THE DY. CIT 4(1), INDORE vs. M/S. VIJAYSHRI PACKAGING LTD. , INDORE

PER MANISH BORAD, AM.

The above captioned appeal and Cross Objection filed at the

instance of revenue and assessee respectively pertaining to

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

Assessment Year 2015-16 is directed against the order of

Commissioner of Income Tax (Appeals)-III (in short ‘Ld.CIT’], Indore

dated 30.03.2019 which is arising out of the order u/s 143(3) of the

Income Tax Act 1961(In short the ‘Act’) dated 28.12.2017, framed

by ACIT-4(1), Indore.

1.Whether the Ld.(CIT(A) erred in grossly in adjudicating the creditworthiness of the subscriber entities and the genuineness of the transactions, and in not appreciating the fact that the ultimate source o! funds utilized to subscribe to the shares of the assessee company by the subscriber entities were securities premium received at a substantial premium during their existence in West Bengal despite being paper entities with no business activities, complete lack of worth in terms of financial performance, and no assets to justify receipt of such large share premium 2.Whether the Ld. CIT(A) erred grossly in adjudicating the creditworthiness of the subscriber HUF entity and the genuineness of the transactions, and in not appreciating the I fact that the subscriber HUF entity failed to explain the source of source, etc. of the funds utilized for investing in the assessee company. 3.Whether the Ld. CITCA) erred grossly in appreciating the significance of the Proviso to Section 68 of the IT Act, 1961 which states that the explanation of the creditor, especially regarding her creditworthiness, and the genuineness of the transactions, need to be, "in the opinion of the Assessing Officer, satisfactory", which it wasn't found to be in this case.

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

as Commissioner of Income-Tax vs. Durga Prasad More (214 ITR 801), Sumati Dayal vs. Commissioner of Income-tax 1995 AIR 2109, McDowell & Co. Ltd. Vs the Commercial Tax Officer 1986 AIR 649, and NRA Iron & Steel Pvt. Ltd vs PCIT(2019),and their applicability in the case on hand.

narrated by the Ld. Counsel for the assessee are that the assessee

is a limited company engaged in the business of manufacturing of

packaging items. E-return of income was filed on 31.10.2015 3

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

declaring income at Rs. 81,04,162/-. Case was selected for limited

scrutiny through Computer Assess Scrutiny System(CASS) followed

by serving of notices u/s 143(2) & 142(1) of the Act. Necessary

information was called which was duly submitted. The details filed

were examined by the assessing officer. During the year assessee

received Rs.3,47,01,225/- towards share capital and share

premium from three subscribers. He was satisfied with the

valuation of the share premium charged by the assessee and

observed that the provisions of section 56(1)(viib) are not applicable

on the alleged transaction. However, Ld. Assessing Officer was not

satisfied with the genuineness of the transaction and

creditworthiness of the subscribers as understood within the

meaning of the provisions of section 68 of the Act. Ld. Assessing

Officer completed the assessment after making addition for the

alleged bogus share premium/share capital u/s 68 of the Act at Rs.

3,47,01,225/- and assessed the income at Rs.4,28,05,387/-. The

addition of bogus share premium/share capital u/s 68 of the Act

was made towards the following amount:

Name No. of shares subscribed Amount paid @ Rs.75/- per share 4

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

Pritesh Jain HUF 93,333 69,99,975 Armaan Barter Pvt. Ltd. 76,000 57,00,000 Pushpak Fincon Pvt. Ltd. 2,93,350 2,20,01,250 Total 3,47,01,225/-

filed detailed submissions along with giving trail of transaction so

as to prove source of share of the share capital and capital premium

received. Details were also filed for the two shareholders which were

Private Limited Companies and were existing shareholders and 3rd

investor namely Pritesh Jain HUF was relative of the assessee

having sufficient financial sources. Reliance was also placed on

plethora of judgments. Ld. CIT(A) after considering the same and

analysing the facts in the light of the settled judicial precedence was

of the view that Ld. Assessing Officer was not justified in making

the addition u/s 68 of the Act at Rs.3,47,01,225/-. Thus, on merit

Ld. CIT(A) allowed the grounds raised by the assessee. However,

assessee could not succeed on the legal grounds challenging the

validity of assessment proceedings on the ground that the assessing

officer has exceeded his jurisdiction and has gone beyond the

powers provided for conducting the limited scrutiny as he did not

took necessary approval from the concerned authorities.

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

CIT(A) on merits deleting the additions u/s 68 of the Act and the

assessee has raised cross objection with regard to the dismissal of

legal ground by Ld. CIT(A).

We will first take up Revenue’s appeal challenging the deletion

of addition u/s 68 of the Act at Rs.3,47,01,225/-.

Assessing officer and also referred to the paper book filed on

10.12.2020 which merely contained copy of the assessment order

and copy of the impugned order.

detailed finding of the Ld. CIT(A) and the decisions referred therein

also took through paper book filed on 02.11.2020 running from

page no.1 to 327 which contained audited financial statement of the

assessee company, valuation of shares as per section 56(2)(viib) of

the Act, various documents to prove the creditworthiness of the

three investors and genuineness of the transactions and the written

submissions filed before First Appellate Authority. Ld. Counsel for

the assessee also referred through the written synopsis contained 6

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

details of the corporate subscriber and the 3rd subscriber Pritesh

Jain HUF, details of trail of transaction to prove the source of share

of the funds used for subscribing share capital/share premium and

also referred to various instances wherein adverse belief or opinion

has been formed by the Ld. Assessing Officer which are neither as

per facts of the case nor they have been properly established. A

summary of all such observations and the assessee’s response are

tabulated as under:

Para No. & Page AO’s Observations Assessee’s response No. of order Para 2.6 – Page 6 Route adopted by the assessee The entire amount received from for ensuring the inflow of its the share applicants was already unaccounted funds back into appearing in the books of the books. assessee and its sister concerns. All such concerns are regularly assessed to tax and there was no unaccounted fund. All the subscriber have already invested in the assessee in the earlier years. Para 4.2 – Page 10 Shri Jain & Family chose to Shri Rajendra Jain & Family have invest in a non descript invested in the company during company situated in far flung the FY 2008-09 looking to the fact Kolkata with no business that the company was a activity or future prospects, registered NBFC which is that too at such a high instrumental in inter group movement of funds. premium, remained a mystery. Shri Rajendra Jain & Family has invested in the shares of the company and therefore there appears to be no reason to consider the amount as unaccounted funds. Para 4.3 – Page 11 Only a paper company which The company is a registered has been running solely for NBFC whose major source of 7

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

the purpose of laundering the income is interest on Loans & promoter’s unaccounted wealth Advances. No fresh funds have and routing his unaccounted been received in the company money back into the books of since last 7-8 years and therefore no amount was brought in books. the assessee company.

No evidence / information was given as to which money was laundered or how it was laundered. Para 4.8 – Page 13 Exist entirely for the purpose of The rationale behind arriving at providing accommodation such conclusion was not given. entries From perusal of the computation interest income from the assessee, Pritesh Jain & Accrual Estate & Developers (a related concern).

The share applicant is a HUF of the director of the assessee. Only source of income was interest income from associated concerns and capital gain on which due taxes have been paid and therefore there is no undisclosed income. Para 5.1 – Page 14 Simply with the intention of The amounts have been invested routing unaccounted funds by Shri Rajendra Jain and family back into the books of the in earlier years and no funds assesse company were received from other avenues and therefore there are no unaccounted funds.

