TaxTMI 
TaxTMI 
2024 (9) TMI 1450
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.... CIT (Appeals), NFAC grossly erred in confirming the addition made by the Ld. AO of share capital and share premium amounting to Rs 18,03,30,000/- u/s 68 of the Income Tax Act, 1961, by merely citing some judgements passed by the judiciary without considering the actual facts of the case and ignoring the judicial pronouncements passed in favour of the appellant, which is in gross violation of the principles of natural justice, illegal, arbitrary and highly unjustified. Relief Claimed: The addition to the tune of Rs. 18,03,30,000/- is liable to be deleted. 3. For that on the facts and circumstances of the case, the Ld. CIT (Appeals), NFAC arbitrarily confirmed the addition of Rs. 18,03,30,000/- merely on the ground that the Director of the appellant company did not comply to the notice issued u/s 131 of the IT. Act, 1961, with utter disregard to the judicial pronouncements passed in favour of the appellant on the same ground by the judiciary, which is perverse, unjustified, not tenable in law and liable to be deleted. Relief Claimed: The addition to the tune of Rs. 18,03,30,000/- is liable to be deleted. 4. For that on the facts and circumstances of the case, the Ld. CIT (Ap....
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....ocuments along with a write-up on justification of large share premium. However, the assessee company neither filed any submission nor any appearance for personal deposition was made by the director of the assessee, as was required vide the summon issued u/s 131 of the Act. The assessee also failed to produce the investors who had invested in shares at a premium. The Assessing Officer thus concluded that the assessee was asked to represent its case by explaining the sources of the share capital receipt through various notices and letters issued, but in spite of several opportunities granted, the assessee failed to establish the three ingredients viz. identity, genuineness and creditworthiness of the sources/investors of fund introduced as share capital. The Assessing Office relied upon several judicial pronouncements as mentioned in the assessment order which state as under: i. It is for the assessee to prove its claim for share capital (ITA No. 1493/KOL/2013). ii. Merely because the share application with huge and unjustified share premium was received from corporate entities from banking channel, no enquiry was warranted is not a sustainable plea (relied by the ITAT - 82 ITR ....
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....9-10, dated 08.02.2024 which have also been perused. 7. It is submitted vide written submission filed that the company was incorporated with the main objective of undergoing a joint venture project and is also engaged in the business of investment by way of equity and debt in shares and securities of corporate bodies. During the year under consideration the assessee company had raised its equity share capital of Rs. 1,04,40,000/- along with premium of Rs. 16,96,60,000/- and had also received Rs. 2,30,000/- as share application money pending for allotment of shares. 7.1 The details of the above shares allotted during the year under consideration are as under: S. No. Name of the shareholder No. of shares allotted Face Value Premium Total amount 1 Amritvani Dealer Pvt. Ltd 50000 50000 - 50000 2 Astvinayak Vanijya Pvt. Lid 50000 50000 - 50000 The above two are the promotors of the appellant company to whom initial allotment was done. 7.2 Thereafter, on 02.12.2011, 1,00,00,000 shares were allotted at face value (Copy of FORM 2 has been attached as Annexure B). The details of the shareholders as per Form-2 Dated 02.12.2011 in the said allotment are as under: S. No.....
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.... 50,50,000 shares at the end of the year at face value of Re. 1/- per share. 7.4 On 29.12.2011, second round of allotment was made (Copy of FORM 2 has been attached as Annexure C). The details of the second allotment of equity shares vide Form-2 submitted dated 29.12.2011 are as given below: As per Form 2 dated 29.12.2011 S. No. Name of the shareholder No. of shares allotted Face Value Premium Total amount 1 Amritdhara Vinmay Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 2 Kingfisher Tradlink Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 3 Linkline Tradekink Pvt. Ltd. 60,000 60,000 2,99,40,000 3,00,00,000 4 Manikaran Sales Pvt. Ltd. 40,000 40,000 1,99,60,000 2,00,00,000 5 Originals Shoppers Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 6 Primeline Sales Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 7 Primesoft Tradecom Pvt. Ltd. 40,000 40,000 1,99,60,000 2,00,00,000 8 Sairam Vincom Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 9 Sanyam Deal Trade Private Limited 20,000 20,000 99,80,000 1,00,00,000 10 Snowhill Agencies Pvt. Ltd. 20,000 20,000 99,80,000 1,00,00,000 11 Starmark Mercantile Pvt. Ltd. 40,000 40,000 ....
