Case Law Details
Urmila Properties Pvt. Ltd Vs ITO (ITAT Kolkata)
Conclusion: The ITAT on the issue of addition under Section 68 observed that in the impugned Assessment Order, the AO has passed the impugned Assessment Order in a hurried manner even without pointing out any defect or discrepancy in the evidences and details furnished by the assessee. Therefore, additions under Section 68 were ordered to be deleted.
Facts: The present appeal has been preferred by the assessee against the order dated 24.12.2019 of the CIT(A) passed u/s 250 of the Income Tax Act. The assessee in this appeal has taken the following main ground of appeal:
For that the Ld. CIT(A) erred in confirming the order of the AO in adding back the share capital including premium of Rs.2,53,00,000/- raised during the year from15 subscriber companies as unexplained cash credit u/s. 68 by holding that the appellant failed to prove the identity, creditworthiness of the party and genuineness of the transactions, when all the details and evidences were filed to prove the same, the AO made enquiry u/s 133 (6) and did not proceed further and as such the assessee discharged the onus that lay upon him.
The brief facts of the case, as culled out from the Assessment Order dated 25.03.2015, are that the assessee filed its return of income for the relevant assessment year on 13.08.2012. The case of the assessee was selected for scrutiny. Accordingly a notice u/s 143(2) of the Income Tax Act, 1961 was issued by the concerned Assessing Officer (in short the ‘AO’). Thereafter, a notice u/s 142(1) of the Act was also issued by the AO. In response to the above notices, the assessee filed requisite details and documents and financial statement of accounts.
The assessing officer noted from the accounts of the assessee that the assessee during the year issued fresh shares to different private limited companies at a high premium. Further that the funds collected through issue of shares were further invested in other companies. Besides that there was no significant asset of the assessee company. To verify the identity and creditworthiness of the shareholders and also about the genuineness of the transaction, the assessing Officer issued summons u/s 131 of the Act to the directors of the assessee company and the directors of the share subscriber companies. Since in most of the cases, the summons were returned back unnerved by the postal authorities, therefore the AO observed that under the circumstances if considered in the light of the preponderance of probabilities and normal human behaviour, the aforesaid investment was to be treated as unexplained cash credits. He accordingly made impugned additions u/s 68 of the Income Tax Act.
The ITAT observed that in this case a perusal of the Assessment Order would reveal that the AO has duly acknowledged the receipt of the relevant documents/evidences not only from the assessee, but also from the subscriber companies. However, he insisted for personal appearance of the directors of the subscriber companies without even going through and discussing about the discrepancies, if any, in the documents furnished by the assessee as well as by the share subscriber companies to prove the identity and creditworthiness of the subscribers and the genuineness of the transaction. The AO has simply noted in para 4 of the Assessment order, “the assessee company remains ready with the papers like memorandum & articles of Association, Form-2, Form-5 etc. filed before ROC for raising share capital and issuance, share application by the allottee companies, share allotment advices, PAN card, Form-18 etc. in support of registered address of the assessee companies and allottee companies as well, and resolution book in support of board meetings held, bank statement of both assessee company and the allottee companies etc.. ..”. . Further, it was observed that without examining those documents how could the AO came to a conclusion that the transactions in question were not genuine. The AO has not pointed out in the Assessment Order as to what further enquiries he wanted to make from the directors of the subscribers to insist for their personal presence.
The Assessee in this case, as reproduced above, has explained about the identity, creditworthiness and financials etc. of each of the share subscriber company individually. However, the AO has not even mentioned the names of the share subscriber companies and even has not mentioned a word as to which of the share subscriber company or the corresponding transaction thereof was not genuine and on what grounds. The AO, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO.
In this case, as detailed in the written submissions of the assessee, the assessee had duly submitted details and evidences to prove the identity and creditworthiness of each of the share subscribers separately. However, the ld. AO, in the impugned Assessment Order has not recorded any peculiar facts of circumstance which would suggest that the assessee had routed his own money through the above stated subscribers. The AO has not brought any material or evidence on the file to show that these share applicants were fictitious persons. The AO has passed the impugned Assessment Order in a hurried manner even without pointing out any defect or discrepancy in the evidences and details furnished by the assessee.
Therefore, there was no justification on the part of the lower authorities in making the impugned additions and the same were accordingly ordered to be deleted and accordingly appeals of the assesse were allowed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal has been preferred by the assessee against the order dated 24.12.2019 of the Commissioner of Income Tax (Appeals)-10, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). The assessee in this appeal has taken the following grounds of appeal:
“1. For that the Ld. CIT(A) erred in confirming the order of the AO in adding back the share capital including premium of Rs.2,53,00,000/- raised during the year from15 subscriber companies as unexplained cash credit u/s. 68 by holding that the appellant failed to prove the identity, creditworthiness of the party and genuineness of the transactions, when all the details and evidences were filed to prove the same, the AO made enquiry u/s 133 (6) and did not proceed further and as such the assessee discharged the onus that lay upon him.
2. For that the Ld. CIT(A) failed to appreciate the fact that AO has brought no evidence on record to controvert the submissions of the assessee and the creditors and as such the order of the Ld CIT(A) is against the well established principles of law.
3. For that on the facts and circumstances of the case that the Ld. CIT(A) erred in confirming the order of the A.O in adding back Rs.2,53,00,000/- to the total income of the appellant which was unjustified and uncalled for.”
2.4. The brief facts of the case, as culled out from the Assessment Order dated 25.03.2015, are that the assessee filed its return of income for the relevant assessment year (in short the ‘AY’) on 13.08.2012. The case of the assessee was selected for scrutiny. Accordingly a notice u/s 143(2) of the Income Tax Act, 1961 (in short the ‘Act’) was issued by the concerned Assessing Officer (in short the ‘AO’). Thereafter, a notice u/s 142(1) of the Act was also issued by the AO. In response to the above notices, the assessee filed requisite details and documents and financial statement of accounts.
4.1. The assessing officer noted from the accounts of the assessee that the assessee during the year issued fresh shares to different private limited companies at a high premium. Further that the funds collected through issue of shares were further invested in other companies. Besides that there was no significant asset of the assessee company. To verify the identity and creditworthiness of the shareholders and also about the genuineness of the transaction, the assessing Officer issued summons u/s 131 of the Act to the directors of the assessee company and the directors of the share subscriber companies. Since in most of the cases, the summons were returned back unnerved by the postal authorities, therefore the AO observed that under the circumstances if considered in the light of the preponderance of probabilities and normal human behaviour, the aforesaid investment was to be treated as unexplained cash credits. He accordingly made impugned additions u/s 68 of the Income Tax Act.