The entire funds of the share applicant concerns were already appearing in the books of assessee and sister concern in the nature of unsecured loan and only for meeting the debt equity ratio for availing bank finance for expansion, the nomenclature was changed from unsecured loan to capital. Para 5.3 – Page 15 It is the assessee’s Proviso to Section 68 requires responsibility and onus to explanation and establishment of explain not just the source of source of source and does not funds, but the source of source, travels beyond that point. In the the source of source of source instance case the transactions and so on have been explained and source has been explained for more than 8

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

three sources for which no adverse observation founds. The immediate source and its source have been examined by the AO and have been accepted in Para 5.4 and 5.7

The only contention of the Ld. AO was investment made by Shri Rajendra Jain and Family in the companies based at Kolkata during the FY 07-08. If any cognizance of the investment is required to be taken, it is required to be taken in the hands of the Shri Rajendra Jain & family and that too in the FY 2007-08 and not in the hands of the assessee in the current year. Para 5.4 – Page 15 Source of this money coming The query was not raised to the from Sarthak Developers was assessee during the assessment proceedings. also not properly explained by the assessee company and the identity, genuineness and The amount received from Sarthak creditworthiness of the was repayment of loan given to transaction was also not the party on 21.07.14 for an established. amount of Rs.45,00,000/- on which interest of Rs.2,70,000/- has been charged, TDS of Rs.27,000/- has been deducted and reflected in the computation of income. Establishing identity, genuineness and creditworthiness is not applicable as transaction is repayment of loan given and not loan taken. Para 5.4 – Page 16 Thus, Proviso to Section 68 is The Ld. AO has very categorically clear: the creditworthiness and stated that the transactions needs genuineness of the subscriber to be tested within the vigor of entities needs to be proved in Sec.68 during the year in which transaction is executed. the year under consideration, the year in which they are paying that money. The assessee and the share subscriber have furnished the source of money, source of source of money and source of source of source of money for more than three transactions and other details for the year under 9

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

consideration.

Despite of the above, the Ld. AO is seeking rationale behind investment by made Shri Rajendra Jain & family in these companies way back in FY 07-08 which is not required by the Law. Para 5.5 – Page 17 Further apprehension, such as The observation made is patently Rs.90 lakh given out as wrong and contrary to the actual state. advance for purchase of property. What was this purchase of property? No Detail of the transaction for explanation or corroborative advance of the property was evidence was provided at any furnished during the assessment stage proceedings vide reply dt. 27.12.17 in Para No.2.11 (appearing at Page no.84 of paper book). Besides the written explanation, document for booking the property as well as cancellation agreement were also furnished which have been completely overlooked. Para 5.7 – Page 17 Armaan had also received The query was not raised to the Rs.55 Lakhs from Accrual assessee during the assessment proceedings. earlier in the year, which was then given out to an entity called Silver Sky Park. None of Even otherwise from the perusal these transaction/ source of of the bank statement of Armaan fund/ fund flows have been appearing at Page No.200 of explained. paper book it is evident that the amount of Rs.50 Lacs was given to Silver Sky Park on 07.10.14 by Armaan which was returned back on 13.01.15. Para 5.11 – page Merely outlined the flow of The HUF lent the amount to R R 20 funds from Vijayshri to RR Packaging in earlier year and the Packaging to the HUF back to said loan was repaid by RR Vijayshri. But there was no Packaging to the HUF during this mention or detail of the source year. of Rs.76 Lakh lent by the HUF to RR Packaging Para 5.12 – Page Finally, when we look at the The Ld. AO in very clear and in 21 source, source of source, and unambiguous terms has stated so on, of the funds made that not only the source of the available to Pushpak Fincon, funds, but the source of source of fund has also been explained. Armaan Barter and Pritesh Jain HUF, they can all be 10

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

traced eventually to the funds It has also been accepted that the of the assessee company or its funds were lying in the assessee sister concern M/s. Vijayshri and the sister concern. Note Book Pvt. Ltd. However it is not clear how such funds were available to these companies Para 5.12 – Page A long trail has been suggested The observation is wrong and not as per the facts of the case. 21 during the course of the assessment proceedings regarding funds flowing to the Details in respect of transaction of assessee company and to land was explained vide reply dt. Vijasyhri Note Books through 29.12.17 which is appearing at several layers, originally linked page no.79 of paper book. It was to sale of same land. But this explained that the family claims were not substantiated members had earned a capital gain of Rs.3,40,31,055/- on sale of land and the amount so earned and received during the year was utilized for making advances to various group entities. Therefore, this allegation of the Learned AO is not correct.

before us and carefully gone through the decisions referred by the

lower authorities as well as the assessee in its written submissions

filed before the Ld. CIT(A). The revenue’s sole grievance is against

the finding of Ld. CIT(A) deleting the addition of Rs. 3,47,01,225/-

made by the assessing officer invoking the provisions of section 68

of the Act with regard to the cash credit received during the year in

the form of equity share capital and share premium received from

following parties:

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

Name No. of shares subscribed Amount paid @ Rs.75/- per share Pritesh Jain HUF 93,333 69,99,975 Armaan Barter Pvt. Ltd. 76,000 57,00,000 Pushpak Fincon Pvt. Ltd. 2,93,350 2,20,01,250 Total 3,47,01,225/-

three subscribers including their address, Permanent Account No.,

Audited financial Statement, Bank Statement, sale of transaction to

prove source of share, information that company subscribers were

existing shareholders and the 3rd subscriber namely Pritesh Jain is

a relative of one of the director of Assessee Company. Assessee also

placed reliance on various decisions filed before first appellate

authority who after considering all the above referred facts and the

settled judicial precedence, deleted the impugned addition

observing as under:

7.0 Ground No. 2 & 3: Addition on account of share capital and share premium of Rs.3,47,Ol,225 /- received by considering it as non genuine u/s 68 of the Act. 7.1 I have considered the entire facts and circumstances of the case and carefully considered the finding of A.O., rival submission of the appellant and evidence on record. 7.2 During the year under consideration the appellant co has allotted 462683 equity shares of Rs. 10 each at a premium of Rs. 65.00 per share to the 3 parties and received total share premium of Rs. 3,00,74,295/-, details of which are reproduced on page 4 and 5 of the assessment order. For the detailed observations made in the assessment order the AO treated the Same as unexplained cash credit and made 12

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

addition u/s 68. However, in my considered view the addition so- made cannot be sustained and is directed to be deleted for the detailed reasons discussed below. 7.3 Shares have been issued to group concems and existing shareholders- The appellant company had issued shares to. various persons under the scheme of amalgamation approved by the Honorable High Court of Kolkatta and Indore. Apart from the shares so issued, the appellant company had also issued shares to three share applicants viz M/s Armaan Barter Pvt. Ltd., Pushpak Fincon Pvt. Ltd. and Pritesh Jain HUF during the year. M/s. Armaan Barter Pvt. Ltd. & Pushpak Fincon Pvt. Ltd. are companies in which director of the appe1lant company are also director. Further, Pritesh Jain HUF, is HUF of Pritesh Jain, who is also one of the director of the appellant company· The two companies which have subscribed to the share application viz M/s. Armaan Barter Pvt. Ltd., Pushpak Pincon Pvt, Ltd. were already the share holders of the appellant company before the issuance of fresh shares under consideration. Further, Pritesh Jain is a director and shareholder of the appellant company and has subscribed to the share application of the appellant company in the capacity of Karta of Pritesh Jain HUF. None of the party from whom the share application money was received was a third party or an outsider. These facts are undisputed. 7.4 Identity of the share applicant established - All the share applicants are part of the group of the appellant which fact has been stated by the appellant company during the assessment proceedings and has been well accepted by the AO. Two out of the three share applicants were existing shareholders of the appellant and the third is a HUF of one of the director of the appellant. On the perusal of the submission, it is evident that during the assessment proceedings, the AO has issued summons to the above share applicants, who appeared and gave their statement and confirmed the transactions with the appellant company. 7.5 The identity of the share applicants was also established through the PAN card, income tax return and the balance sheet of the share applicant as on 31.03.14 & 31.03.15. Copies of master status of companies with Registrar of Companies was also furnished which establishes that the companies were in existence and are represented by Mr. Rajendra .Iain and Mr. Pritesh Jain, directors of the appellant company. Various other documents like Memorandum of Association, Articles of Association, 13