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....irmity in the submission made by the appellant and the subscriber companies. However, the Ld. AΟ issued notice u/s 131 to the directors of the appellant company. The directors of the appellant company appeared before the Ld. AO; however, the Ld. AO did not accept their attendance and no hearing was taken. Further, the Ld. AO made his finding that the directors of the appellant company did not appear and made an addition amounting to Rs. 18,03,30,000/- invoking the provisions of section 68 of the Income Tax Act, 1961 in a mechanical manner, merely citing some case laws which are not having the same facts as the present case. 7.7 Being aggrieved with the findings of the Ld. AO and the addition made, the appellant filed an appeal before the Ld. CIT(A). It is claimed that the assessee made written submission before the Ld. CIT(A) and submitted documents to substantiate the three ingredients necessary to invoke the provision of section 68 of the Income Tax Act, 1961 i.e. identity of shareholders, creditworthiness of the shareholder and genuineness of the transaction. It is claimed that the Ld. CIT(A) did not find any infirmity in the submission made by the appellant and nothing....
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....rd. It was also stated that there is no bar in charging the premium under the Act. Rule 11UA of the I. T. Rules, 1962 is applicable for valuation. The Ld. AR also filed copies of orders in ITA No. 43/Kol/2021 and ITA No. 855/Kol/2023 wherein on similar issue, the appeal had been decided in favour of the appellant and the addition had been deleted. It was also submitted that share premium was charged to save the fee payable for increase in the authorised share capital. It was pointed out to the Ld. AR during the course of the hearing before us that while no premium was charged from the 12 individual applicants, however when the shares were allotted to the corporate applicants after a gap of only 27 days, huge premium was charged. No plausible justification was forthcoming regarding the increase in valuation of the company within a span of 27 days for charging huge share premium. In subsequent AY 2020-21, the company was not having any significant income as has been pointed out by the Ld. CIT(A). The Ld. AR, on the other hand, relied upon the order of the Ld. CIT(A) and submitted that the order of the Ld. CIT(A) may be confirmed. The relevant extracts from the written submission file....
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....n the absence of a satisfactory explanation, the unexplained cash credit may be charged to income tax as the income of the assessee for that year. It is submitted vide written submission filed that the primary onus stands discharged to prove the identity, credit worthiness and genuineness of the share subscribers. The unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the appellant. The same is supported by the decision held by the Hon'ble Supreme Court in the case of CIT vs. P.K. Noorjahan [1999] 237 ITR 570. However, the facts in the case of P.K. Noorjahan were different as the issue related to unexplained investment in a building u/s 69 of the Act and not unexplained cash credit on account of share capital and share premium received. It is submitted that in the present case, the Ld. AO has not found any infirmity in the submission made by the appellant at the time of assessment nor has the Ld. AO given any reason for the dissatisfaction. It is submitted that as regards the identity of the share subscribers, the final share subscribers were private limited companies which are regularly bein....
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....ellant company. The bank statement reflecting the transactions and source of funds were submitted before the lower authorities. The Ld. AO miserably failed to point out any defect in the documentary evidences submitted before him. There is no iota of material on record on how the amount can be treated as appellant's money. Raising of share capital cannot be treated as taxable income as per the provisions of Income Tax Act, 1961. 12. For proving the genuineness of the transactions, it is mentioned that all the transactions have been done through banking channels. The share subscribers have accepted the transactions in their replies submitted to the Ld. AO. They have submitted the bank statements reflecting the transactions. The transactions are recorded in their audited books of accounts. The case laws relied by the Ld. CIT(A), which state that banking channel is not sufficient, deal with more enquiries conducted by Ld. AO which were not in consensus with the submission made. In the present case, no exercise was done either by the Ld. AO or by the Ld. CIT(A), to substantiate how the transaction done through banking channels, recorded in the audited books of accounts, confirmed ....
