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TMI Blog2024 (9) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity of cross examination, whereas the addition was not merely based on statement of Shri Praveen Kumar Jain. c. Ld. CIT (Appeals) erred in appreciating the facts mentioned by AO in Para 7 that in normal human probability, no company will invest with such hefty premium and his reliance on case of jurisdictional High Court In Major Metals Pvt Ltd Vs. Union of India 207 Taxmann 185 in support of his contention. d. Ld. CIT (Appeals) erred in appreciating the AO's point of view regarding furnishing of corroborative evidences during assessment proceedings and further, during appellate proceedings, which has already been covered by AO in his order, wherein AO has laid emphasis on Hon'ble Supreme Court as quoted in Novoday Castle Pvt Ltd. 56 Taxmann.com 18. e. Any other ground which may be taken with the permission of the Hon'ble Tribunal." 3. Facts in Brief:- In the present case, the assessee is a Limited Company engaged in the activity of consulting in sectors like infrastructure, energy and natural resources, Railways etc., rendering host of specialised services. The assessee filed its original return of income for the year under consideration on 30/9/2012, dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred appeal before the first appellate authority. 6. The learned CIT(A), vide order dated 28/12/2018, deleted the entire addition made by the Assessing Officer amounted to Rs. 1,58,50,000, justifying the deletion of addition so made by the Assessing Officer which is reproduced herein below:- "4.3 I have gone through the assessment order, the grounds of appeal and submission made by the appellant. During the year under consideration, the appellant company has received a sum of Rs. 1,58,50,000/- from the companies named Atharva Business Pvt. Ltd; Aditya Fashions Pvt. Ltd; Kavya Shares & Securities Pvt. Ltd; Koina trading Pvt. Ltd; Wonder Procon Pvt. Ltd; and Viraj Mercantile Pvt. Ltd, on account of share application money. Allotment of shares was done in subsequent year at premium of Rs. 490/- per share. The AO has treated it as bogus credits and added the same by invoking section 68 of IT Act, 1961. 4.3.1 The AO has dealt the issue relating to unexplained credits on account of share application money at para 10 of the assessment order. The AO has noticed that during the course of search proceedings in the case of Shri Praveen Kumar Jain his statement was recorded u/s 132(4) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer has failed to demonstrate any such evidence that the appellant has in reality obtained any accommodation entries. There is no direct specific mention of the appellant by the director or key persons of the investor company. There is no evidence of cash deposits linked to the investors. The assessing officer did not bring specific Incriminating evidence linking the investor to the appellant. The only link is that the investors have invested in appellant company. Opportunity for cross examination was not provided to the appellant even though specifically asked for by the appellant Further Shri Praveen Kumar Jain has retracted his statement by filing an affidavit. The retraction may be rejected as motivated, but the same can be considered only against the person who has retracted in his assessment. Such statement in the case of another person loses its sanctity unless opportunity of cross examination is granted and/or is corroborated with other evidences. In the present case even the basic premise that the investor companies belong to Praveen Jain is not shown. When the investor company is filing regular return of income and there is a transaction through banking chann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that although the assessee proved identity of the subscribers, but failed to prove the genuineness of transaction and creditworthiness of the parties. The Assessing Officer has taken support from the statement of Shri Praveen Kumar Jain, which was given under section 132 (4) of the Act at the time of search. Shri Praveen Kumar Jain, had also admitted that he was involved in issuing accommodation entries. Except this, the Assessing Officer has not carried out any independent enquiries in order to verify the genuineness of transaction in respect of alleged share application money received from three companies. The statement given by Shri Praveen Kumar Jain, has been subsequently retracted by filling an affidavit before respective Income Tax Authorities. Under these facts, one has to examine whether the assessee has discharged its initial burden caste upon under section 68 of the Act to prove the identity, genuineness of transaction and creditworthiness of the parties. Under the provisions of section 68 of the Act, the assessee has to discharge initial burden by filing necessary documents to prove the identity of the creditors, the creditworthiness of the creditors and ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 68 of the Act, the question of establishing the source of source in respect of share capital and share premium did not arise. This fact has been supported by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Gagandeep Infrastructures Pvt. Ltd., [2017] 394 ITR 680 (Bom.). Prior to insertion of provisions, as per the decision of the Hon'ble Supreme Court in Lovely Exports (supra), if the Assessing Officer regards the share premium as bogus, he has to assessee the shareholders but cannot assess the same as the unexplained cash credit of the company issuing share capital. 