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

bank statements reflecting movement of funds, order passed by the Regional Director, Company Law Board West Bengal for shifting of the registered office of the share applicant companies to the state of Madhya Pradesh, certificate of registration as Non-Banking Finance Company (NBFC) issued by the Reserve Bank of lndia in case of M/s. Pushpak Fincon Pvt. Ltd. and the statutory register as required to be maintained under the Companies Act were furnished which establishes that the share applicant are in existence for a considerable time period and are operational. 7.6 Creditworthiness of the share applicant - The various share applicants who have subscribed to the share capital of the appellant company were capable of doing so, is established through their respective balance sheet and income tax return. The salient factors which establish the creditworthiness of the parties are as under: a)Armaan Barter Pvt. Ltd. - The company was incorporated in March 2007 and was taken over by Shri Rajendra Jain, director of the appellant company and his family members during the FY 08-09. On the perusal of the audited balance sheet of the company as on 31.03.2014, it is seen that the company had subscribed capital of Rs.11,00,000/- and accumulated reserve of Rs.89,37,394/- i.e. a total funds of Rs.1,OO,37,394/-. Out of the total net owned funds of Rs.100.37 Lacs, at the beginning of this year, the company had already invested in the share capital of the appellant company a sum of Rs.42.00 Lacs and an amount of Rs.SS.99 Lacs was invested in M/ s. Accrual Estate & Developers, a firm in which the company is a partner. In order to further subscribe to the share capital of the appellant company, the investor had reduced its investment in the partnership firm M/s. Accrual Estate & Developers and withdrew an amount of Rs.57 Lacs and had utilised the same for making investment in the appellant. Thus, at the end of the year out of the total funds of Rs.I00.07 Lacs, an amount of Rs.97 Lacs was invested in share capital of the appellant firm. The company is an investment arm and the only activity undertaken is investment in the group concern. The appellant has also emphasized the fact that this share applicant has not introduced any fresh funds either in the form of share capital or in the form of loans during last ten years, which fact further substantiate the creditworthiness of the share applicant. b)Pushpak Fincon Pvt. Ltd. - The company was incorporated in March 1993 and was taken over by Shri Rajendra Jain, 14

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

director of the appellant company and his family members during the FY 08-09. The company is registered as Non- Banking Finance Company (NBFC) with Reserve Bank of India which has acknowledged the change of management. Various documents have been filed which establishes that Shri Rajendra Jain and his family members have been controlling the company since taking over the company. On the perusal of the audited balance sheet of the company as on 31.03.2014, it is seen that the company had subscribed capital of Rs.11,OO,OOO/- and accumulated reserve of Rs.3,60,09,238/- i.e. a total funds of Rs.4,29,69,238/-. Out of the total funds of Rs.429.69. Lacs, at the beginning of the year the company had already invested in the share capital of the appellant company a sum of Rs.120.00 Lacs and a sum of Rs.92 Lacs in the share capital of M/s, Vijayshri Note Books M. Ltd. and also an amount of Rs.51.11 Lacs was invested in M/s. Accrual Estate. & Developers and M/ s. Shri Raj Enterprises, partnership firms in which the company is a partner. Further, the company has given an amount of Rs.159.69 Lacs as loans and advance on which interest income has been earned. For the FY 13-14, the company had earned an income of Rs.6,59,148/- before tax. In order to subscribe to the share application of the appellant company, the investor had reduced the investment in the partnership firm and funds given on loans by Rs.220.01 Lacs and had utilised the same for. making investment in the appellant company. The company has earned an income of Rs.4,70,331/before tax for the year under consideration. The appellant has also emphasized the fact that this share applicant has also not introduced any fresh funds either in the form of share capital or in the form of loans during last ten years, which fact further substantiate the creditworthiness of the share applicant. c)Pritesh Jain HUF - Copy of income tax return and computation of income of the share applicant for the AY 15- 16 has been furnished. On the perusal of the computation of income, it is seen that it has earned interest income of Rs.14,57,177/- for the year under consideration without any interest outgo. It has also earned long term capital gains of Rs. 37,40,741 j -. This share applicant is the HUF of the director of the appellant and the appellant stated that it is regularly filing its return of income. Considering these facts, the creditworthiness of this share applicant also stands established. 7.7 Apart from the balance sheet of the two share applicant 15

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

companies and income tax returns of all the share applicants, the appellant company has furnished copies of bank statement of all the subscribers, from the perusal of which it is reflected that the funds have been flown from the associate concerns and there was no fresh funds received from any third party by these investors for making investment in the appellant. Further there were no instances of cash deposit in the bank. 7.8 Transaction established as genuine - The appellant company has furnished a pictorial chart as well as a tabular chart of the movement of funds to and from the share applicant~ which has also been abstracted by the AO in his assessment order and accepted as well which reflects that the amount which were utilized for. subscribing to the share application was already lying with the appellant company or its sister concern M/s. Vijayshri Note Books Pvt. Ltd. The appellant company and both the impugned share holder companies were partner in M/s. Accrual Estate & Developers and M/s. Raj Enterprises. These firms are under the same management, in which the surplus funds available with the share applicant companies were invested earlier as their capital. The partnership firm in earlier year had given funds to the appellant company (which is also a partner in the firm] and was reflected as overdrawn amount from the firm in the audited accounts of the appellant company. The appellant company· was in the process of expansion and in order to meet the requirement of the banks for increasing the share capital, strengthening the debt equity ratio, the appellant company returned the funds back to the firm, which in turn returned the capital investment made by its partners i.e. the subscriber companies. These companies in turn invested in the share application of the appellant company. 7.9 Copies of ledger account of various concerns were furnished which confirms the flow of funds within the group interse. It is also evident that all the transactions have been made through banking channels. Bank statement of the appellant company and also of the firms in which investment was made earlier and also of the share applicant companies were furnished which established that the funds for the share application flowed from the appellant company itself. These facts are also accepted in the assessment order. 7.10 The appellant has reiterated that no fresh capital has been received in the balance sheet of the various associate concerns and the share applicant companies and therefore the question of introducing any unaccounted money in the 16

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

system cannot arise at all as the funds which was lying in the system was only utilized for subscribing the share capital of the appellant. 7.11 On the procedural front also, the transactions were established as genuine through furnishing of various documents. Copies of the resolution passed by the appellant company for increasing the share capital, copies of resolution passed by the share subscriber companies to invest in the shares of the appellant company, share application form for subscribing to the shares, copies of PAN card, copies of audited balance sheet, copies of income tax return, copies of bank statement reflecting the funds for investment in the share applicant were furnished. It is seen that the transaction has been entered after following the various formalities required 'under the statue and have not been undertaken in haste or in violation of any law. 7.12 Premium charged by the appellant company was justified - The appellant company has issued shares to the share applicants' at a price of Rs.75 per share which comprises of face value of shares of Rs.10/- and the premium of Rs.65. In order to arrive at the price for the issuance of the shares, valuation as required u/s 56(2)(viib) r.w.r. rule -11UA(2) was furnished during the assessment proceedings which works out to Rs.76.06 per share as on 31.03.14. Thus, the price at which shares have been allotted by the appellant company is in accordance with the provisions 1pf Income Tax Act and the Rules framed there under and the amount so received was not excessive. The valuation worked out by the appellant stand accepted by the AO in para 2.2 of the assessment order and there are no adverse comments in this regard. During the course of the discussion it was emphasized that the price at which the shares have '!been issued is the lowest price at which the shares could have been allotted, as it was based 'upon, the b.9ok values of various assets and liabilities of the appellant company which did not factor in the goodwill, technical knowhow, appreciation in the value of the assets which could have been used for augmenting the price had the appellant company obtained a valuation certificate from the accountant or merchant banker. 7.13 Source of Source and so on - The appellant company during the course of its submission before me had stated that it has established the source of source, source of source of source and so on up to three level during the 17