5. We have heard the rival contentions of the ld. Representatives of the parties.
The ld. Counsel for the assessee has submitted that in this case, Assessing officer had issued notices to the assessee as well as to the share subscribers, which were duly complied with. That the director of the assessee company submitted the required documents including audited financial statements of the share subscribers with the office of the assessing Officer. The assessee had filed all evidences to prove the identity and creditworthiness of the subscribers and genuineness of the transaction. He has further submitted that all the transactions were done through banking channel by the subscriber companies. That even the shareholders duly confirmed the share subscription in the Assessee company. That even the notices u/s 133(6) of the Act were issued by the AO and that all the share applicant companies duly complied with the notices and submitted the requisite documents including copy of PAN Card/ITR, acknowledgement evidencing their identity, relevant Bank Statements, audited accounts for the year and even source of investment was also provided. The ld. Counsel for the assessee in this respect has relied upon pages 1 to 520 of the paper book. He has further submitted that the subscribing companies were having adequate reserves and surpluses to invest in the assessee company. Further, that all these subscribers were income tax assessees and further that all the investor companies were duly incorporated with the Registrar of Companies. That there were no paper companies involved in the transactions. The assessee duly filed the details of share Allottee Company with the address, PAN & Form 2 & Form 5 filed with Registrar of Companies. That all the evidences including acknowledgement of filing their Income Tax Return, audited financial statements as well as copy of bank statement of the allottee company highlighting the payment of the entire amount of share capital and share premium were duly furnished.
He, however, has submitted that the AO instead of examining the relevant documents, insisted for the personal presence of the directors of the subscribers which was not in the hands of the assessee. He therefore, has submitted that the identity and creditworthiness of these companies was duly established. He has further submitted that the AO could not point out any defect or discrepancy in the evidences/documents submitted by the assessee to prove the identity and creditworthiness of the subscribers and genuineness of the transaction. He has further submitted that instead of pointing out any defect or discrepancy in the evidences and the details furnished by the assessee, the AO proceeded to take adverse inference only on the ground that the directors of the subscriber companies did not appear personally before the AO. He has further submitted that the subscriber companies were investment companies, therefore, the low business income was not a relevant factor to doubt about the genuineness of the transaction. The ld. Counsel for the assessee has further relied upon the decision of the co-ordinate Kolkata Bench of the tribunal in the case of ‘M/s Satyam Smerte xpvt. ltd. vs. DCIT’, ITA No.2445/Kol/2019 vide order dated 29.05.2020 wherein the coordinate bench of the tribunal, while further relying upon the decision of the Hon’ble Allahabad High Court in the case of CIT vs Raj Kumar Agarwal vide ITA No.179/2008 dated 17.11.2009 has held that non production of the director of the company, which is regularly assessed to income Tax having PAN, on ground that the identity of the subscriber is not proved, cannot be sustained. The ld. Counsel has further relied upon the decision of the Hon’ble Bombay High Court in the case of PCIT, Panji vs. Paradise Inland Shipping Pvt. Ltd. reported in (2017) 84 taxman.com 58 (Bom) wherein the Hon’ble High Court has held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case.
5.1. Apart from the above oral submissions, the ld. Counsel for the assessee has invited our attention to the following written submissions made before the CIT(A) which have been reproduced in the impugned order of the CIT(A):
“In ground no. 2, 3, 4, 5 & 6 the assessee has disputed the addition of Rs.2,53,00,000/- being the amount added to equity share capital and reserves during the year. The appellant duly discharged the initial onus that lay on it and the entire assessment was framed completely ignoring all the materials and documents filed before him in response to his notice u/s. 142(1). The assessee had filed all evidences to prove the identity and creditworthiness of the subscribers and genuineness of the transaction. All the details and documents including copy of the bank statement highlighting the payments made by the share subscriber companies, copy or PAN card, ITR Acknowledgement and Audited Financial Statements have already been filed. There are no paper companies involved in the transactions. The assessee duly filed the details of share Allottee Company with the address, PAN & Form 2 & Form 5 filed with Registrar of Companies (Kindly refer para 4 of the assessment order). It is submitted that the shareholders duly confirmed the share subscription in the Assessee company. All the evidences including acknowledgement of filing their Income Tax Return, audited financial statements as well as copy of bank statement of the allottee company highlighting the payment of the entire amount of share capital and share premium, and reply to notices u/s 133(6) are enclosed herewith. When the addition is made without considering the reply of the shareholder, the addition itself was bad in law. The details of each of the subscriber companies enclosed herewith are explained below:
1. M/s. Cindrella Barter Pvt. Ltd having PAN No. AADCC8512F filed a confirmation along with all the requisitions made by the AO viz. allotment advice, copy of Audited P/L Ac and Balance Sheet as on 31st March 2012, the sources of funds and their bank statement highlighting the Source of payment made, form 18. Payment of Rs.20,00,000 was made on 30.08.2011 to Umila Properties Pvt Ltd for purchase of 8000 shares through cheque no 629461. The copy of reply to the notice u/s. 133(6) showing the requisitions made and the documents submitted are enclosed herewith. The source of fund was Rs. 20,00,000 from M/s Sarbottam Alloy & Fiscal Pvt. Ltd. of Lake Land Country Club, Munshidanga, Nibra, Howrah 711403 having PAN No AAHCS2686Q. The company had net worth of Rs. 3,12,90,311/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, it is indispensable to note that the Company during the FY 2011-2012 has raised its Share capital from Rs 16,00,000 as at 31.03.2011 to Rs.22,48,000 as at 31.03.2012 including Share Premium of Rs.1,55,52,000 and the same money raised was invested in the Assessee Company. The assessment of this company pertaining to A. Y. 2012-2013 was completed u/s 143(3) of the Act, a copy of which is enclosed herewith wherein no adverse-view about share capital and share premium raised was taken by A.O, that is there was no addition u/s 68 of the Act, therefore no disallowance should be made in the hands of the assessee-company u/s 68 of the Act as also the department accepted the share capital and share premium as genuine Thus, addition made in the hands of the assessee company ought to be deleted. The same view was upheld by the Hon’ble ITAT Kolkata Bench “B”, in the case of M/s C.P. Re-Rollers Ltd Vs D. C.I.T, Cir-1, Durgapur. The observations of the ITAT in the present case is reproduced below:
“We note that M/s Haven VincomPvt. Ltd (one of the share subscriber company) has utilized the same money(which it received by raising share capital/premium and not disallowed by AO, u/s 68) to purchase the share capital and share premium in the assessee company (M/s C.P. RE Rollers Ltd.) therefore it should not be disallowed u/s 68 of the Act, in the hands of the assessee company, as the Department itself accepted the genuine money in the hands of M/s Haven Vincom Pvt Ltd. Hence in the case of M/s Haven VincomPvt. Ltd, the identity, creditworthiness and genuineness have been proved beyond doubt’.
