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TMI Blog2024 (9) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... ount). It is seen that since the initial assessment order was set aside u/s 263 of the Act for conducting inquiries for establishing the genuineness, creditworthiness etc. of the share applicants, hence the ld. AO had initiated the said proceedings to enquire on those facts. During the second stage assessment proceedings, summons u/s 131 of the Act were issued for 11 shareholders for enforcing their attendance. It is recorded in the assessment order that 4 such share subscribers could not be located on the given addresses and 6 share subscribers on whom the summons could be served requested for time to furnish details. The remaining share subscribers neither appeared nor sent any communication to the Assessing Officer (hereinafter referred to as ld. 'AO'). Admittedly the said proceedings were being conducted in December, 2016 when the proceedings were going to be barred by limitation on the 31st day of the said month. The Ld. AO proceeded to add Rs. 50 crores u/s 68 of the Act after holding that the identity and creditworthiness of the share subscribers and genuineness of the transactions were not established in this case. 1.1. The Commissioner of Income Tax (Appeals) [her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving been filed before ld. CIT(A) and the AO were actually never filed. The report of the ld. AO deserves to be extracted as under: Nexcare Agency Pvt. Ltd. A.Y.-2012-13 Checklist Sl. No. Particular As per Paper Book As available in assessment record 01 Balance Sheet as at 31/03/2012 of M/s Nexcare Agency Pvt. Ltd. Filed Filed 02 List of Shareholders who subscribe shares in A.Y.- 201213 Filed Filed 03 Documents of Fortune Trade & Vyapaar Pvt. Ltd. (Shareholder) i. Copy of Reply to Notice u/s 133(6) along with enclosures consisting : *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) *ITR Acknowledement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy of Notice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 23/12/2016. Filed Not found in Assessment folder 04 i Documents of Maars Advisory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uments of Fastflow Infra Projects Pvt. Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) * Copy of Declaration Filed Filed (Copy of Declaration) *ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) Copy ofNotice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 08 i Documents of Force Agency Pvt. Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) * Copy of Declaration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) * Copy of Declaration Filed Filed (Copy of Declaration) *ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed Filed (Bank Statement) ii. Copy ofNotice u/s 131 and its reply filed with the Ld. A.O. with Speed Post receipts dated 22/12/2016. Filed Filed (Speed Post receipts dated 22/12/2016.) 12 i Documents of Smooth Impex Pvt. Ltd. (Shareholder) Copy of Reply to Notice u/s 133(6) along with enclosures consisting: *Share Application Form Filed Not filed (Share Application Form) *Share Allotment Advice Filed Not filed (Share Allotment Advice) *Copy of General Ledger Filed Filed (Copy of General Ledger) *ITR Acknowledgement for Asst Yr 2012-13 Filed Filed (ITR Acknowledgement) *Audited Financial Statements for FY 2011-12 Filed Filed (Audit Statements) *Bank Statement highlighting the payment made for purchase of shares Filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to comply with the summons u/s 131 of the Act issued to the 11 share capital subscribers. Ultimately, it was asserted that the onus was discharged by the assessee for proving the impugned transactions and therefore, adverse inferences drawn were unjustified. 4. The Ld. D/R relied on the order of ld. CIT(A) and the ld. AO and stated that abnormally high share premium in closely held companies, with no clearcut profitability, would need to be justified and the assessee would need to prove the identity and creditworthiness of the entities advancing such sums of monies. 5. On a careful consideration of the totality of facts and circumstances, as also the averments of the assessee and ld. D/R it is clear that once proceedings u/s 263 of the Act were initiated then the assessee was put on notice regarding his duty to prove the transactions which involved very substantial amounts as share premium. It is not understood how a closely held company which has minimal commercial activity as is evidenced by the profit and loss account filed with the paper book could attract abnormally high share premiums. To illustrate this point the Profit and Loss account deserves to be extracted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mium. The credit worthiness of those investors companies is questionable and the explanation offered by the assessee, at any stretch of imagination cannot be construed to be a satisfactory explanation of the nature of the source. The assessee has miserably failed to establish genuineness of the transaction by cogent and credible evidence and that the investments made in its share capital were genuine. As noted above merely proving the identity of the investors does not discharge the onus on the assessee if the capacity or the credit worthiness has not been established. 38. In the light of the above discussion, we hold that the assessee has failed to discharge legal obligation to prove the genuineness of the transaction and the credit worthiness of the investor which has shown to be so by a "round tripping" of funds. For all the above reasons, the revenue succeeds. 39. In the result the appeal is allowed, the order passed by the learned Tribunal is set aside and the order passed by the CIT(A) dated 28.11.2019 is restored and the substantial questions of law are answered in favour of the revenue." 5.2. We also draw considerable strength from the case of PCIT vs. NRA Iron & St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors, and creditworthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the Assessing Officer, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of namelenders. iii. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by section 68. [Para 11] * In the instant case, the Assessing Officer had conducted detailed enquiry which revealed that: i. There was no material on record to prove, or even remotely suggest, that the share application money was received from independent legal entities. The survey revealed that some of the investor companies were non-existent, and had no office at the address mentioned by the assessee. The genuineness of the transaction was found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted (supra) would normally paint a grim picture to any prudent investor, however, in this case it seems to have encouraged 11 entities to transfer huge sums of money by way of share premium. 6.1. Considering the case laws cited (supra) the financial health of the assessee and the inadequate discharge of onus, we hold this case to be a fit case for application of Section 68 of the Act and thereby confirm the impugned addition. 7. Before parting with this issue, as mentioned earlier, we can only regret the attempt by the assessee to present a picture of compliance through the voluminous paper book which unfortunately contains some documents which were not before the authorities below. Suffice it to say that since the assessee has not succeeded in this appeal, we do not deem it fit to comment any further on the conduct of the assessee regarding drawing a certificate in the paper book which is not entirely correct. 8. In the result, the appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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