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....ircumstances which led to the completion of the impugned assessment order. I observe that there has been non-compliance by the assessee at assessment stage. I have also carefully perused the statement of facts and grounds as made in the course of the appeal proceedings. It is not in dispute that the assessee-company have received share capital of Rs. 1,04,40,000/- (equity share of Rs. 1 each), share application received (pending allotment) of Rs. 2,30,000/- and premium of Rs. 16,96,60,000/- totalling to Rs. 18,03,30,000/- during the financial year under consideration. It has been submitted by the appellant that initially 1,00,00,000 shares with face value of Re.1 were issued on 02.12.2011 to 21 entities of which two are corporate and 19 are individual in whose case no premium was charged. Subsequently 3,40,000 shares with same face value but premium of Rs. 499/- were issued on 29.12.2011 to 12 corporates without any basis. I find that merely because the amounts of share application / Share Premium money has been routed through banks, the assessee could not have been said to have discharged the onus cast upon him in the surrounding circumstances of the case. Such ratio emanates from....
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....IT Vs. Nipun Builders & Developers Pvt. Ltd. reported in [2013] 30 taxmann.com 292 (Delhi) the Hon'ble High Court of Delhi has taken the view that where the assessee has failed to prove the identity and capacity of the subscriber companies to pay share application money, the amount so received was liable to be taxed under Sec 68 of the Income Tax Act, 1961...... 15.1 The Ld. CIT(A) has relied upon and elaborately quoted from the following judicial pronouncements in his order i. CIT v Nivedan Vanijya Niyojan Ltd 130 Taxman 153 (Calcutta) ii. CIT Vs N R Portfolio (Pvt) Ltd [2014] 42 taxmann.com 339 (Delhi) - when the persons working behind the companies do not appear before the AO and are evasive in approach, the matter of due discharge of onus by the assessee company is not fulfilled. iii. Riddhi Promoters (Pvt) Ltd. CIT-7, Delhi (2015) taxmann.com 367 (Delhi) -; establishing identity of share applicant is not sufficient to discharge initial onus that lay on assessee under section 68: assessee has to further satisfy revenue as to genuineness of transaction and creditworthiness of share applicant or individual who is advancing amounts. 15.2 In the following para, the Ld. CIT(....
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....17-18 and A.Y 2018-19 in a separate proceeding as per the Act to find out the implication. Further from the return of income it is observed that there are no fixed assets of the assessee company. It appears that the company does not have any genuine business activities. The company does not have any assets base and is a company without any visible future prospect. This being the initial year of incorporation of the company no past record exists. The appellant has also not made any valuation under Rule 11UA of the Income Tax Rules, 1962 to justify the premium when 1,01,00,000 shares were allotted at par and 3,40,000 shares at a primum of Rs. 499/-. The appellant's contention that issuance of shares at premium was a commercial decision which does not require any justification under any law for the time being in force may be correct. The Companies Act, 1956 does not specify the price at which shares are to be issued and it does not limit the premium at which shares are to be issued is also true. However, this argument is not an acceptable proposition as an investor before investing his or her money always looks at the companies past and future prospect. In the present case there i....
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....tion offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case, there is prima facie, evidence against the assessee viz the receipt of money, and if he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature." In the case of Sajjan Das & Sons vs. CIT (2003) 264 ITR 435 (Delhi), their Lordships of the High Court of Delhi, while considering a case in which gifts were received by the assessee through banking channels laid importance on the capacity of the donor for making the gift and his identity as well as importance of relationship between the donor and donee in determination of genuineness of gift held as under: "That a mere identification of the donor and showing the movement of the gift amount through banking channels was not sufficient to prove the genuineness of the gift Since the claim of the gift was made by the assessee, the onus lay on him not only to establish the identity of the person making the gift but also his capacity to make a gift and that it had actually been received as a gift from the donor. " In my considered....
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....eutral and should be noted These should not be ignored but they cannot become the bedrock or substratum of the conclusion. The provisions of Evidence Act are not applicable, but the assessing officer being a quasi-judicial authority, must take care and caution to ensure that the decision is reasonable and satisfies the canons of equity, fairness and justice. The evidence should be impartially and objectively analyzed to ensure that the adverse findings against the assessee when recorded are adequately and duly supported by material and evidence and can withstand the challenge in appellate proceedings. Principle of preponderance of probabilities applies What is stated and the said standard, equally apply to the Tribunal and indeed this Court. The reasoning and the grounds given in any decision or pronouncement while dealing with the contentions and issues should reflect application of mind on the relevant aspects. When an assessee does not produce evidence or tries to avoid appearance before the Assessing Officer, it necessarily creates difficulties and prevents ascertainment of true and correct facts as the Assessing Officer is denied advantage of the contention or factual assertio....