Similar observations were also made in an identical case in DCIT VsMaaAmba Towers in I. T.A No: 1381/kol/2015 &alsoin a recent judgement pronounced on 22.05.2019 by Hon’ble Kolkata ITAT “B” Bench in the case of ITO, Ward 12(2), Kolkata Vs M/s. Happy Structure Private Limited reported in ITA No. 1977/Kol/2016.
2. M/s. DivyaTreximPvt. Ltd having PAN No AADCD9O06F filed all the documents requisitions made by the AO and the same are enclosed herewith, viz. the allotment advise, Audited P/L A/c and Balance Sheet as on 31st March 2012, the sources of funds and their bank statement highlighting the source of payment made. Payment of Rs 10,00,000&Rs 20,00,000 was made on 05.09.2011 & 29.11.2011 respectively to Urmila Properties Pvt. Ltd for purchase of 12000 shares through cheque. The source of fund was Rs. 20,00,000 received from M/s. Natureview Merchants Pvt Ltd. of 21, ghola road ,belghoria, Kolkata-700083 &Rs 5,00,000 each received from VisheshDudheria of 14/2, Old China Bazar street ,Room 308, Kolkata-700001 having PAN ADLPD3616K & from Ram Krishna Das of Dwipamalita, Janapara, Bagnan, Howrah 711303 having PAN No. AJIPD6470E respectively. The company had net worth of Rs. 2,22,01,948/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, it is worthwhile to note that the present share subscriber company was incorporated during the F.Y. 2011-2012 with Share capital of Rs 9,84,000 & Share Premium of Rs.2,12,16, 000/- and the same money raised was invested in the Assessee Company. The assessment of this company pertaining to A.Y. 2012-2013 was completed u/s 143(3) of the Act a copy of which is enclosed herewith wherein no adverse view about share capital and share premium raised was taken by AO, that is, there was no addition u/s 68 of the Act, therefore no disallowance should be made in the hands of the assessee company u/s 68 of the Act as also the department accepted the share capital and share premium as genuine. Thus, addition made in the hands of the assessee company ought to be deleted. The same view was upheld by the Hon’ble ITAT Kolkata Bench “B”, in the case of M/s C.P. Re-Rollers Ltd Vs D.C.I.T, Cir-1,Durgapur & also by hon’ble Kolkata ITAT in the case of ITO, Ward 12(2), Kolkata Vs M/s. Happy Structure Private Limited reported in ITA No. 1977/Kol/2016 which has been referred to above.
3. M/s. Dokania Trade ImpexPvt. Ltd. having PAN No. AABCD0192Q whose confirmation along with all the requisitions made by the AO viz. share allotment advise, a copy of their I.T. Acknowledgement along with audited P/L A/C and Balance Sheet as on 31st March 2012, and their bank statement was filed by the assessee company, a copy or which is enclosed for your kind perusal. Payment of Rs 10,00,000 was made through cheque no.32098906 to Umila Properties Pvt Ltd for purchase of 4000 shares. The copy of reply to the notice u/s 133(6) showing the requisitions made and the confirmation filed along with the above documents are enclosed herewith. The source of fund was the money received from M/s. Kanak Tie Up Pvt Ltd on account of share application and share premium money. The company had net worth of Rs. 3,06,08,350/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for.
4. M/s. Fidelity Tradecom Private Limited having PAN No. AABCF3357K filed a confirmation along with all the requisitions made by the AO viz. share allotment advice, Audited P/L AG and Balance Sheet as on 31st March 2012, and their bank statement highlighting the payment made. Payment of Rs 8, 50,000 was made to Umila Properties Pvt. Ltd on 24.03.2012 for purchase of 3400 shares through Cheque No.0675289. The copy of reply to the notice u/s. 133(6) along with the documents submitted are enclosed herewith. The source of fund was the share capital and share premium raised by the company during the assessment year under consideration. The company had net worth of Rs. 5,53,55,755/ as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs ie., identity, genuineness and creditworthiness are proved and no addition is called for.
5. M/s. Green Gold Plantation & Nursery Limited Pvt. Ltd having PAN No AABCG3571G filed all the documents requisitions made by the AO and the same are enclosed herewith, viz. copy of ITR Acknowledgement, allotment advise, Audited P/L Ac and Balance Sheet as on 31st March 2012, the sources of funds and their bank statement highlighting the source of payment made. Payment of Rs 17,50,000&Rs 4,00,000 was made on 15.11.2011 to Umila Propeties Pvt. Ltd for purchase of 8600 shares through cheque. The source of fund was Rs.17,50,000 received from M/s Oasis Agro Products Ltd on 09.12.2011 of 14, Amenian Street, 1st Floor, Room No.18, Kolkata 700001. &Rs 25,15,741/ received from M/s. MokshAgarbati Company. The company has net worth of Rs.6,65,46,208.58/- as is evident from the balance sheet, This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, the amount was received from the above mentioned companies on account or loan refund and the same was invested for subscribing shares in the assessee company. The assessment or the appellant company pertaining to A. Y. 2012-2013 was completed u/s 143(3) of the Act, a copy of which is enclosed herewith wherein no adverse view relating to loan refund was raised, therefore no disallowance should be made in the hands of the assessee company us 68 of the Act as also the department accepted the amount of loan refund as genuine. Thus, addition made in the hands of the assessee company ought to be deleted.