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

course of the assessment proceedings. It was stated that the funds have been lying in the appellant companies and its sister concern M/s. Vijayshri Note Books Pvt. Ltd which were repaid back to various firms from which the same were borrowed by them, which in turn were returned to the investor, which was utilized for subscribing to the share capital of the appellant company. That there was no fresh flow of the funds In the system and. that the amount was only reclassified from loans to share capital through proper banking channels. Attention was drawn to the Para 5.12 on page 21 of the assessment order wherein the AO has categorically stated that after looking at the source, source of source and so on, they can all be traced eventually to the funds of the appellant company or its sister concern M/s. Vijayshri Note Books Pvt. Ltd and it was vehemently argued that this proposition stand very well accepted in the assessment order. It was stated that since the AO himself was satisfied that the funds were in the group and no new funds have been introduced, there is no any plausible reason for doubting the source of source and so on. 7.14 Thus, considering all the above facts, in my considered view the share applicants being part of the promoter group, two companies being already existing shareholders the third HUF shareholder is represented by the director of the appellant itself; the identity cannot be questioned. The share applicants are sufficiently possessed of their own funds, with no infusion of fresh outside funds, the issue of creditworthiness is also satisfactorily explained. The appellant having justified the need of increasing share capital, has also properly substantiated the source of source and also the source thereof, the shares having been issued at a value permissible under the Income Tax Act and not at an excessive premium, the genuineness of the transaction is also satisfactorily explained. The appellant has effectively and properly substantiated all the three ingredients of section 68 viz identity and creditworthiness of the share applicants as well as the genuineness of the transactions. 7.15 Coming to the observations made by the AO in the assessment order, I find that the AO has time and again alleged that unaccounted funds have been brought into the books through the impugned share allotment transactions. From the observations made in Para 4.1 to 4.3 of the assessment order regarding the share applicant M/ s Pushpak Fincon Pvt. Ltd. it is seen that the share applicant 18

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

is assumed to be a paper company and a serious allegation is made that the company is solely running for the' purpose of routing unaccounted money into the books of the appellant company. Identical observations have been made in respect of Arman Barter Pvt. Ltd. in Para 4.4 to 4.6 of the assessment order. 7.16 However, neither there is any cogent material brought on record nor any other basis given in the order which could support such serious allegation. In fact, the flow of funds i.e. the initial point from where the funds moved to the final destination has been properly substantiated by the appellant. The chain of events culminating into the final receipt of funds by the appellant has also been abstracted on page 6 & 7 of the assessment order by the AO himself, from where it is seen that there is no scope for infusion of any fresh funds into the system in the entire chain, as the funds lying with the appellant ,itself or with one of its another sister concern Vijayshri Note Book Pvt. Ltd. have only flown back to the appellant. In such eventuality when no fresh funds have come into the system at any point of time, the question of introducing unaccounted money does not arise. It is paramount proposition that only if any fresh funds from any outsider or third party would have come into the system at. any point of time, then only tile issue of introduction of unaccounted money could have, if at an been raised. 7.17 The observation in the assessment order that both the share applicant companies perform no other' activities and- have no business worth is also misplaced and the fact that such investment companies have generally no other activities other than making investment in the group companies has been totally lost sight of. 7.18 With respect to the observations made in Para 4.2 and 4.5 'and also in Para 5 regarding acquisition of both the share applicant companies by Mr. Rajendra Jain in FY 2008- 09 through sister concerns of the appellant company, which later on merged with the appellant company, it does not, in any manner, support and justify the addition made by the AO in the impugned year' i.e. AY 2015-16. Further the decision of Shri Rajendra Jain to acquire these investment companies ought not to have been questioned by the AO, as such decisions are the sole prerogative of a businessman. 7.19 With regard to the third share applicant M/s Pritesh Jain HUF of which Mr. Pritesh Jain is the Karta who is a director of the appellant company it is observed by the AO in Para 4.8 19

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

and also Para 5.10 that the said HUF has earned bogus long term capital gain which has been added in the assessment order passed u/ s 143(3), the appellant drew attention to Para 7~6 of the assessment order wherein it is accepted by the AO that it was never said that the source of funds of Pritesh Jain HUF for investing in the company was bogus LTCG and this observation was only cited as an example to question the creditworthiness. In the same Para the AO has accepted the fact that the source of funds of pritesh Jain HUF was repayment of a loan from R R Packaging (India) Pvt. Ltd. Therefore, the observation made in Para 4.8 of the assessment order does not hold any ground, 7.20 It is also seen that the AO has attempted to cast a doubt in respect of shares issued by Pushpak and share premium received thereon six years back and on the basis of this doubt has tried to hold that the money introduced SIX years ago in Pushpak is the source of the money being introduced in the year under consideration in the appellant company in the form of share capital and share premium, This observation establishes the contention of the appellant that no fresh funds have been introduced in the share applicant companies during last many years and also suggests that this fact was also clear in the mind of the AO. In my considered view raising any doubt in respect of transactions which took place six years ago cannot justify the addition made in the year under consideration. 7.21 The AO has further observed that in terms of section 68 the creditworthiness of the subscriber entities and genuineness of the transactions needs to be proved in the year under consideration i.e. the year in which they have made investment in the appellant. I fully agree with this contention of the AO which is the crux of the matter while dealing with the transactions covered u/s 68. The appellant is required to explain the identity and creditworthiness of the share applicant for the year under consideration in which the transactions with the appellant took place and is required to substantiate the genuineness of the particular transaction under consideration, which all conditions, in my considered view have been duly met by the appellant. The AO was not justified in making the additions u/s 68 in the year under consideration merely on the basis of suspicion and doubts in respect of transactions of the share applicant which took place six years ago. It is seen that there is no cogent reason brought on record even for raising suspicion in respect of such transactions which took place six years before the' year 20

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

under consideration. The moot issue for consideration is whether there was any defect in respect of the impugned transactions under consideration, which took place in this year and which have been added by the AO. In my considered view no such defect in the impugned transaction perse is found and therefore, the addition u/s 68 in the year under consideration was not warranted, The AO is free to take any action in the case of Pushpak Fincon Pvt. Ltd. in the year in which it issued shares and received share premium. But by no stretch of imagination, logic or on the basis of established legal and accounting principles; the addition can be made in the year under question and that too in the appellant company. 7.22 It is also seen that the AO has discussed various other transactions in the assessment order and alleged that no justification or explanation was given by the appellant such as transaction for purchase of property by Pushpak, source of funds in the hands of Pritesh .Iain HUF given to M/s R R Packaging (India) Pvt Ltd: etc. The appellant referring to its various written submissions filed during the assessment proceedings and enclosed in the paper book, particularly submission dated 27.12.2017 (at page no.79 of paper book) and submission dated 29.12.2017 (at page no. 79 of paper book) explained during the appellate proceedings that nonetheless these issues were not connected with the issue of share application money received by the appellant, still the issues raised by the AO were properly explained along with documentary evidences. Inspite of this fact the AO has deliberately stated that no explanation was furnished. 7.23 I also find that the concerns raised in the assessment order regarding the office premises of the two share applicant companies are also too farfetched in the light of the fact that the identity of both the companies was established on record being existing shareholders and also being part of the promoter group and is undisputed. The submission of the appellant on this issue with regard to shifting of the registered office of both the share applicant companies to Indore and the explanation filed during the assessment proceedings (at page no. 85 of paper book) sufficiently takes care of the concerns raised in this behalf. 7.24 It is seen that in Para 5.12 the AO has stated that looking at the source, source of source, and so on, of the funds made available to all the three share applicants, they can all be traced eventually to the funds of the appellant company or its sister concerns M/s Vijayshri Notebook Pvt. 21

