareholders were either non-existent, or lacked creditworthiness. [Para 9] The principles which emerge where sums of money are credited as Share Capital/Premium are: i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which, would justify addition of the said amount to the income of the assessee. [Para 14] On the facts of the present case, clearly the assessee company - respondent failed to discharge the onus required under section 68, the Assessing Officer was justified in adding back the amounts to the assessee's income. [Para 15]" 5.3. It is seen that in another case on somewhat similar facts, the Hon'ble Calcutta High Court in the case of BalGopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162taxmann.com465 (Calcutta) has held that action u/s 68 of the Act was justified. 6. A close reading of the case laws cited (supra) reveals that mere filing of confirmations and the income tax details etc. are not enough to justify payment of monies as share premium when the financial aspects of the recipient company would not merit such investments under any kind of prudent consideration. In the present case while 4 out of 11 share applicants were not traceable on given addresses and one more did not respond to the summons, it is evident that even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals)-9 [CIT(A)] by order dated 21st January, 2019 holding that merely furnishing documents in a routine way does not explain the source of creditworthiness of the party. Further, it has been held that the basis on which premium has been charged for the shares has not been explained; no efforts have been made with the help of financial statements to justify the quantum of share premium charged. The CIT(A) placed reliance on the decision of Kolkata Bench of the Tribunal in the case of ITO v. Blessings Commercial (P.) Ltd. [2018] 91 taxmann.com 176 in ITA 271/Kol/2014, dated 28th June, 2017 and other judgments and ultimately the appeal was dismissed. On an appeal preferred by the assessee before the Tribunal, the concurrent findings recorded by the Assessing Officer and the CIT(A) have been set aside and the appeal has been allowed. The impugned order passed by the Tribunal runs to 14 pages and in paragraph 11 (emphasis added) of the impugned order, the learned Tribunal has recorded that from the bare perusal of the paper book and the documents placed, it is revealed that all the share applicants are income tax assessees, they are filing their income tax returns, share applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re having substantial creditworthiness represented by their capital and reserves." 2.6. It is clear that merely filing income tax details, share application form & allotment letter, bank details and details about the creditworthiness of the share applicants is not enough to prove a transaction from the point of view of Section 68 of the Act. In this case also, the appellant is seen to have filed documents, by and large, as mentioned in para 11 of the ITAT's order (supra), but following the extracted portions from the case of M/s. Nexcare Agency Pvt. Ltd. (supra) and the Hon'ble Calcutta High Court's order in the case of One Point Commercial Pvt Ltd, as extracted (supra), it is held the onus cast on the appellant for escaping from the provisions of Section 68 of the Act have not been discharged and thus, the action of the authorities below is confirmed and the appeal on this point is dismissed. 3. Regarding the addition of Rs. 9,647/- made u/s 14A of the Act read with Rule 8D of the Rules, it is evident that the appellant has not earned any exempt income this year and thus, relying on the findings in the case of (i) Eveready Industries India Ltd. vs. PCIT reported in [2020] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO in which no disallowance u/s 14Aof the Act was made, could not said to be unsustainable in law because the course adopted by the AO while passing the order u/s 143(3) of the Act was not only permissible in law but the said course was in conformity with the view expressed by the jurisdictional high court. Accordingly the impugned order of the Ld. Pr. CIT with reference to the reasons set out in clause (c) of the SCN is held to be unsustainable and accordingly set aside. Ground Nos. 8 & 9 are therefore allowed." (ii) Vardhman Chemtech (P.) Ltd.: * "Section 14A provides for disallowance of expenditure in relation to income not 'includible' in total income. [Para 7] * The Tribunal while relying upon the judgment of this Court in CIT v. Lakhani Marketing Inc. [2014] 49 taxmann.com 257/226 Taxman 48 (Punj. & Har.) (Mag.) had held that section 14A cannot be restored to in the year in which no exempt income had been earned. However, the revenue relied upon the CBDT Circular dated 11-2-2014 to contend that section 14A can be invoked even in the year in which no exempt income had been earned. Accordingly, the Tribunal had dismissed the appeal of the revenue holding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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