6. M/s. Lucky Dealmark Private Limted having PAN No AACCL 1305J fled all the documents requisitions made by the AO and the same are enclosed herewith, viz. the allotment advise, Audited PL Ac and Balance Sheet as on 31t March 2012, the sources of funds and their bank statement highlighting the payment made. Payment of Rs 14,00,000 &Rs 8,00, 000 was made on 05.12.2011 &05.03.2012 respectively to Umila Properties Put Ltd for purchase of 8800 shares through Cheque no. 844266 & 844265 respectively. The source of fund was Rs 14,00,000 received from M/s. Skipper 1rade Centre Limited of 14/2, old China bazaar Street, Kolkata-700001 having PAN No.AADCS6719G, Rs.10,00,000 received Mountview Merchants Pvt. Ltd of 100, Aurobindo Sarani Kolkata-700006 having PAN No.AAGCM3451N. The company had net worth of Rs. 2,09,01,487/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, it is worthwhile to note that the present share subscriber company was incorporated during the F.Y. 2011-2012 with Share capital of Rs 9,32,000 & Share Premium of Rs 1,99,68,000/- and the same money raised was invested in the Assessee Company. The assessment of this company pertaining to A. Y. 2012-2013 was completed u/s 143(3) of the Act, a copy of which is enclosed herewith wherein no adverse view about share capital and share premium raised was taken by AO, that is, there was no addition u/s 68 of the Act, therefore no disallowance should be made in the hands of the assessee company u/s 68 of the Act as also the department accepted the share capital and share premium as genuine. Thus, addition made in the hands of the assessee company ought to be deleted. The same view was upheld by the Hon’ble ITAT Kolkata Bench “B”, in the case of M/s C.P. Re-Rollers Ltd Vs D.C.I.T, Cir-1, Durgapur& also by hon’ble Kolkata ITAT in the case of ITO, Ward 12(2), Kolkata Vs M/s, Happy Structure Private Limited reported in 1TA No. 1977/Kol/2016 which has been referred to above.
7. M/s. Nature View Merchants Private Limited having PAN No AACCL1305J filed all the documents requisitions made by the A0 and the same are enclosed herewith, viz. the ITR Acknowledgement for the A.Y. 2012-13, allotment advise, Audited P/L A/c and Balance Sheet as on 318t March 2012 and their bank statement highlighting the payment made. Payment of Rs 30,00,000/- was made on 28.11.2011 to Umila Properties Pvt Ltd for purchase of 12000 shares through cheque. Further, it is indispensable to note that the present share subscriber company was incorporated during the F.Y. 2011-2012 with Share capital of Rs 10,65,5001- & Share Premium of Rs 9,55,84,500/- and the same money raised was invested in the Assessee Company. The company had net worth of Rs. 9,66,50,374.86/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs ie., identity, genuineness and creditworthiness are proved and no addition is called for. Thus, addition made in the hands of the assessee company ought to be deleted.
8. M/s. NitinTradecom Private Limited having PAN No. AADCN2862K filed all the documents asked by the AO and the same are enclosed herewith, viz. the allotment advise, Audited P/L Ac and Balance Sheet as on 31st March 2012, the sources of funds and their bank statement highlighting the payment made. Payment of Rs.10,00,000 was made on 28.11.2011 to Urmila Properties Pvt Ltd for purchase of 4000 shares through cheque no.485601. The source of fund was Rs. 3,00,000 received from M/s Oasis Agro Products Ltd on 09.12.2011 of 14, Armenian Street, 1st Floor, Room No 18,Kolkata 700001 having PAN No. AAACO5857C and Rs. 7,00,000 received from M/s. Divyatrexim Private Limited of Panchwati holiday resorts Vivian valley, Kona expressway, Munshidanga, Howrah-711403 having PAN No. AADCD9006F. The company had net worth of Rs. 2,74,52,756/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, it is worthwhile to note that the present share subscriber has raised its share capital from Rs 9,30,000 to Rs 16,92,000 and received share premium on account of share issued during the year amounting to Rs 1,82,89,769/- and the same money raised was invested in the Assessee Company. The assessment of this company pertaining to A. Y. 2012-2013 was completed u/s 143(3) of the Act, a copy of which is enclosed herewith wherein the said share capital and share premium amount raised during the year which was invested in the assessee company was already added u/s 68 of the Income Tax Act, 1961. Therefore, no disallowance should be made in the hands of the assessee company u/s 68 of the Act as it would amount to double addition on the same amount which is unjustified and unsustainable as per Income Tax Laws. Thus, addition made in the hands of the assessee company ought to be deleted. The same view was upheld by the Hon’ble ITAT Kolkata Bench “B”, in the case of M/s C.P. Re-Rollers Ltd Vs D.C.I.T, Cir-1,Durgapur which was based on identical facts as applicable in the case of the appellant. The Hon’ble Kolkata ITAT while deleting the addition made u/s 68 of the income Tax Act, 1961 held the following.
“Therefore, we are of the view that based on the factual position narrated above and the fact that in case of two companies, Viz Gannet VintradePvt. Ltd and Prism VintradePvt. Ltd, the amount of their share capital and share premium have already been disallowed by assessing officer under section 263/147/143(3) of the Act, therefore no further disallowance is warranted.”
Similar observations were also made in an identical case in DCIT VsMaaAmba Towers in I.T.A No: 1381/Kol/2015 & also in a recent judgment pronounced on 22.05.2019 by Hon’ble Kolkata TTAT “B Bench in the case of ITO, Ward 12(2), Kolkata Vs M/s. Happy Structure Private Limited reported in ITA No. 1977/Kol/2016.
9. M/s. Sarbottam Alloy & Fiscal Pvt. Ltd. having PAN No. AAHCS2686Q filed a confirmation along with all the requisitions made by the AO viz. the copy of their I.T. Acknowledgement along with Audited PIL A/C and Balance Sheet as on 31st March 2012, allotment advise, the sources of funds and their bank statement highlighting the payment made. Payment of Rs 15,00,000&Rs 8,00,000 was made to Umila Properties Pvt Ltd for purchase of 9200 shares through cheque no. 337210 &920162 on 01.09.2011 & 09.09.2011 respectively. The copy of reply to the notice us. 133(6) showing the requisitions made and the above documents are enclosed herewith. The source of fund was Rs. 15,00,000/-received from Haryana Trading Company of 26, W.C. Banerjee Street, Kolkata-700006 having PAN No. BRJPS3571H, Rs 10,00,000 received from Singhal Traders of 26, W.C. Banerjee Street, Kolkata-700006 having PAN No. BBCPP0899P &Rs 21, 10, 000 received from Sarika Traders of 69/3, NimtallaGhat, Kolkata-700006 having PAN No. AKNPA5509R. The company had net worth of Rs. 6,98,04,864.65/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for.