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....de in a document either executed by him or executed in his favor then the door will be left wide-open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. 7.13 It is a well settled principle of law as declared by the Hon'ble Supreme Court in the case of Sumati Dayal Vs.CIT" (214 ITR 801) (SC) that the true nature of transaction have to be ascertained in the light of surrounding circumstances. It needs to be emphasized that standard of proof beyond reasonable doubt has no applicability in determination of matters under taxing statutes. In the present case, it is clear that apparent is not the real as evidenced from the investigation report. Further, the Hon'ble Supreme Court. in the case of Chuhar Mal V CIT (1988) 172 ITR 250, highlighted the fact that the principle of evidence law are not to be ignored by the authorities, but at the same time, human probability has to be the guidin....
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.... (1995) 80 Taxman 89 (SC), the Hon'ble Supreme Court has dealt with the relevance of human conduct, preponderance of probabilities and surrounding circumstance, burden of proof and its shifting on the Department in cases of suspicious circumstances, by following observations "....It is, no doubt, true that in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. But in view of section 68, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory In such case there is prima facie evidence against the assessee, viz, the receipt of money, and if he fails to rebut the same, the said evidence being un-rebutted, can be used against him by holding that it is a receipt of an inc....
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....orted to in proof of a fact in issue which arises in proceedings for the assessment of taxes both direct and indirect, circumstantial evidence can be made use of in order to prove or disprove a fact alleged or in issue. In fact, in whatever proceedings or context inferences are required to be drawn from the evidence or materials available or lacking, circumstantial evidence has its place to assist the process of arriving at the truth." 6.14. It will also be worthwhile to consider the nature of burden of proof on the AO for proving a fact or circumstance in the income tax proceedings. The questions raised about the tax liability by the AO are to be answered by the assessee by furnishing reasonable and plausible explanations. If assessee is not forthcoming with proper or complete facts or his statement or explanation is contradictory, drawing of suitable inferences and estimation of facts is inevitable. Courts generally will not interfere with such estimate of facts, unless the inferences or estimates are perverse or capricious. 6.15. The Assessee's technical contentions about admissibility and reliance on material available on the AO's record are in the nature of content....
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....rsonal appearance which is undisputed. Thus, it is evident that the director merely filed few details which does not establish the identity and creditworthiness of the share applicants as well as genuineness of the transactions. The director did not appear for deposition which the Ld ought have taken to ascertain the fact of the case. As the details of the share applicants could not be ascertained from the return of Income and as the Director of the assessee company did not comply with the notice u/s 131 of the Act, there was no other option left with the Ld AO but to complete the assessment on the basis of information available on record. 7.17 Thus, from the series of actions by the AO there remains no doubt that the appellant is into the activities of accommodation entry. Human probabilities, surrounding circumstance and preponderance of probability goes against the appellant. The ratio and observations in the case of Durga Prasad More (supra) and Sumati Dayal (supra) and other case laws referred above, applies in the appellant's case. The appellant thus, failed to satisfy the all the three ingredients set forth as per decision of various courts including the Apex court, wh....
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.... the most important ingredient namely genuineness of the trans-action has to be established and unless and until all the three factors are con-jointly established, the revenue was fully justified in invoking Section 68 of the Act. 16. In CIT v. N.R. Portfolio Private Limited [2014] 42 taxmann.com 339/264 CTR 258/222 Taxman 157 (Delhi) the substantial question of law which was framed for consideration is whether the tribunal was right in deleting the ad-ditions under Section 68 of the Act and whether the decision of the tribunal is perverse. 17. With regard to the role of the assessing officer, the Hon'ble Court held that the assessing officer is both an investigator and an adjudicator; when a fact is alleged and stated before the assessing officer by an assessee, he must and should examine and verify, when in doubt or when the assertion is debatable. Normally a factual assertion made should be accepted by the assessing officer unless for justification and reasons the assessing officer feels that he needs/requires a deeper and detailed verification of the facts alleged. The as-sessee in such circumstances should cooperate and furnish papers, details and particulars, this may....
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....ious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty which an assessee may be faced with when asked to establish unimpeachable creditworthiness of the share subscribers. But this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of 'source of source' or 'origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction" and that it was not entirely an arm's length transaction, resort or reliance....