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

Ltd. The appellant emphasized that this observation of the AO in the assessment order explained the entire case of the appellant and categorically establishes that the source and also source of source stood examined and accepted by the AO. In my opinion once the appellant has explained not only the immediate source but also the ultimate source, as also accepted by the AO, on this proposition alone the addition made u/s 68 ought not to have been so made. 7.25 The reliance placed on various judicial pronouncement in respect of surrounding circumstances, preponderance of probabilities, lifting the veil etc such as Durga Prasad More, Hershwin Chadha, Sumiti Dayal and Me Dowell, it would be suffice to hold that the propositions laid down in these cases does not apply to the instant case since the facts are clearly distinguishable. Much water have flown since the days of Me Dowell and it has been held by various courts that the legitimate acts of a taxpayers in the ordinary course of conducting his affairs cannot be branded as questionable on the anvil of Me Dowell which also stand in a way overruled by the subsequent decision of the Hon'ble Apex court in Azadi Bachao Andolan. The appellant's case is also well supported by the plethora of decisions relied upon by it through its written submissions on various proposition which are not being repeated here for the sake of brevity. 7.26 Therefore, in view of the above, after considering all the contentions of the AO in the assessment order carefully and also considering the submissions of the appellant as already discussed at length, the addition made u/s 68 is wrong on facts and in circumstances of the case and is hereby deleted. The addition made by the AO is not sustainable even in law, for which I wish to draw support from the following judicial pronouncements. 7.27 As. regards issue involving addition of share premium amount alongwith share application money/share capital money, it has decided in many cases that it cannot be added. In this regard; reference is made and reliance is placed to the various Judicial Pronouncements. on the issue related to additions for share premium amount included in the share application money/share capital money. These are as under: (i) In the case of M/s. Vodafone India Services Pvt. Ltd vs. Addl CIT· reported in 368ITR 001, Hon'ble Bombay High Court decided that: «The amounts received on issue of share capital including the premium are undoubtedly on capital account. Share premium have been made taxable by a legal fiction under Section 22

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

562)(viib)of the Act and the same is enumerated as Income in Section 2(24)(xvi) of the. Act. However, what is bought into the ambit of income is the premium received from a resident in excess of the fair market value of the shares. In this case what is being sought to be taxed is capital not received from a non-resident i.e. premium allegedly not received an application of ALP. Therefore, absent express legislation.. no amount received, accrued or arising on capital account transaction can be subjected to tax as Income. Court finds considerable substance in the Petitioner's case that neither the capital receipts received by the Petitioner on issue of equ.ity shares to its holding company, a non resident entity, nor the alleged short [all between the so called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act." (ii) The CBDT vide instructions No - 02/2015 dated 29/1/2015 directed the revenue not to file the SLP before directed Ld .AOs to accept the HIgh Court order. The relevant instructions is as under:- “1n reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case Of Vodafone India Services Pvt. Ltd for A. Y. 2009-10 (WP No.871j2014) = 2014-TH-19-HC-MUM-TP, wherein in the Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. .. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgement, it is directed that the ratio decided of the judgement must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to- the notice of the If AT, DRPs and CIT (Appeals," (iii) In the case of ACIT vs. Gagandeep Infrastructure Pvt. Ltd bearing ITA' No. 5784/Mum/2011 dated 23/4/2014, Hon'ble Mumbai ITAT decided that "We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt 'which has to be dealt with in accordance with Sec. 78 of the Companies Act, . 1956. Further, the company is not required to prove the genuineness, purpose or. justification for charging premium of shares, share premium by its' very 23

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

nature in a capital receipts and is not income for its ordinary sense. The entire dispute revolves around the fact that the assessee has charged a premium of Rs. 190/- per share. No doubt a non-est company or a zero balance sheet company asking for Rs, 190/ _ per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head "Income from other sources" by inserting Clause (viib) to Sec. 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A. y. 2014-15, In so Jar as the year under consideration is consideration is concerned, the transaction has to considered in the light of the provision of Sec, 68 of the Act, There IS no dIspute that the assessee has given details of names and addresses of the shareholders, their PAN Nos, the bank details and the confirmatory letters. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, 'if the identity is proved, no addition can be made u/ s: 68 of the Act. We draw support from the- decision of the Hon'ble Supreme Court in the case of Lovely Exports Put Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings of the Ld CIT(A). Ground No.l is accordingly dismissed. " (iv) In the case of Green Infra Ltd vs. ITO reported in 38 taxmann.com 253-ITATdated 23/812013, Hon'ble Mumbai ITAT decided that "During previous year ending on 31-3-2009, it had collected share premium on allotment of shares of face value of RS. 10 each at a premium of Rs. 490 per share - It had credited said 24

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

amount in balance-sheet under head share premium account - It claimed that shore premium was a capital receipt not exigible to tax - Assessing Officer had taxed share premium under section 56(1) as assessee's income from other sources - Whether since expenditure and receipts directly relating to share capital of a company are of capital in nature, share premium collected by assessee could not be taxed under section 56(1) as income from other sources - Held, yes - Whether since entire transaction relating to allotment of shares had been done through banking channel and assessee had invested share premium in its three subsidiary companies, provisions of section 68 as suggested by revenue had also not applicable to instant case - field, yes .... No doubt a non est company or a zero balance company asking for a share premium of Rs. 490 per share defies all commercial prudence; but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a very premium. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land." (v) In the case of CIT vs. Lovely Exports (P) Ltd reported in 216 CTR 195, Hon'ble Apex court decided that: "If the share application money is received by the assessee company from alleged bogus shareholders, Whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company." (vi} In the case of CIT vs. Steller- Investment Ltd- reported in 251 ITR 263, Hon'ble Apex court decided that "That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, under no circumstances could the amount of share capital be regarded as undisclosed income, an appeal was taken by the Department to the Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for. " (vii) In the case of CIT vs. Expo Globe India Ltd reported in 361 ITR 147, Hon'ble Delhi High Court decided that "It has been held by Hon'ble Supreme Court and various High 25

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

Courts that no addition can be made on account of share application money once the names of the share applicants are given. In the instant case, identity of these persons are not on doubt and assessment particulars of all the persons are on record and there is no material to hold that creditworthiness of these persons are not established. The judgment of Hon'ble Supreme Court in the case of Lovely Export 216 CTR 195 and also the judgment of Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services Pvt Lid 307 ITR 334 are relevant on this issue. It was held by Hon'ble Madras High Court in the case of CIT vs. Eleciro polychem Ltd. 294 ITR 661 and Hon'ble Allahabad HighCourt in the case of Jaya Securities Ltd. 166 Taxman 7 that no addition can be made on account of share application money even if subscriber to capital are not genuine. The above said judgements were challenged by the Department by way of SLP before Supreme Court of India and SLP has been dismissed by Supreme Court in both the cases. In view of above said facts of case and position of law, I hereby direct the AO to delete the addition of Rs.69,75,000/-. (viii) In the case of Cl'T v . Vacmet Packaging (India) Pvt Ltd reported in 88 CCH 065, Hon'ble Al1ahabad High Court decided that "Held, assessee had filed documentary . evidence to prove genuineness of share application money consisting of (i) share application forms; (ii) copies of bank accounts of share applicants; (iii) copies of income tax returns of share allottees; (iv)balance sheets; and (v) copies of share allotment certificates and of Board's resolution of the share applicants Identity of applicants was established by production of copies of PAN cards and registration certificate with the Registrar of companies - Financial capacity was also proved by filing of copies of the bank accounts- from where the share application money was transferred through banking channels to the assessee- Assessee had discharged onus placed upon him by 68- Concurrent finding of facts also Tendered by CIT'(A) and tribunal in this regard -_ No substantial question of law arises- Revenue's appeal Dismissed" 7.28 Before concluding, it will be in place to discuss the recent order of the Honorable supreme Court in the case of PCIT v/s NRA Iron & Steel Pvt. Ltd. arising out of SLP (Civil) No.29855 of 2018 on 05.03.19 in respect of which the AO has also filed a submission during the appellate proceedings and the appellant has also med a written submission in this respect. The AO has placed reliance on this decision of the Apex Court and supported 26