10 M/s. Shreenath Holdings Pvt Ltd. having PAN No. AADCS5887P filed a confirmation along with all the requisitions made by the AO viz. the copy of their I.T. Acknowledgement along with Audited P/L AC and Balance Sheet as on 31st March 2012, allotment advise, the sources of funds and their bank statement highlighting the payment made. Payment of Rs 5,00,000/- , Rs.10,00,000/- & Rs.3,50,000/- was made on 26.08.2011, 15.11.2011& 26.03.2012 respectively to M/s. Umila Properties Pvt Ltd through Cheque No. 878552, 878570& 933366 respectively for purchase of 7400 shares. The copy of reply to the notice u/s. 133(6) showing the requisitions made and the confirmation filed along with the above documents are enclosed herewith. The source of fund was Rs. 5, 00,000 &Rs 5,00,000 received on 26.03.2012 & 26.08.2011 respectively from M/s. Greenways Private Limited of Salichak, Gangtok, Sikkim-737101 having PAN No. AADCG6649M as well as Rs 10,00,000 received on 14.11.2011 from M/s Oasis Agro Products Ltd on 09.12.2011 of 14, Amenian Street, 1st Floor, Room No 18, Kolkata-700001. The company had net worth of Rs. 7,90,41,630.90/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for
11. M/s. Skipper Trade Centre Pvt. Ltd. having PAN No. AADCS6719G filed a confirmation along with all the requisitions made by the AO viz. the copy of their l. T. Acknowledgement along with Audited P/L Ac and Balance Sheet as on 31st March 2012, the sources of funds and their bank statement highlighting the payment made. Payment of Rs 15,00,000 was made on 23.09.2011 to Umila Properties Pvt Ltd through Cheque No. 466737 for purchase of 6000 shares. The copy of reply to the notice u/s. 133(6) showing the requisitions made and the confirmation filed along with the above documents are enclosed herewith. The source of fund was Rs. 15,00,000 received from M/s Deb Enterprises of 15, Ganesh Chand Avenue, Kolkata-700013 on account of advance received on sale of shares. The company had net worth of Rs. 1,48,39,846.35/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, the Ld AO neither disputed the investments made by the company in the assessee company during the F.Y. 2011-2012 nor disputed the advance received against sale of shares during the assessment year under consideration which implies that the Ld AO has rightly accepted the genuinity of transactions. Thus, the allegations levelled against the assessee company by the Ld AO that share capital and share premium raised by it is nothing but rotating its own unaccounted money through various paper companies or entities is baseless and infructuous. Having said that the additions made in the Return income of the assessee company ought to be deleted.
12. M/s. Vilas Agencies Pvt. Ltd. having PAN No. AADCV1927D filed a confirmation along with all the requisitions made by the AO viz. the copy of their I.T. Acknowledgement along with Audited P/L A/c and Balance Sheet as on 31st March 2012, the sources of funds and their bank statement highlighting the payment made, allotment advise. Payment of Rs 10,00,000/- was made to M/s. Urmila Properties Pvt Ltd on 05.09.2011 through Cheque No. 629503 for purchase of 4000 shares. The copy of reply to the notice u/s. 133(6) showing the requisitions made and the confirmation filed along with the above documents are enclosed herewith. The source of fund was Rs. 10,00,000 received on account of loan received from Sri Dalam Chand Dudheria of 13, Burnt Salt Gola Lane, 6th Floor, Howrah-711101 having PAN No. ADPPD3385D. The company had net worth of Rs.1,50,91,364/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, the Ld AO did not disputed the investments made by the company in the assessee company during the F.Y. 2011-2012 which implies that the Ld AO has accepted it as genuine investments. Further, the assessment for the above share subscriber company was completed and intimation u/s 143(1) was received, a copy of which is enclosed for your kind perusal wherein the total income of the assessee is duly accepted. Thus, the allegations levelled against the assessee company by the Ld AO that share capital and share premium raised by it is nothing but rotating its own unaccounted money through various paper companies or entities is baseless and infructuous. Having said that the additions made in the Return income of the assessee company ought to be deleted.
13. M/s. Vinayak Printpack Pvt. Ltd having PAN No AADCv9773D filed all the documents requisitions made by the AO and the same are enclosed herewith, viz. the allotment advise, Audited P/L AAC and Balance Sheet as on 315t March 2012, the sources of funds and their bank statement highlighting the of payment made. Payment of Rs 7,50,000 was made to Umila Properties Pvt Ltd for purchase of 3000 shares through cheque no. 989056. The source of fund was Rs. 20,00,000 received from M/s. DivyaTrexim Pvt Ltd. of Vivian Valley, Apartment No 218, 2nd Floor, Kona, Nibra, Howrah-711403 having PAN No. AADCD9006F. The company had net worth of Rs.98,97,760/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. Further, it is worthwhile to note that the present share subscriber company was incorporated during the F.Y. 20112012 with Share capital of Rs 9,72, 000 & Share Premium of Rs 89,25, 760/-and the same money raised was invested in the Assessee Company. The assessment of this company pertaining to A. Y. 2012-2013 was completed and intimation was received u/s 143(1) of the Act, a copy of which is enclosed for your kind perusal wherein the total income of the assessee is duly accepted. Also, no adverse view regarding the share capital and share premium raised was taken by AO, that is, there was no addition u/s 68 of the Act, therefore no disallowance should be made in the hands of the assessee company u/s 68 of the Act as also the department accepted the share capital and share premium as genuine. Thus, addition made in the hands of the assessee company ought to be deleted. The same view was upheld by the Hon’ble ITAT Kolkata Bench “B”, in the case of M/s C.P. Re- Rollers Ltd Vs D.C.I.T, Cir-1,Durgapur & also by hon’ble Kolkata ITAT in the case of ITO, Ward 12(2), Kolkata Vs. M/s. Happy Structure Private Limited reported in ITA No. 1977/Kol/2016 which has been referred to above.
14. M/s. Vindeep Vyapaar Pvt. Ltd. having PAN No. AAACV8928R filed a confirmation along with all the requisitions made by the AO viz. the copy of their I.T. Acknowledgement along with Audited P/L A/c and Balance Sheet as on 31St March 2012, allotment advise, the sources of funds and their bank statement highlighting the payment made. Payment of Rs.6,00,000/- was made on 03.03.2012 to M/s. Umila Properties Pvt Ltd through Cheque No. 32090412 for purchase of 2400 shares. The copy of reply to the notice u/s. 133(6) and the above mentioned documents are enclosed herewith. The source of fund was amount received from M/s. Sindhu Advisory Services Pvt Ltd. The Company had net worth of Rs. 4,95,64,860/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for.