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....ject and purpose for which payment/investment was made etc. These facts are basically and primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Certificate of incorporation of company, payment by banking channel, etc. cannot in all cases tanta-mount to satisfactory discharge of onus. The facts of the present case no-ticed above speak and are obvious. What is unmistakably visible and ap-parent, cannot be spurred by formal but unreliable pale evidence ignoring the patent and what is plain and writ large. 21. In Rajmandir Estates Private Limited v. Principal Commissioner of Income Tax 2016 SCC Online Cal 1237, one of the substantial questions of law which fell for consideration was whether the finding of the CIT(A) that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting the seal of statutory approval by getting the case re-opened under Sec-tion 147 suo motu and whether the same is perverse. The facts of the said case was noted wherein 19 out of the 13 applicants secured funds for the purpose of contributing to the ....
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....itworthiness or genuineness of a transaction regarding share application money depends on whether two parties are related or known to each other, or mode by which parties approached each other, whether a transaction is entered into through written documentation to protect investment or whether the investor was a angel investor, the quantum of money invested, the creditworthiness of the receipt, object and purposes for which payment/investment was made etc. The incorporation of a company and payment by banking channel etc. cannot in all cases tantamount to satis-factory discharge of onus. The principles which emerge were sums of money are credited as share capital/premium was summarised as follows:- 13.1. 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 satisfaction of the AO, so as to discharge the primary onus. 13.2. 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 ....
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....iple which had been clearly adumbrated in judicial decisions. Section 68 thus only codified the law as it existed before 01.04.1962 and did not introduce any new principle or rule. 26. We also take note of the Finance Bill, 2012 which brought about certain amendments to the Act with effect from the assessment year 20132014 wherein under the heading "Measures to Prevent Generation and Circulation of Unaccounted Money" it was pointed out that the onus of satisfactory ex-plaining such credit remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is found to be satisfactory then the sum is added to the total income of the person. That certain judicial pronouncements have created doubts about the onus of proof and the requirements of Section 68, particularly in cases where sum is credited as share capital, share premium etc. That courts have drawn a distinction and emphasised that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by a kno....
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....m the public at large. 28. Having taking note of the above referred decisions and the legal principles if we revert back to the factual position in this case, we find that the CIT(A) has analysed the three principles which are required to be fulfilled namely identity, creditworthiness and genuineness of the transaction. It is not in dispute that the investors whose details we have referred in the earlier part of this judgment are all either group companies or having a common set of directors. Further the assessee has not been able to dislodge the factual findings recorded by the CIT(A) that the share application money was received from independent legal entities. By way of illustration if we take the case of Gainwell Textrade Private Limited, they have invested Rs. 8,10,00,000/- in the assessee company. The said company receives a total of Rs. 1,65,00,000/- on 01.06.2011 and 02.06.2011 from eight private limited companies/entities. Out of the said amount, Rs. 1,50,00,000/- was remitted to the assessee's bank account on 02.06.2011 by three cheques of Rs. 50,00,000/- each. The balance remained at Rs. 15,09,039/-. On 02.06.2011, an amount of Rs. 38,00,000/-was remitted to the ac....
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....ics Private Limited had come from Gainwell Textrade Private Limited. The bank statements of HIL Engineering was also thoroughly examined more particularly the pattern of transaction and it was held that the only apparent purpose for which the bank accounts have been used is to receive money from one account and transfer it to another. With regard to the investor Pavapuri Mercantile Private Limited the bank statements revealed that the entire sums are remitted by Pawapuri Mer-cantile Private Limited to the assessee had come from Gainwell Textrade Private Limited. The analysis done by the CIT(A) would reveal the nature and character of the transaction and the CIT(A) cannot be faulted to have held that the transactions are well planned and stage managed to show genuineness behind which a clean and simple "round tripping" of funds is taking place. The CIT(A) on examination of the facts found that the bank accounts act as "high-way" in the "journey of money" on a rotation and laundry trial from one entity to another and by this way these bank accounts create a facade of documentary evidence for clean money in the form of account payee cheques for any kind of accommodation entries. 30.....