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

the addition made by him. The submission so made by the AO is reproduced as below: "In this case, assessment order u/s 143(3) of the IT Act 1961 for the AY 2015- 16 was passed by the under-signed on 28.12.2017. During the course of assessment proceedings, the assessee company had failed to prove the genuineness and creditworthiness, as understood within the meaning of proviso to Section 68 of the IT Act. 1961. of the three (3) subscriber entities which had introduced share premium and share capital during KY 2014-15. Therefore, the amounts received from these entities, under the garb of share capital and securities premium, i.e. Rs.3,47,01,225/·, was treated as unexplained cash credits u/s 68 of the IT Act, and added to the total income of the assessee. A detailed speaking order has been passed in this ease which has conclusively established the bogus nature of the share premium and share capital. Remand reports have also been sent in this case on two earlier occasions, as per your directions. In furtherance of the above. 1 would like to draw your honour's attention to the recent landmark judgment of the Hon'ble supreme Court dated 05.03.2019. wherein the order of the AO was upheld and restored by the Apex Court despite being dismissed by the Hon'ble High Court, and previously by the Hon’ble ITAT and the Ld. CIT (A).· This is in the case of Pr. CIT Central vs. NRA Iron and Steel Put Ltd. / TS· 106-SC· 2019]. In this case, addition was made u/ s 68 of share capital and premium received from Kolkata based companies. As the facts and circumstances of the case the assessee M/ s Vijayshri Packaging Ltd. are identical to that of the above landmark judgment (which has not become a settled position of law, revenue would like to place reliance on the same in this case. Thus, the under signed request your to kindly take cognizance of the same while deciding the matter, in addition to the original. I look forward to justice being. delivered through your good office in .this case which is based on a sinister design to" cheat the revenue authorities and other arms of the Government, conversion of unaccounted money, and wilful evasion of taxes though deliberate planning and strategy. 7.29 However, the appellant has stated that the above decision of the Apex Court in the case of PCIT v/s NRA Iron & Steel Pvt. Ltd. arising out of SLP (Civil) No.29855 of 2018 is not applicable in its case and the facts of the case are clearly distinguishable in the manner laid as below: “ We would like to submit before the honour as to why the 27

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

decision of the Apex Court in the case of PCIT /is NRA Iron & Steel Pvt. Ltd, arising out of SLP(Civil) No. 29855 of 2018 is not applicable to the case of appellant as the facts of the case are distinguishable in manner laid below: 1.1 Brief facts of the case of the Supreme court in the case of PCIT v/ s NRA Iron & Steel Put. Ltd. arising out of SLP (civil) No.29855 of 2018 a. The assessee company case was reopened u/ s 148 of the Act as it has shown in return of income money aggregating to Rs.17,60,OO,OOO/- received through share capital/ premium for the financial year 2009-10 from various legal entities and the assessee co was called upon to furnish/ prove by cogent and reliable evidence the identity of the investor companies, the creditworthiness of the investor and genuineness of the transaction, to the satisfaction of the A.O. , so as to determine whether the amount raised through share capital/ premium is genuine or not. b. The assessee co. submitted that entire share capital/ premium had been received through normal banking channels by account payee cheque/ demand drafts and produced documents such as income tax return acknowledgements to establish the identity and genuineness of the transaction and hence there was no cause to take recourse to section. 68 of the Act, and that the onus on the assessee co. stood fully discharged. c. However, the learned A 0. did not consider the above and conducted independent field enquiries with respect to the identity and creditworthiness of the investor and genuineness The AO of the transaction. issued summons to the representative of the investor companies and none appeared and in few cases, submissions were received only through DAK without justifying making the investment at such a high premium of Rs.190/ - and nor produced bank statements to substantiate the source of funds for making such a huge investment in shares while they were declaring a very meagre income in their returns. Hence, the AO. held that the assessee failed to prove the identity and creditworthiness of the investor co. and genuineness of the transaction and hence added back the amount of Rs. 17,60, 00,000/· to the total income of the assessee co. d. On appeal by the assessee co., the CJT (A) deleted the addition made by the A.O. by following the decision of the Delhi High Court m the case of CIT v Lovely Exports Ltd. (2008) 299 JTR 268 (Del.)on the ground that the assessee , had filed confirmations from investor companies, their income tax return 28

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

acknowledgements with PAN, copies of their bank account to show that entire amount had been paid through normal banking channels and therefore has satisfactorily discharged the initial onus as envisaged u/ s 68 of the Act for establishing the credibility and identity of the shareholders. e. On appeal by the Department, the Tribunal also- upheld the action Ld. CIT(A) and held that the assessee had discharged their primary onus to establish the identity and creditworthiness of the investors, especially when the investor companies had filed their returns and were being- assessed. f. On further appeal preferred by the Department, the Hon'ble High Court. affirmed the decision of Tribunal on the ground that the issues raised before it, were urged on facts, and the lower authorities had taken sufficient care to consider the relevant circumstances and as such there is no substantial question of law for consideration. g. The Revenue preferred Special Leave Petition before the Supreme Court against the order of the High Court. ARGUMENTS OF THE ASSESSEE The assessee contended that. it has clearly proved the identity and creditworthiness of the investor and genuineness of transaction as envisaged in section 68 of the Act. a. Identity of the investor: It had filed confirmations from tax investor companies and their income return acknowledgements with PAN. b. Genuineness of transaction: Copies of their bank account to show that entire amount had been paid through normal banking channels and hence the primary burden is been discharged. . . ARGUMENTS OF THE DEPARTMENT The learned A.O. made the addition of Rs.17. 60 crores on account of share capital/ share premium as the explanation given by the Assessee was considered unsatisfactory for the following reasons. a. None of the companies which had invested amounts ranging between Rs. 90 to 95 lakhs could justify investments at such a high premium of Rs. 190/ - per share. b. Some of the companies were found to be non- existent. c. Almost none of the companies produced bank statements to establish source of funds for making such a huge investment even though they were declaring meagre income in their returns. d. None of the investor companies appeared in person but sent written response through mail. RULING OF THE SUPREME COURT 29

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

On the SLP filed by the Revenue, where the assessee was not represented despite notice, the Supreme Court laid down three principles after analyzing various decisions with reference to treatment of sums of money credited as Share Capital/ Premium: (i) The _Assessee is under a 1egal obligation to prove the genuineness of the transaction, the identity of the creditors, and the credit worthiness of the investors who should have had the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. (ii) The assessing officer is duty bound ID investigate the credit- worthiness of the creditor / Subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or there are bogus entries of name- lenders. (iii) if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit worthiness, then the genuineness of the transaction would not be established. The Supreme Court applied the aforesaid principles of the facts and concluded that (i) There was no material to prove or to suggest that the share money was received from independent entities. The genuineness of the transaction was found to be completely doubtful. (ii) The investor companies had filed returns for a negligible taxable income which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90 to Rs. 95_lakhs. (iii) . There was no explanation offered regarding why the investor companies had applied for shares of the Assessee company at a high premium of Rs. 190/- per share, even though the face value of the share was Rs. 10/- per share. (iv) The investor companies did not establish their source of funds from which the high share premium was invested. (v) The mere mention of the income tax number of an investor was not sufficient to discharge the onus under Section 68 of the Act. The lower authorities appear to have ignored the detailed findings of the AO. from the field enquiry and investigations carried out by his office and have erroneously held that merely because the assessee had filed all the primary evidence, the onus on the assessee stood discharged.» 7.30 On the basis of above analysis of the decision of Hon'ble Supreme Court in the case of PCIT v/s NRA Iron & 30