15. M/s. Vishesh Paper & Finance Pvt. Ltd. having PAN No. AABCV7268F filed a confirmation along with all the requisitions made by the AO viz. the copy of their 1.T. Acknowledgement along with Audited P/L Ac and Balance Sheet as on 31St March 2012, allotment advise, the sources of funds and their bank statement highlighting the payment made. Payment of Rs 20,00,000/- was made on 08.09.2011 to M/s. Umila Properties Pvt Ltd through Cheque No. 857563 for purchase of 8000 shares. The copy of reply to the notice u/s. 133(6) and the above mentioned documents are enclosed herewith. The source of fund was Rs. 20,00,000 from M/s Sarbottam Alloy & Fiscal Pvt Ltd. of Lake Land Country Club, Munshidanga, Nibra, Howrah 711403 having PAN No AAHCS2686Q. The Company had net worth of Rs.1,83,63,379/- as is evident from the balance sheet. This itself shows the creditworthiness of the company. Therefore, all the three limbs i.e., identity, genuineness and creditworthiness are proved and no addition is called for. It is to be noted that while doing the scrutiny assessment of the above company u/s 143(3) of the Act for the A. Y. 2012-2013, a copy of which is enclosed herewith, the Ld. AO did not dispute the investments made by the company in the assessee company during the F.Y. 2011-2012 which implies that the Ld AO has rightly accepted it as genuine investments. Thus, the allegations levelled against the assessee company by the Ld AO that share capital and share premium raised by it is nothing but ploughing back its own unaccounted money through various paper companies or entities is baseless, frivolous and vexatious. Having said that the additions made in the Return income of the assessee company ought to be deleted.
It is stated that the proviso to section 68 i.e. to prove the source of source is applicable from A.Y 2013-14 onwards and cannot be applied retrospectively as per the recent judgement of the Hon’ble Bombay High Court in the case of Gagandeep Infrastructure (P) Ltd. in 394 ITR 680 which held that:
(a) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in CIT v/s. Lovely Exports (P)Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee’s income as unexplained cash credit.
(b) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus, not entertained.
This was also cited by the judgement of Hon’ble Kolkata ITAT in the case of Bidit Financial Management Pvt. Ltd. in I.T.A No: 579/Kol/2017. Therefore, source of source is not necessary to prove by the assessee company.
Further, it is apparent from the assessment order that the AO took up the hearing and in the course of hearing issue notice u/s. 133(6) to all the shareholders. Reply was duly given by all the share subscriber companies in response to the notices issued to them u/s 133(6) of the Act. The AO also alleged to have issued notice u/s. 131 to all the subscriber companies vide para 12 of the order which according to him have been returned unserved by postal authorities. It is surprising note that when the notice u/s. 133(6) could be served, how the notices u/s. 131 could be served. The AO there after did not proceed further after all the documents namely the Audited Financial Statements, bank statements, acknowledgement of filing of return by the shareholders, and their PAN details were filed before him. The AO made up his mind on the basis of his presumption that the share capital raised by some other companies was not genuine. The action of the AO was premeditated and he was predetermined to make the addition. Addition based on suspicions and surmises cannot be made as was upheld by the Hon’ble Apex Court in the case of Omar Salay Mohamed Saitvs CIT. It is submitted that the assessee duly discharged the onus to prove the genuineness of the amount received, but the AO failed to discharge the onus that was shifted on him.
It is reiterated that the AO did not make any enquiry from the bank accounts of the share subscribers or from their assessment records and did not proceed further when the assessee filed the details and evidences referred to earlier. If the AO do not proceed further, the issue is covered by the judgement of the Supreme Court in the case of Orissa Corporation reported in 159 ITR pages 78.
The assessee also relies on the following other judgments:
In Lovely Exports 216 CTR 195 it was held that once the identity of the shareholders have been established but still the Commissioner of Income Tax is of different view that they are bogus shareholders, yet the share subscription cannot be taxed u/s 68 in the books of the assessee.
The High Court of Delhi in CIT v. Dwarkadhish Investment (P) Ltd. 194 Taxman 43 (Delhi) observed that, “In any matter, the onus of proof is not a static one. Though in Section 68 proceedings, the initial burden of proof lies on the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke Section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the ‘source of source’.
Where the assessee in support of transaction of receipt of share application money brought on record various documents such as name and addresses of the share applicants, their confirmatory letter, PAN No. etc., the said transaction is to be considered as genuine as the assessee has furnished all the documents to prove the identity of the shareholders and also the genuineness of the transaction by showing the entries in the books through account payee cheques addition cannot be made as was held in the case of Gangeshwari Metal (P) Ltd. 30 Taxmann.com 328 Delhi. In the case CIT v Down Town Hospitals Pvt Ltd. 267 ITR 439 (Gauhati), the hon’ble court held that:
In the instant case, the Tribunal found that the identities of the creditors had been established and all essential particulars were furnished by the assessee. The assessee had discharged its burden to the satisfaction of the Tribunal. There was fact no Scope for re-appreciation of the materials on record as the High Court was required to tender its opinion on the question of law on the given facts and circumstances of the case. Therefore, the Assessing Officer was wrong in adding the aforesaid amount to the income of the assessee. No opinion contrary to the views expressed by the Tribunal in directing deletion of the aforesaid sum was plausible in the given facts of the instant case.
Not only that there were number of judgments on the issue that when the identity of the share capital contributors was not disputed, no addition can be made in the hands of the company receiving subscriptions. Even the Coordinate bench of the ITAT in the case of ChichingaFatika Cold Storage Pvt Ltd, Kol. ITA No.1279/Kol/2008 dated 3rd March, 2009 which was even an ex parte order accepted the share capital on the ground that when the identity of the contributors was not disputed, the same cannot be added. Reliance is also placed on various judgment which includes Sancheti Projects Pvt Limited (Kolkata High Court) in ITA No.140 of 2011 (G.A. 1574 of 2011), M/s. Hotel Luxor Pvt Ltd Vs. ACIT, Circle-1, Asansol, in ITA No. 813-815/Kol/2004 dated 6.1.2006, M/s. P.H.U Enterprise Pvt Ltd. Vs. ACIT, Circle-1, Asansol, in IT(SS)A No. 37/Kol/2008 (Block Assessment) dated 3.3.2009. Needless to mention that there are hundreds of judgements following the judgements of Lovely Exports. The Court in CIT V. Victor Electrodes Ltd.329 ITR 271 held that Share Application Money taken from private companies does not attract sec 68 if sufficient proofs such as share allotment register, bank account copies, PAN cards of applicants, Income tax return of applicants are made available. The question of identity fails into oblivion, if the transaction is through account payee cheques.