15. The assessee has relied upon plethora of decisions in support of its arguments. The case laws relied upon by the assessee are summarized below:- "10.4. The Appellant places reliance on ITO Vs. Wiz-Tech Solutions Pvt. Ltd. (ITAT Kolkata) (ITA No. 1162/Kol/2015) wherein the Hon'ble Tribunal has held in respect of addition made on account of share premium that Creditworthiness of the subscriber cannot be disputed by the AO of the assessee but by the AO of the subscriber. If the assessee has discharged its onus to prove identity, creditworthiness & genuineness of the share applicants, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing reliance on the report of the investigation wing. 10.9. Reliance further placed on CIT Vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bombay HC) wherein it has been held that the proviso to s 68 (which creates an obligation on the issuing Co. To explain the source of share capital & premium) has been introduced by the Finance Act 2012 with effect from 01.04.2013 and does not have retrospective effect. Prior thereto, as per Lovely Exports 317 ITR 218 (SC), if the AO regards the share premium as bogus, he has to assess the shareholders but cannot assess the same as the issuing company's unexplained cash credit." 16. In this view of the matter and considering the ratio of the case laws discussed above, we are of the considered view that the assessee has proved the share application money received from three companies by necessary documents in respect of identity, genuineness of transactions and creditworthiness of the parties Therefore, we are of the considered view that the Assessing Officer has erred in making additions towards share application money under section 68 of the Act. The learned Commissioner (Appeals) without appreciating the facts simply confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as the statement of Shri Praveen Kumar Jain, was never accorded for cross examination. The learned A.R. invited our attention to Page-216 of the paper book wherein the assessee has enclosed a detailed chart showing share capital issued during the year wherein it is very clear that the amount of share capital issued to Wonder Procon Pvt. Ltd. of Rs. 15,00,000, was against investment in equity shares and not in cash as wrongly assumed by the Assessing Officer. Hence, the provisions of section 68 of the Act are not applicable. The learned A.R. further invited attention to the fact that the statement of Shri Praveen Kumar Jain, which is at the centre of the impugned proceedings and which forms the basis for the 263 proceedings pursuant to which the assessment has been completed against which the Department is in appeal before the Tribunal, has in fact been retracted in an Affidavit by Shri Praveen Kumar Jain, sworn on 15/05/2014, which is placed at Pages-209 to 213 of the paper book. The learned A.R. further submitted that on a perusal of the affidavit so filed, it is clear that Shri Jain retracted his statement within 8 months of the statement having been recorded and this is an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned A.R. further invited our attention of the Bench to the fact that in identical circumstances, the additions were also made in the hands of the Assessee, albeit pertaining to some other share applicants in the immediately preceding assessment year 2011-12 and which were deleted by the Co-ordinate Bench of the Tribunal, Nagpur Bench, Nagpur, in ITA No.154/Nag./2017, vide order dated 26/10/2018. The learned A.R. on a conspectus of the above facts submitted before us that the addition so made by the Assessing Officer has been rightly deleted by the learned CIT(A) and prayed that the appeal filed by the Revenue deserves to be dismissed. 10. The learned D.R., in response, apart from supporting the order of the Assessing Officer, further filed before us a copy of the order 19/01/2023, passed by the Co-ordinate Bench of the Tribunal, Nagpur Bench, in Praveen Kumar Jain v/s DCIT, etc., ITA no.7191/Mum./2018, for the assessment year 2008-09, etc., wherein Shri Praveen Kumar Jain, has been assessed as an entry operator. 11. The learned A.R. in response, submitted that any evidence relating to Shri Praveen Kumar Jain, is inadmissible in light of the fact that he or his statement has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions, as made by the learned A.R. inasmuch as the statement of Shri Praveen Kumar Jain, having been retracted does not hold evidentiary value so as to form the basis of any addition as illegally done in the case of the assessee. Further, it is an accepted fact that the said statement was never provided to the assessee for cross-examination which has grossly violated the principles of natural justice which resulted in vitiating the addition made by the Assessing Officer. We are further in agreement with the learned A.R. that the assessee having submitted all the details during the course of assessment proceedings and appellate proceedings with respect to the share applicants including confirmation letters, audited financial statements, bank statements etc., the assessee duly discharged its obligation as cast under section 