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

Steel Pvt. Ltd., the appellant distinguished its case and submitted that: (i) "In the present case it was clearly proved that the share money was received by the appellant from associate concerns including existing shareholders who are independent entities. The appellant co. had submitted a statement of share application money received along with name, address, PAN, _bank statements, Income tax returns and audited balance sheet before the AO to prove the identity of the subscribers (Refer para 2.3 on page 4 of the assessment order). Apart from furnishing of above documentary details, summons were issued u/s 131 to attend m person to Mr. Rajendra Jain, Mr. Pritesh Jain, M/ s Armaan Barter Private Limited and M/ s Pushpak Fincon Private limited (All the subscribers to the Share capital/ Share Premium). All the parties appeared before the AO and furnished the details. The appearance of various persons and recording of statement under oath itself establishes the identity of the subscribers. Whereas in the case before the Hon'ble Apex Court the fact· was that certain notices returned unserved and the share applicants were either not traceable or nonexistent Some of the share holders did not filed any response to the summons. issued and some of the share holders who . responded did not produced their bank: statements. Therefore, the facts of the appellant are clearly distinguishable and are on a very strong footing. (ii) With respect to the financial capacity/ Source of investment, the appellant co. has submitted clear explanation before the AD. alongwith the documentary evidences such as Balance sheet / bank statements of the subscribers to state that the investors M/ s. Pushpak Fincon Put. Ltd. had assets worth Rs.4.33 crores and M/s. Armaan Barter Put: Ltd. had assets worth Rs.l.00 crores which by no imagination can be stated nominal (Refer para 2.10 on page 4 and 2.15 on page 5 of the 6th submission before the A. 0.). Apart from the creditworthiness, the appellant also explained the source of the source, that these funds were lying in the group only, which have been optimally utilized and transaction rerouted so that the different balance lying in various companies/ firms are reduced. Also that there are no outside party involved in the transaction. And the sources of capital of the subscribers were established during the respective assessment proceedings and hence the appellant co. has discharge the onus cast upon it However in the case before the Honourable Apex Court most of the investors did not even filed their bank statements and declared very meager income. 31

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

(iii) In respect of justification of Price, it was submitted that the fair market value of shares of the appellant co. as on 31.03.2014 was Rs. 76.06 per shares as per the formula prescribed u/» 56(2)(viib) r.w.Rule11UA and the detailed calculation was also provided to the A.O. (Refer para 2.2 on page 4 of the assessment order). However, the appellant co. has allotted its shares at a price of Rs.75 per share which is lower than the fair market price and hence the provisions of sec. 56 (2)(viib) are not applicable to the share premium received and hence share premium cannot be taxed as a revenue receipt. Further the appellant is a reputed company engaged in the business of printing and Packaging since 1988 having substantial turnover and business on year to year basis and declaring substantial income. However, in the case of NRA Iron and Steel Pvt. Ltd., the share were issued at a premium of Rs. 190 per share without any justification of making investment on such high premium. Therefore, the fact .are clearly distinguishable on this front as well. (iv) As stated in Point b. above, the appellant clearly mentioned that it did not only explain the source of funds but also proved the source of source. of funds as mandated by the amended provisions of section 68 of the Act which was not done m the case before the Hon'ble Apex Court (v) The appellant co. did not only provide with the PAN no. of the subscribers but when the summons were issued all the subscribers appeared before the A. 0, and furnished the details. The appearance of various persons and recording of statement under oath itself establishes the identity of the subscribers, which was not the fact in the case of NRA Iron and Steel Pvt. Ltd where in fact no body appeared before the AO. Thus, the appellant has clearly demonstrated that the ratio propounded by the Honouroble Apex Court in the case of NRA Iron and Steel Pin: Ltd. cannot be applied in its case as the facts en are cm a totally divergent alley. On the. contrary the case of NRA Iron and Steel Pvt. Ltd supports the case of the appellant when tested on the touch stone of the principles laid by the Honourable Apex Court in its latest decision as already discussed above." 7.31 In my considered view, the appellant has clearly demonstrated that the ratio propounded by the Hon'ble Apex Court in the case of NRA Iron and Steel Pvt. Ltd. cannot be applied in its case as the facts or are on a totally divergent alley. The undisputed facts are that in the case of NRA Iron and Steel Pvt. Ltd. shares were issued to as many as 19 32

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

companies which were all outsiders and not related to the assessee at all and on top of this when summons were issued to the investors companies, nobody appeared on their behalf. In some cases, submissions were filed through dak. Even on making independent filed enquiries, some of the notices were not served as the entities were not found at the given address, in some cases in spite of service of notice, the same were not responded and replies were not filed. These facts are in clear contrast to the facts of the present case before me where the investors are not only clearly identified entities, in fact they were already existing shareholders of the appellant even prior to the issuance of share capital under consideration and all of them produced themselves before the AO and their statements were recorded. Thus, the identity of the investors was never an issue in the present appeal. Further the investment in shares of NRA was made at a premium of Rs. 190 per share and evidently there was no justification for such a high premium whereas in the present appeal the shares are issued of a flagship company of the group having substantial turnover and also profitability over the years and the shares have been issued at the FMV worked out on the basis of prevalent provisions and applicable rules which also stand accepted without any adverse remarks. It is also seen that the investors in the case of NRA did not med their bank statements to substantiate the source of funds whereas in the present case not only the bank statements and other financial details were med but also source of funds, source thereof and source of source has been explained at length and duly supported by cogent material. The appellant has explained not only the immediate source but also the ultimate source of the impugned funds received by it during the year under consideration. The appellant has also substantiated the genuineness of the transactions. Thus, I find that in the case of NRA before the Hon'ble Supreme Court, the assessee could not explain any of the three ingredients of Section 68 viz identity and creditworthiness of the share applicants and so the genuineness of the transactions, whereas in the present case the appellant has clearly demonstrated the identity as well as creditworthiness of the share applicants and so also the genuineness of the transactions. Thus, the case of NRA Iron and Steel Pvt. Ltd. in fact supports the case of the appellant when tested on the touch stone of the principles laid by the Hon'ble Apex Court in its latest decision as already discussed above. 33

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited. 7.32 Section 68 of the Income Tax Act is one of the powerful tool available with the authorities to. curb the malpractices undertaken by the income tax payers to bring their unaccounted income in the system through various methods which do. not appear so to a common person. But it is also imperative that the same is tested in the right perspective and is on right understanding of the facts so as to stand the test of judicial scrutiny and facts. In the instant case, the AO has overlooked the submission made by the appellant and has generically stated that it has failed to establish the genuineness of the transactions and creditworthiness of the subscriber. As far as the creditworthiness or financial strength of the creditor/subscriber is concerned, that can be proved by producing the bank statement of the creditors / subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. Thus element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order that lender is not credit worthy. It is noted that that the AO has doubted the transaction and tried to establish that the companies are not creditworthy as there was no rationale behind obtaining control of the companies based at West Bengal. However, he has failed to establish that a transaction which was done 10 years back could affect the transaction of share application received during the year. If at all, any consideration needs to be taken for the above transaction of obtaining control of the companies, the same is required to be done in the hands of the share holders in the year in which the control was obtained and is not relevant in the case of appellant company for the year under consideration. Therefore, considering the above discussion the addition made by the AO is deleted. These grounds of appeal are accordingly allowed. 8.0 Ground No.4. Addition on account of share capital and share premium of Rs.3,47,01,225/- received on basis of 34