It is submitted that the court in CIT v. Value Capital Services Pvt. Ltd. 307 ITR 334 held that the additional burden was on the Department to show that even if share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such findings, addition could not be made in the income of the assessee u/s 68 of the Act. In CIT v. Arunananda Textiles Pvt. Ltd. 2010(3) TMI 24 the Kamataka HC went to the extent of observing that it was not for the assessee to place material before the Assessing Officer in regard to creditworthiness of the shareholders. Once the company had given the addresses of the shareholders and their identity was not in dispute, the cash credit can be taken as proved. The Court in CIT v. Oasis Hospitalities Pvt. Ltd. 2011 Ind law Delhi 1083 held that the genuineness of the transaction is to be demonstrated by showing that the assessee had, in fact, received money from the said shareholder and it came from the coffers from that very shareholder. It held that when the money is received by cheque or is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be the copies of the shareholders register, share application forms share transfer register, etc. Further, it is stated that whenever a company invites applications for allotment of shares from different applicants, there is no procedure contemplated to find out the genuineness of the address or the genuinity of the applicants before allotting the shares.
The Court in CIT v. Expo Globe India Ltd. 2012 (7) TMl 802 has observed that the share application money or the source of the share application money had been satisfactorily explained on the basis of income tax returns, balance sheets, ROC particulars and bank account statements. Further, in CIT v. Dolphin Canpack Ltd. 283 ITR 190 the Court observed that the assessed had disclosed to the AO not only the names and the particulars of the subscribers of the shares but also their bank accounts and the PAN issued by the Income- Tax Department. Superadded to all this was the fact that the amount received by the company was all by way of cheques which was sufficient to discharge the onus that lay upon the assessed.
The Court in A-One Housing Complex Ltd. v. ITO 110 ITD 361 where the share capital and the share application money was liable to be assessed u/sec 68 and the notices u/sec 133(6) of the Act were issued to all the parties but only three parties responded while the Assessee neither replied nor produced all the parties as requested by the Department, the Court held that
“Mere non-compliance of notice/summon would not lead to the inference that onus has not been discharged.”
In the case of Jamunadas Gupta (ITA NO 20 of 2011 GA No. 289 of 2011 decided on 15th Feb 2011) the Hon’ble Calcutta High Court has held that the assessee filed the confirmation letter, copies of balance sheet and audit reports and sources of loan given by the creditors, the onus of the assessee was discharged. Similar view has been taken by Hon’ble Calcutta High Court in the case of Tirupati Carries (ITA No. 248 of 2301 GA No. 2608 of 2011 decided on 2.9.2011). The Honb’le Calcutta High Court has taken similar view and has even extended the view that so long the transaction has been accepted by the AO of the creditor no addition can be made in the hands of the assessee and the assessee shall be treated to have discharged his onus to prove the credit as has been held in the case of Data Ware Private Ltd., in IT No. 263 of 2011 GA No. 2856 of 2011.
Recently the Delhi High Court in the case of Five Vision Promoters Pvt Ld. (decided on 27.11.2015) has held vide para 38 and 43 of the judgement that when the assessee duly discharged his primary onus the amount of share capital cannot be added in the hands of the assessee. The Delhi High Court in the case of Vrindavan Farms Pvt Ld. (decided on 12.8.2015) has also taken similar view. Yet similar view has been taken by ITAT Mumbai A Bench on 30.11.2015 in the case of Superlite Construction P Ltd. In ITA No.3645/Mumbai/2014. Reference may also be made to the recent decisions in the case of Neelkanth (E BenchDelhi) in ITA No. 2821/D/2009 dated 1.4.2015 Madras High Court in the case of Pranav Foundation Ltd. reported in 117 DTR 227 and other similar judgments. Recently it has been held that when the assessee filed all the evidences no addition called for. Kindly refer to 223 taxman 110 in the case of Veer leasing and finance P Ltd.
It is further submitted that the AO has mainly added the amount for nonappearance of the directors when the appearance of directors has nothing to do with the genuinity of the cash credit u/s 68 as has been held in the case of Cygnus Developer Pvt Ltd by Kolkata Bench of ITAT Wherein the Hon’ble ITAT has relied on the judgment of Allahabad High Court and coordinate Bench. Therefore the addition made on the said basis is also not in accordance with law. The AO even otherwise could have made independent enquiries by down loading the information with regard to the creditworthiness of the share applicants which the assessee has been able to do. It is submitted that section 68 nowhere speaks of production of the creditor for acceptance of the cash credit. IT only requires that the assessee has to prove the nature and source of the credit. The assessee has proved that the amount was received towards the share application and the source as well as the source of source was also proved which is apparent from the replies given by the share holders. In any case, there was no legal obligation on the assessee to produce directors of the applicant companies and the same cannot be a ground for making addition u/s 68 before the AO as has been held by the Hon’ble Allahabad High Court in the case of Rajkumar Agarwala and ITAT in the case of Devendra Kumar Sant.
Further, recently in the case of ITO vs Wiz-Tech Solutions Pvt. Ltd, ITAT Kolkata has held the following:
“Addition cannot be made on the ground that the directors of the share subscribers did not turn up before the AO. The assessee can be required to prove only such facts which are in his knowledge. 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, the onus shifts to AO to subscriber. If the assessee has discharged its onus to prove identity, creditworthiness & genuineness of the share applicants, the onus shifts to AO to disprove the documents furnished by assessee. In absence of any investigation, much less gathering of evidence by the AO, an addition cannot be sustained merely based on inferences drawn by circumstance.”
It is further, submitted that none of the Judgements cited by the Ld. AO are applicable on the facts of this case. In the Judgement cited by the AO the notice issued by the AO was not served and /or the parties did not confirm the transaction. In view of the above the addition may please be deleted.