68 of the Act. It is very important to note that the share applicants have independently confirmed having undertaken the impugned transactions with the assessee. We are further in agreement that the financial statements of the share applicants show sufficient funds justifying their creditworthiness to invest the sums with the assessee. We are further in agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to implicate the assessee in any manner. Further it is clear from Para-7 of the order wherein it is specified that the transaction forming part of the appeal pertain to one Spanco Group, which is in no way connected with the assessee making the findings therein distinct and inapplicable to the present case. In case, any reliance is to be accorded to the statement or evidence of Shri Praveen Kumar Jain, then too, no adverse inference or addition can be sustained in the hands of the assessee following the ratio of the decision of the Tribunal, Nagpur Bench, in assessee's case itself for the immediately preceding year being assessment year 2011-12 in passed in Axykno Enterprises Pvt. Ltd. v/s ITO, ITA No.154/Nag./2017, vide order dated 26/10/2018, wherein the Tribunal has held as under:- "11. Coming to the merits of the issue on hand, the learned Authorised Representative for the assessee submitted that the Assessing Officer was erred in making additions towards share application money under section 68 of the Act, ignoring evidence filed by the assessee to prove identity, genuineness of transaction and creditworthiness of the parties. The learned Authorised Representative further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner (Appeals), submitted that mere furnishing identity and bank statement does not prove the genuineness of transaction. It is not in dispute that the Assessing Officer has accepted the identity, but the assessee failed to prove the genuineness of the transaction in the backdrop of clear finding of the Assessing Officer on the basis of statement of Shri Praveen Kumar Jain, and information received from DGIT (Inv.). The learned Commissioner (Appeals) has rightly appreciated the facts as the assessee has not even justified issuance of share at a huge premium of 490 per share when there is no business activities and asset base in the company. 13. We have heard rival contentions and perused the material available on record. The Assessing Officer has made impugned addition under section 68 of the Act, on the ground that although the assessee proved identity of the subscribers, but failed to prove the genuineness of transaction and creditworthiness of the parties. The Assessing Officer has taken support from the statement of Shri Praveen Kumar Jain, which was given under section 132(4) of the Act at the time of search. Shri Praveen Kumar Jain, had also admitted that fie was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee to prove the transaction cannot be disbelieve to make additions under section 68 of the Act. 14. Coming to the issue of share premium charged by the assessee, the Assessing Officer has doubted the genuineness of transactions on the basis of share premium charged by the assessee. According to the Assessing Officer, the assessee has not justified issue of share at a huge premium of 490 per share when there is no business activities and asset base. We do not find any merit in the finding of the Assessing Officer for the reason that the provisions to section 68 of the Act has been inserted by the Finance Act, 2012, w.e.f. 1 April 2013, to treat share capital and share premium within the ambit of provisions of section 68 of the Act. Prior to insertion of provisions of section 68 of the Act, the question of establishing the source of source in respect of share capital and share premium did not arise. This fact has been supported by the decision of the Hon'ble Jurisdictional High Court in CIT v/s Gagandeep Infrastructures Pvt. Ltd., [2017] 394 ITR 680 (Bom.). Prior to insertion of provisions, as per the decision of the Hon'ble Supreme Court in Lovely Exports ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh the existence of such companies, the burden shifts to the Revenue to establish their case. Reliance on statements of third parties who have not been subjected to cross examination is not permissible. Voluminous documents produced by the assessee cannot be discarded merely on the basis of statements of individuals contrary to such public documents. 10.8. Reliance further placed on CIT Vs. Laxman Industrial Resources Pvt. Ltd. (Delhi HC) (2017) 397 ITR 106 wherein it has been held that the fact that the investigation wing's report alleged that the assessee was beneficiary to bogus transactions and that the identity of shareholders, genuineness etc was suspect is not sufficient. The AO is bound to conduct scrutiny of documents produced by the assessee and cannot rest content by placing reliance on the report of the investigation wing. 10.9. Reliance further placed on CIT Vs. Gagandeep Infrastructure Pvt Ltd. (2017) 394 ITR 680 (Bombay HC) wherein it has been held that the proviso to s. 68 (which creates an obligation on the issuing Co. to explain the source of share capital & premium) has been introduced by the Finance Act 2012 with effect from 01.04.2013 and does not have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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