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

statement of third party without giving any opportunity of cross examination which is against principle of natural justice. 8.1 I have considered the facts and arguments of the appellant. However, since the addition made u/ s 68 has already been deleted, this ground of appeal becomes academic and does not require any independent finding and is accordingly dismissed. 9.0 Ground No. 5: Share capital and share premium of Rs.3;47,O1,225 ,-received 'is a capital receipt and cannot be added u/s 68 of the Act. 9.1 I have considered the facts and arguments of the appellant. However, since the addition made u/s 68 has already been deleted, this ground of appeal becomes. academic and does not require any independent finding and is accordingly dismissed. 10.0 As a result, the appeal is partly allowed.

above stated facts narrated by the assessee which were duly found

to be correct by Ld. CIT(A) by placing any contrary material to

disprove the facts so stated. It is important to note that two

subscribers companies namely Armaan Barter Private Limited and

Pushpak Fincon Private Limited are existing shareholders of the

company and holds equity shares since many years. The

genuineness of this transaction in the past has not been doubted by

the revenue authorities. Both the companies are majorly owned by

Mr. Rajendra Jain ( who is also the director of respondent assessee)

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

and family since the year close 2009. Important features of the two

corporate subscribers can be tabulated in following form:

S. No. Particulars Arman Barter Pvt. Pushpak Fincon Ltd Pvt. Ltd. 1 Date of Incorporation 09/03/2007 31/03/1993 2 Present address Amalgamated with 61/4, R. R. Pushpak Fincon Industrial Park Pvt. Ltd. w.e.f. Near Super 01/04/2016 Corridor ROB Village Bardari

3 Directors Rajendra Jain Rajendra Jain Pritesh Jain Pritesh Jain

4 Owned by Shri Rajendra Jain 09/02/2009 31/03/2009 & family since

5 Net Worth as on 31.03.2014 1,00,37,394/- 4,29,69,238/-

6 Last Share Capital raised on 31/03/2007 31/03/2008

said two investor companies with the assessee companies, following

documents were furnished from time to time:

S. No. Particulars (i) Copy of share application form. (ii) Details of applicants, their addresses, PAN no., no. of share, amount etc.

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

(iii) Copies of ITRs of share applicants. (iv) Board resolutions for share allotment. (v) Form PAS-3 for allotment filed with ROC. (vi) Audited balance sheets of the share applicants. (vii) Bank statements of the share applicants reflecting the movements of funds. (viii) Bank statement of the assessee company. (ix) Copies of MOA and AOA of the share applicants companies. (x) NBFC registration certificate issued by RBI and copies of returns filed with RBI in case of M/s Pushpak Fincon Pvt. Ltd. (xi) Details about the source of money in the hands of the share applicants. (xii) Copies of order passed by the Regional Director, Company Law Board West Bengal shifting the registered office of the share applicant companies to the state of Madhya Pradesh. (xiii) Relevant abstract of statutory registers of the share applicant companies to establish the fact that no fresh share capital money was introduced in these two companies in last 8 – 10 years. (xiv) To prove source of source and source thereof – Copies of relevant ledger accounts of the share applicants in the books of the entities from whom the share applicants sourced the amount as well as to substantiate even the preceding source and source thereof, along with relevant bank statements, thus establishing minimum three layers of source.

Private Limited Companies has furnished the trail of the funds

invested by these two investor companies were filed before the lower

authorities and before us reads as under:

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

For Armaan Barter Private Limited

Vijayshri Packaging Limited – Rs.145 Lacs (Repayment of debit balance in firm)

Accrual Estate & Developers – Rs.57 Lacs (Repayment of credit balance in firm)

Armaan Barter Pvt Ltd – Rs.57 Lacs (Share Application money given to the assessee)

Share capital of Vijayshri Packaging Limited

For Pushpak Fincon Private Limited Transaction 1 Vijayshri Packaging Limited – Rs.145 Lacs (Repayment of debit balance in firm)

Accrual Estate & Developers – Rs.88 Lacs (Repayment of credit balance in firm)

Pushpak Fincon Private Limited – Rs.87 Lacs (Share Application money given to the assessee)

Share capital of Vijayshri Packaging Limited

Transaction 2 Vijayshri Note Books Private Limited – Rs.140 Lacs (Repayment of debit balance in firm)

Accrual Estate & Developers – Rs.134 Lacs (Repayment of credit balance in firm)

Blaise Distributors Private Limited – Rs.134 Lacs (Capital introduction in firm)

Shree Raj Enterprises – Rs.131.62 Lacs (Repayment of credit balance in firm)

Pushpak Fincon Private Limited – Rs.133.00 Lacs (Share Application money given to the assessee)

Share capital of Vijayshri Packaging Limited

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

lying with the assessee company in the form of loans/advance from

partnership firms where the assessee is partners which was

refunded to the respective entities and were received back from the

share applicants in the form of share application money by the

assessee. So there remains no question of doubt about the

genuineness of alleged transaction and creditworthiness of the two

investor Pvt. Ltd. companies with regard to share capital and share

premium received from them during the year.

subscribed 93333 equity shares for which it paid Rs.9,33,330/-

towards the share capital and Rs.60,66,645/- towards share

premium as mentioned above, the copy of Income Tax PAN card,

copy of income tax return and bank statement reflecting the

transaction was furnished. Karta of HUF is relative of Mr. Rajendra

Jian who is director in the assessee company. So genuineness of

transaction is proved being carried at through banking channel and

with a related party who knows the assessee company. As regards

the creditworthiness and the source of funds used to make

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

investment tail of fund has been provided in this case also which is

summarized as under:

Pritesh Jain - Rs.98 Lacs (Introduction of funds in assessee by way of unsecured loans)

Vijayshri Packaging Limited – Rs.150 Lacs (Transfer of amount alongwith balance in Cash Credit Account as inter unit transaction)

R.R. Packaging (I) Pvt. Ltd – Rs.76.11 Lacs (Repayment of unsecured loan lying with the company)

Pritesh Jain HUF – Rs.69.99 Lacs (Share Application money given to the assessee)

Share capital of Vijayshri Packaging Limited

genuineness of creditworthiness of the investor Pritesh Jain, HUF.

We, therefore, in the given facts and circumstances of the case and

also the settled judicial precedence applicable in the case of

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

assessee which was found to be in the favour of assessee by Ld.

CIT(A) who has dealt with the decision in detail as referred by us in

the preceding paras and has also differentiated the facts with the

cases relied by the assessing officer. Thus, we are of the view that

the assessee has proved the identity of the alleged shareholders and

there creditworthiness and has also proved the genuineness of

transactions of applying for equity share along with share premium

paid thereon. Since both the lower authorities have not found any

iota of evidence to disprove the facts filed by the assessee to

discredit the documents produced before them as well as before us,

no addition was called for u/s 68 of the Act for the alleged amount

of equity share capital and share premium received at

Rs.3,47,01,225/-. Thus, there is no reason to interfere in the

finding of Ld. CIT(A) and the same stands confirm. Accordingly all

the grounds raised by the revenue stands dismissed.

the validity of assessment proceedings, on the ground that the

assessing officer has exceeded the powers of limited scrutiny, we

are of the view that since we have already deleted the impugned

ITA No.721/Ind/2019 & C.O.11/Ind/2020 Vijayshri Packaging Limited.

addition made by the assessing officer u/s 68 of the Act and have

confirmed the finding of Ld. CIT(A), it will be merely academic to

deal with this ground, therefore, the Cross Objection becomes

infructuous.

dismissed and cross objection by the assessee is dismissed as

infructuous.

The order pronounced in the open Court on 09. 02.2021.

Sd/- Sd/- (KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 9th February, 2021 Patel/PS Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Asstt. Registrar, I.T.A.T., Indore