Further, it is stated that an integral part of additions u/s 68 is that it shall be made after obtaining enough evidence about the genuineness and creditworthiness of the investors to share capital of the assessee. However, in this case the Ld. AO has not issued any summons to such parties, on the basis of which he can complete the assessment. In the absence of such vital information, no addition shall be made u/s 68 as the facts of the case were not known to the Ld. AO. All the documents to prove the identity, genuineness and creditworthiness have been enclosed herewith to prove that such a transaction was genuine.
Also, the Ld AO in its assessment order has stated that assessee had failed to provide any justification for quantum of premium and thus held that it is a case of money laundering and overlooking all evidences filed in Support of the transaction had added the entire share capital issued along with share premium u/s 68. In rebuttal of the same, we would like to draw your attention to the judgment of Hon’ble Madhya Pradesh High Court in the case of Pr. CIT vs. Chain House International (P) Ltd. [2018] (98 taxmann.com 47) wherein it was held that issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. Relevant extract of the judgement is reproduced below:
“Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates is fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. [Para 52] Once the genuineness, creditworthiness and identity are established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case. [Para 53] There is no dispute about the receipt of funds through banking channel nor there is any dispute about the identity, creditworthiness and genuineness of the investors and, therefore, the same has been established beyond any doubt and there should not have been any question or dispute about premium paid by the investors therefore, unless there is a limitation put by the law on the amount of premium, the transaction should not be questioned merely because the assessing authority thinks that the investor could have managed by paying a lesser amount as Share Premium as a prudent businessman. The test of prudence by substituting its own view in place of the businessman’s has not been approved by the Supreme Court. [Para 54]”.
Again, in CIT vs. Anshika Consultants Pvt. Ltd. (62 taxmann.com 192), the A.O had added the share application monies treating it to be their unaccounted monies routed through accommodation entries since the shares were issued at a high premium. The Hon’ble Delhi High Court did not agree with this contention put forth by the Revenue, by observing as under:
“Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants’ particulars were available with the AO in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the AO did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee’s account to the share applicants’ account. As held concurrently by the CIT (Appeals) and the ITAT, these conclusions were clearly baseless and false. This Court is constrained to observe that the AO utterly failed ITA No. 1977/Kol/2016 M/s Happy Structure Pvt. Ltd. to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents.
We also rely on the judgment of the Coordinate Bench of ITAT Kolkata in the case of M/s Jagannath Banwarilal Texofabs in ITA No.1762/Kol/2016, for A.Y 2012-13, order dated 26.10.2018 where based on same facts, and identical and common grounds and coordinate Bench deleted the addition made u/s 68 of the Income Tax Act, 1961. Thus, in view of the above submissions, documents enclosed and judgements cited it is requested before your honour to direct deleting the addition of Rs.2,53,00,000/- made unjustifiably in the total income of the appellant.
6. The ld. D/R on the other hand, has relied upon the observations made by the AO. He has further relied upon the impugned order of the ld. CIT(A).
7. We have considered the rival submissions of the ld. representatives of the parties and also gone through the record. In this case a perusal of the Assessment Order would reveal that the AO has duly acknowledged the receipt of the relevant documents/evidences not only from the assessee, but also from the subscriber companies. However, he insisted for personal appearance of the directors of the subscriber companies without even going through and discussing about the discrepancies, if any, in the documents furnished by the assessee as well as by the share subscriber companies to prove the identity and creditworthiness of the subscribers and the genuineness of the transaction. The AO has simply noted in para 4 of the Assessment order, “the assessee company remains ready with the papers like memorandum & articles of Association, Form-2, Form-5 etc. filed before ROC for raising share capital and issuance, share application by the allottee companies, share allotment advices, PAN card, Form-18 etc. in support of registered address of the assessee companies and allottee companies as well, and resolution book in support of board meetings held, bank statement of both assessee company and the allottee companies etc.. ..”. . However, we fail to understand that without examining those documents how could the AO came to a conclusion that the transactions in question were not genuine. The AO has not pointed out in the Assessment Order as to what further enquiries he wanted to make from the directors of the subscribers to insist for their personal presence.
The Assessee in this case, as reproduced above, as explained about the identity, creditworthiness and financials etc. of each of the share subscriber company individually. However, we note that in the assessment order that the AO has not even mentioned the names of the share subscriber companies and even has not mentioned a word as to which of the share subscriber company or the corresponding transaction thereof was not genuine and on what grounds. The AO, in our view, could have taken an adverse inference, only if, he would have pointed out the discrepancies or insufficiency in the evidences and details received in his office and pointed out as to on what account further investigation was needed by way of recording of statement of the directors of the subscriber companies. Even if the directors of the subscriber companies have not come personally in response to the summons issued by the AO, in our view, adverse inference cannot be taken against the assessee solely on this ground as it is not under control of the assessee to compel the personal presence of the directors of the shareholders before the AO.
In this case, as detailed in the written submissions of the assessee, the assessee had duly submitted details and evidences to prove the identity and creditworthiness of each of the share subscribers separately. However, the ld. AO, in the impugned Assessment Order has not recorded any peculiar facts of circumstance which would suggest that the assessee had routed his own money through the above stated subscribers. The AO has not brought any material or evidence on the file to show that these share applicants were fictitious persons. The AO has passed the impugned Assessment Order in a hurried manner even without pointing out any defect or discrepancy in the evidences and details furnished by the assessee.
7.1. It has to be further noted that though powers of the ld. CIT(A) are co-terminus with the AO and the ld. CIT(A) had all the plenary powers as that of the AO. The Hon’ble Delhi High Court in the case of Commissioner of Income-tax vs. Manish Build Well (P.) Ltd. reported in [2011] 16 taxmann.com 27 (Delhi)has held that the CIT(A) is statutory first appellate authority and has independent power of calling for information and examination of evidences and possesses co-terminus power of assessment apart from appellate powers. However, a perusal of the impugned order of the ld. CIT(A) shows that the ld. CIT(A) has not discussed anything about the material facts of the case. He has not pointed out any defect and discrepancy in the evidences and details furnished by the assessee but simply cited certain case laws even without pointing out as to how these case laws were applicable to the facts and circumstances of this case. The order of the ld. CIT(A) is a non-speaking order. By simply reproducing the contents of the case laws without discussing about their application on the facts of the case, in our view, would not make the order of the ld. CIT(A) justifiable speaking order and hence, the same is not sustainable as per law.
7.2. In view of the above discussion we do not find justification on the part of the lower authorities in making the impugned additions and the same are accordingly ordered to be deleted.
8. The appeal of the assessee stands allowed.
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