TaxTMI 
TaxTMI 
2023 (1) TMI 1435
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.... the entries of bank accounts of the share applicants where the assessee failed to explain and substantiate the creditworthiness of the share applicants and genuineness of the transactions. (ii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) erred in deleting the addition of Rs. 2,30,05,000/- made on account of unsecured loans received treated as unexplained cash credits u/s 68 of the Act despite of the fact that it was established that the bank accounts have been used for channelizing unaccounted money by analysing the entries of bank accounts of the creditors, where the assessee failed to explain and substantiate the creditworthiness of the lender and genuineness of the transactions. (iii) On the facts and circumstances of the case and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A)-2, Surat may be set-aside and that of the Assessing Officer's order may be restored. (iv) On the facts and circumstances of the case and in Law, the assessee craves its right to add, alter, amend, delete, any of the ground or grounds of appeal." 3. We note that in this app....
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....t A.Y., the assessee company received new share capital fund of Rs. 54,90,000 (Rs. 3,66,000/- face value @ Rs. 10 per share and Rs, 51,24,000 share premium @ Rs. 140 per share) from the existing directors and their family members. The assessee also received unsecured loans of Rs. 2,30,05,000/- from the existing directors and family members, In the assessment proceedings, the assessee had complied to the assessing officer's query of explaining the funds received under share capital and unsecured loans in terms of requirement of section 68 of the Act by filing copies of ITRs, ledger a/c, bank statement etc. However, the assessing officer concluded that full details were not filed to substantiate the receipts of Rs. 54,90,000/- and Rs. 2,30,05,000/- as per requirements of S.68 of the Act. Certain additional evidences filed during appellate proceedings were forwarded to the assessing officer for remand report. In the remand report dtd 17/07/2017, the assessing officer pointed out cash deposits in the bank a/cs of share applicants/investors and other credits prior to issue of cheques for share capital/loans advanced to the assessee. These observations of cash deposits and other cred....
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....ssee company. Thus, the assessing officer ignored these evidences and only partly commented for cash deposits of substantial amount. d) Kantilal M. Shah (HUF)-Rs. 5 lacs cash deposit and Vimal K. Shah-Rs. 5 lacs cash deposits were also found explained as per cash book statement indicating available cash balance and bank withdrawal prior to cash deposits. e) Ratnesh K. Shah: Cash deposits of Rs. 10 lacs was explained from the cash book statement out of opening cash of Rs. 11,85,669/-and bank withdrawals. Opening cash balance is duly supported by copy of ITR and balance sheet of A.Y. 2012-13. Also opening cash balance was demonstrated as accumulated in F.Y. 2011-12 through bank withdrawals of more than Rs. 20 lacs on different date Copy of cash book of F.Y. 201112 supports this contention of the assessee. (ii) With regard to the unsecured loans received by the assessee, the AR contentions are found to be demonstrated from the copy of ITRs, bank statements and other relevant documents. Merely because the credit patterns of lenders show 2 or 3 credits followed by an equivalent debit for payment to assessee, the genuineness of loans cannot be disproved. Moreover, all these lend....
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....ggrieved by the order of Ld. CIT(A) the Revenue is in appeal before us. 8. Learned CIT-DR for the Revenue submitted that during the year under consideration, the assessee company had received share capital and share premium to the tune of Rs. 54,90,000/- from seven persons. The assessee furnished only part details and did not furnish confirmations even though specifically asked to do so. The bank accounts of the investors showed repetitive pattern of two or three credit entries followed by debit of an amount equivalent to the sum total of the credit entries. During the assessment proceeding, the assessee did not furnish explanation regarding such prior deposits without which payment of the share application money would not have been possible. The assessing officer has observed from analysis of bank account of the investors that the transactions are arranged in such a way as to give the transactions a colour of genuineness. The assessing officer has observed that the bank accounts of the investors show identical patterns wherein the money is deposited and transferred immediately and the credit balance is always negligible. There are no debit of establishment expenses and any other ....
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....here is sufficient cash deposit in the bank account of share applicants and the same has escaped from examination by the assessing officer. Even during the appellate proceedings, the ld CIT(A), who supposed to adjudicate the issue in accordance with new provisions of section 68 has failed to do so. As the assessment year involved in the assessee's case is the assessment year 201314, where amended provisions of section are clearly applicable to the assessee. Therefore, the assessment was not framed as per the provisions of section 68 of the Act. 11. The ld DR also pointed out that even source of the money has not been properly examined by ld CIT(A) after getting the remand report of the assessing officer during the appellate proceedings. The ld DR relied on the statement of facts filed with form no.36 and pointed out that there are various deposits including cash deposits in the bank accounts of the investors without which payment of the share application money would not have been possible. The Ld. CIT(A) has erred by accepting the explanation of the assessee during appellate proceeding that same was sourced from opening cash in hand and withdrawals from banks since the time gap is....
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....ined share application money. Hence this addition was made on protective addition, as the substantive addition of Rs. 54,90,000/- was already separately made. Since appeal is being recommended in respect of the deletion of additions of Rs. 54,90,000/- no separate recommendation for further appeal is being made in respect of the deletion of addition of Rs. 1,54,452/-. 13. The ld DR further pointed out, with help of statement of facts, that identical facts, as discussed above, in respect of addition with regard to unexplained share application money, are observed in the deletion by the Ld. CIT(A) of addition of Rs. 2,30,05,000/- comprising unsecured loans receipts treated as unexplained u/s 68 of the Act. On the same grounds and reasons as in respect of the unexplained share application money receipt, the decisions of the Ld. CIT(A) with regard to deletion of addition of Rs. 2,30,05,000/- comprising unsecured loans receipts treated as unexplained u/s 68 is also not acceptable. 14. On the other hand, Shri Sapnesh R Seth, Learned Counsel for the assessee defended the order passed by Ld. CIT(A). The Ld. Counsel submitted that during the assessment proceedings, the assessee submitted t....
