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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: SHRI RAJPAL YADAV, HON’BLE & DR. MANISH BORAD, HON’BLE
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The present appeal is directed at the instance of the revenue against the order of the Learned Commissioner of Income Tax (Appeals) – 7, Kolkata ((hereinafter the “ld. CIT(A)”) dt. 24/08/2022, passed u/s 250 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2012-13. 2. Registry has informed that the appeal is time barred by 12 days. Condonation application has been filed by the Revenue. Perusal of the same shows that the delay was on account of COVID-19 restrictions. We, therefore, in view of the judgment of The Hon’ble Supreme Court vide Miscellaneous Application No. 21 of 2022 find that the limitation period in filing appeal between 15.03.2020 till 28.02.2022 has been excluded for calculating the limitation period. Since the period of Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 2 limitation in the case of the assessee falls during this period, the same deserves to be extended and we, therefore, condone the delay of 12 days and admit the appeal for adjudication.
The revenue has raised the following grounds of appeal:- “1. That on the facts and in the circumstances of the case, Ld. CIT(A) was justified in the deleting the addition of Rs. 14,20,50,000/- made by the Assessing Officer on account of share capital and premium in the course assessment in absence of identity of the creditors, genuineness and creditworthiness of the entire transactions.
That on the facts and in the circumstances of the case, Ld. CIT(A) was justified in the deleting the addition of Rs. 14,20,50,000/- made by the Assessing Officer where no personal attendance was made by any director of the share allottee companies during the course of assessment proceedings and as such identity & creditworthiness of the creditors and genuineness of transactions could not be verified.
That on the facts, the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-l, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161) suggests that "the assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the A.O., failure of which, would justify addition of the said amount to the income of the assessee". In the facts and under the circumstances of the case, the assessee company has failed to do so other than submission of mere statements of various kinds. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the raised share capital was not the assessee's own income.
That on the facts, the principle which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-1, Kolkata vs NRA iron & Steel Pvt. Ltd. (412 ITR 161) also suggests that the Assessing Officer is duty bound to investigate the creditworthiness of the creditor /subscriber, verify the identity of the subscribes, and ascertain whether the transaction is genuine, or these are bogus entries of name lenders. In the facts of the case, in spite of best efforts made by the assessing officer, he could not verify the same as there was no response from the companies to whom share were allotted on private placement basis. Thus, the decision of the Ld. CIT(A) is erroneous in holding that the raised share capital was not the assessee's own income. 5. that on the facts, the principles which has been laid down by the Hon'ble Supreme Court in the case of Pr. CIT(Central)-1, Kolkata vs NRA Iron & Steel Pvt. Ltd. (412 ITR 161) also suggests that if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lact credit- Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 3 worthiness. Then the genuineness of the transactions would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section of the act, In the facts of the case, the Ld. CIT(A) completely ignored this aspect, thus he has erred in giving relief to the assessee.
That on the facts of the present case, clearly the Assessee Company failed to discharge the onus required under section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the income of the Assessee and the Ld. CIT(A) has erred in allowing relief to the assessee.
That on the facts, in absence of verification, Ld. CIT(A) should have remanded the matter to A.O. for fresh verification. Thus, he has violated the provisions of Rule 46A of the I. T. Rules.
That on the facts, the appellant craves to add, alter, amend, delete or substitute any of the grounds and/or take additional grounds before or at any time of hearing of this appeal.
That on the facts, further the Assessing Officer made disallowance of Rs. 39,694/-as u/s. 14A r.w. Rule 8D which has been deleted by the CIT(A)-7, Kolkata. The CIT(A) was not justified denying the findings of the Assessing Officer.”