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....iness activities. Thus, on analysing the data which was available it is seen that each of the companies have in-vested in each other and the investments have been made by rotating funds from one account to another. The assessee has not been able to explain why the investors companies had applied for shares in the assessee's company at a high premium even though the face value of the share was Rs. 10/- per share. The pattern of transaction clearly shows that these investors companies had raised capital by issue of shares at a very high premium and the transaction is repetitive. Therefore, the mere fact that the transactions were though banking channels or that the companies where income tax assessees or registered with Registrar of Companies can in no manner be sufficient to discharge the onus under Section 68 of the Act. The learned tribunal did not examine the factual matrix in the depth and in the manner it ought to have done. Therefore, we would be well justified to hold that the findings rendered by the tribunal are perverse. It was argued by the learned Senior Advocate appearing for the respondent assessee that there is no material to show "round tripping" of funds; there ....
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....ns were collected as a part of pre-meditated plan which has been conceived by the assessee. 33. The tribunal fell in error in holding that the CIT(A) has not pointed out any doubt or discrepancy with regard to the identity of the investors. The learned tribunal has posed a wrong question which has led to a wrong answer. The question is not whether the identity of the investor has to be established but the question was whether the investor had requisite creditworthiness and whether such creditworthiness was a make belief situation by means of a circular transaction and if the same had been established. The learned tribunal has held that the findings rendered by the CIT(A) that the assets in the form of investments have been created through rotating of money in between the group companies and the assets mainly consists of cash and cash equivalents are not enough to prove that any unaccounted money of the assessee has been introduced in the assessee company warranting addition under Section 68 of the Act. This finding in our opinion upon consideration of the facts is perverse. 34. The CIT(A) has made an elaborate exercise to assess the creditworthiness of the investor companies as....
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....m. The fact clearly demonstrates that the source of the funds which have flown into the account of the assessee have substantially come from one company namely Gainwell Textrade Private Limited and the said company had contributed to the other companies and the funds transferred to those companies were transferred to the assessee company invariably on the same day leaving a bank balance which was almost negligible and the bank statements reveal that the prior to the inflow of the funds into those investing companies, the bank balance was negligible and after the transfer it was also negligible. The assessee had contended before the tribunal that the amount was credited through proper banking channels and the investing companies are body corporate registered with the Registrar of Companies and individually assessed to income tax and therefore the genuineness of the parties is beyond doubt. However, this is not the litmus test to discharge the burden on the assessee to establish creditworthiness of the in-vesting companies as well as the genuineness of the transaction. Thus, we have no hesitation to hold that the explanation offered by the assessee is neither proper, reasonable or ac....
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.... that all the share applicants are income tax assessees, they are filing their income tax returns, share application form and allotment letter is available on record which were filed in response to the notice under section 133(6), share application money was made by account payee cheques, details of the bank accounts belonging to the share applicants and their bank statements have been furnished and all the share applicants are having substantial creditworthiness represented by their capital and reserves. Though such is the findings recorded by the Tribunal, it is not supported by facts. The Assessing Officer has held that the assessee was a private limited company which cannot issue shares in the same manner in which public limited company does and in so far as creditworthiness of the share subscribers is concerned, there must be positive evidence to show the nature and source of resources of the share subscribers and if the assessee was serious enough to establish his case, it ought to have complied with the notices/letters issued by the Assessing Officer and ought to have produced the directors of the subscribing companies before the Assessing Officer so that they could explain ....
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.... Act as undisclosed 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....
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....essee 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 so-called 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 ....
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....f 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 Bal Gopal Merchants (P.) Ltd. vs. PCIT reported in [2024] 162 taxmann.com 465 (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 asses....
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.... to sum up, it can be concluded that except for filing paper documents, which are in the nature of self-serving recitals but could not justify the genuineness of the transactions for investing in a newly formed company with no past history nor having any plausible business model, that too at a huge premium of Rs. 499/- for shares of the face value of Rs. 1, the assessee could not establish the genuineness of the transactions and the creditworthiness of the share applicants. The factors which militate against the assessee and question the genuineness of the entirely dubious and unjustified transactions for receipt of share capital along with huge share premium from corporate entities are as under: i. No verification of the applicants could be carried out by the Assessing Officer since the required evidence was not produced. ii. The assessee does not have any plausible source of income so as to attract the funds at a huge premium nor the investors had any plausible source of income to justify the genuineness of the transactions of the source of the funds invested. As would be apparent from the details of the financial statements filed, the promoter companies themselves had invest....