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....icable to a Private Limited Company to prove "Source of the Source" of the share application money/share premium received by the assessee-company. The proviso to section 68 is reproduced below for ready reference: "[Provided that] where the assessee is a company not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory" 16. After going through the above proviso to section 68 of the Act, it is abundantly clear that it is the duty of the assessee-company to prove "Source of the Source". Therefore, we do not find any merit in the submission of ld Counsel to the effect that since the assessing officer had not asked the documents and evidences from the a....
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....ssessee-company failed to do so. We also do not agree with the arguments made by ld Counsel that assessee company has received share capital/share premium from directors and family members therefore all the ingredients of section 68 have been proved, in this situation at least identity of the share applicants can be proved, but creditworthiness and genuineness should be proved as per amended provisions of section 68 of the Act, wherein the assessee needs to explain the source of the source. 19. Besides, the ld CIT(A) did not adjudicate the issue about protective addition made on account of provisions of section 56(2)(viib) of the Act at Rs. 1,54,452/-, which is included in the total addition of Rs. 54,90,000/- made by the assessing officer. Considering these facts and circumstances of the case, we are of the view that this issue should be remitted back to the file of the assessing officer to examine the source of the source. Therefore, we deem it fit and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the assessing officer to adjudicate the issue afresh on merits as per the amended provisions of section 68 of the Act and assessee is also di....
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....pplicant Share Capital Share Premium Total 1 Kantilal M. Shah 28000 392000 420000 2 Falguni R. Shah 60000 840000 900000 3 Kusumben K. Shah 53000 742000 795000 4 Keyri V. Shah 13000 182000 195000 5 Ratnesh K. Shah (HUF) 86000 1204000 1290000 6 Vimal K. Shah (UF) 93000 1302000 1395000 7 Kantilal M. Shah (HUF) 33000 462000 495000 Total 366000 5124000 5490000 Even after specific queries, the assessee failed to furnish the complete details in this regard. Now, the assessee furnished before your Honour the additional evidences. The assessee had also failed to furnish any reasons for not furnishing these evidences during the assessment proceedings. Hence, the additional evidences furnished before your Honour should not be admitted. Without prejudice to the above, the additional evidences were perused and on perusal of the additional evidences, the following facts emerged with respect to the Share Capital and Share Premium: Sr. No. Name of the Share Applicant S/Shri Share Capital + Share Premium Observations Remarks 1 Kantilal M. Shah 420,000 On perusal of the Bank account furnished, it is noticed that cash of Rs. 1 lakh deposite....
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.....03.2013. The Returned income of the investor is Rs. 2,16,440/- and investment made during the year is Rs. 13 lakhs. The genuineness and creditworthiness of the transactions not proved. 6 Vimal K. Shah (HUF) 1395000 On perusal of the Bank The account, it is noticed that there is credit entry of Rs. 7 lakhs from Arihant Diamond on 14.03.2013 followed by issue of Cheque No.436697 of Rs. 7 on 14.03.2013. Further, cash deposit of Rs. 3 lakhs lakhs on 14.03.2013 followed by issue of Cheque Nos.436696 on 14.03.2013 and cash deposit of Rs. 4 lakhs on 15.03.2013 followed by issue of Cheque No.436698 on 15.03.2013. The Returned of the income investor is Rs. 2,46,820/- and investment made during the year is Rs. 14 lakhs. The genuineness and creditworthiness of the transactions are not proved. 7 Kantilal M. Shah(HUF) 495000 On perusal of the Bank account, it is noticed that cash deposits of Rs. 2 lakhs on 14.03.2013 followed by issue of Cheque Nos.436615 & 436614 of Rs. 1 lakh each on 14.03.2013 and further cash deposit of Rs. 3 lakhs on 15.03.2013 followed by issue of Cheque No.436616 on 15.03.2013. The Returned income of the investor is Rs. 2,49,380/- and investment made during t....
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....) Dy. Commissioner of Income-tax, Circle-2(1)(1), Surat 22. The assessing officer in the remand report has given his findings stating that a similar pattern as discussed with respect to the share capital and share premium was observed with respect to unsecured loans received by the assessee company. The cash has been deposited in the account of the lenders, prior to issue cheques to the assessee- company, and said source has not been verified by the ld CIT(A). The relevant findings of ld CIT(A) is reproduced below: "........Merely because the credit patterns of lenders show 2 or 3 credits followed by an equivalent debit for payment to assessee, the genuineness of loans cannot be disproved........" 23. From the above findings of ld CIT(A) it is vivid that ld CIT(A) did not quantify the cash amount deposited in the Lenders bank accounts before giving loan to the assessee company. The said source of cash deposit is from assessee company or from Lenders, has not been explained by ld CIT(A) in his order. Just to say that 2 or 3 credits followed by equivalent debit, is not sufficient. The ld CIT(A) has to examine that such cash deposit is from genuine sources and it is not the cas....