Facts in brief are that the assessee is a Private Limited Company engaged in the business of share investments. Nil income declared in the e-return filed for Assessment Year 2012-13 on 20/09/2012. After the return being processed u/s 143(1)(a) of the Act, the case selected for scrutiny through CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act. In the notice u/s 142(1) of the Act, the ld. Assessing Officer called for various details including the details of the share subscribers who have applied for the equity share of the companies and have paid equity share capital of Rs. 14,20,500/- along with share premium of Rs.14,06,29,500/- . The assessee filed complete details as called for by the Assessing Officer but the same were termed as useless paper work by the Assessing Officer along with an Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 4 observation that the assessee company has not conducted any considerable business activity. The ld. Assessing Officer without specifically pointing out any mistakes or defects in the documents filed by the assessee observed that the assessee has an unusual trend of introduction of funds in the form of share capital and security premium which are from unaccounted source of funding. Even though all the notices issued u/s 133(6) of the Act were duly served upon the share subscribers and all the details were filed by them and notices u/s 131 of the Act issued to the directors were served and replies were filed but still ld. Assessing Officer was not satisfied with this exercise and concluded the assessment by treating the alleged sum of Rs. 14,20,50,000/- as unexplained and made addition thereof u/s 68 of the Act along with minor disallowance of Rs.39,594/- u/s 14A of the Act. Income assessed at Rs. 14,20,81,000/-.
Aggrieved the assessee preferred appeal before the ld. CIT(A) and filed complete details of each of the share subscribers along with the copy of notices u/s 133(6) and replies to notices u/s 131 of the Act, copies of the assessment order of various share subscribing companies framed u/s 143(3) or 147 of the Act were in some cases, additions were made in the hands of the share subscribing companies. Based on these facts including audited financial statements, bank statements, letters confirming the alleged transactions along with the source for making such investment by each of the share subscribing companies, the ld. CIT(A) found merit in all these details and was satisfied that the assessee has successfully explained the nature and source of the Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 5 alleged sum and after analyzing the facts of the case and placing reliance on settled judicial precedents, deleted the addition made u/s 68 of the Act.
Aggrieved, the revenue is now in appeal before this Tribunal.
The ld. D/R vehemently argued supporting the order of the ld. Assessing Officer and stated that merely filing these paper documents cannot be treated as a compliance to explain the nature and source of the alleged sum. Surrounding circumstances which includes the meagre income offered by the share subscribers though they were having huge net worth, no regular business activity carried out by the assessee company as well as by the share subscribers and the flow of funds in the bank statement indicates that share subscribing companies are engaged in rotation of funds and providing accommodation entries and they are jamakharchi or shell companies and, therefore, the ld. Assessing Officer has rightly added the sum in the hands of the assessee. The Ld. DR has further relied upon the decision of the Hon’ble Supreme Court in the case of PCIT vs. NRA Iron & Steel (P) Ltd. reported in [2019] 103 taxmann.com 48(SC).
On the other hand, the ld. Counsel for the assessee apart from placing reliance on the detailed finding of the ld. CIT(A) further took us through the various documents placed in the paper book containing 899 pages in which right from the beginning of the assessment proceedings, all the papers filed at various stages have been mentioned. It is further submitted that all the share applicants were issued notices u/s 133(6) of the Act by the ld. Assessing Officer Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 6 which have duly been served and been complied by way of giving replies directly to the Assessing Officer along with all the documents as called for. He also submitted that all the share subscribing companies have sufficient net worth to explain the source of investment made in the equity shares of the assessee company. It is also submitted that the Directors of two share subscribing companies, namely, Surakshit Vincom Pvt Ltd. and Wellplan Dealers Pvt. Ltd., were issued summons u/s 131 of the Act which were duly served upon the assessee and were required to appear on 09/03/2015, however, they did not appear but made sufficient compliance by filing replies to the said notices. He further stated that up to Assessment Year 2012-13, as far as the alleged sum is concerned, the assessee was only required to explain the nature and source and not the source of source but still the assessee has filed complete details to explain the nature and source as well as the source of source of the alleged sum, which is discernible from confirmation letters filed by the share applicants about the alleged said transactions and in the very same letter, they have provided the information about the source of investment which is in the shape of funds received from other sources by the share subscribing companies. Finally, he stated that most of the share subscribing companies have also passed through the scrutiny proceedings u/s 143(1)/143(3)/147 of the Act. So far as the judicial precedents are concerned, the ld. Counsel for the assessee referred and relied on various decisions including the decision of this Tribunal in Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 7 the case of M/s. Bhikshu Agency Pvt. Ltd. vs. ITO, Ward-5(3), Kolkata in ITA No. 551/Kol/2016; Assessment Year 2008-09, order dt. 25/05/2023. 7. We have heard rival contentions and perused the record placed before us. The revenue is aggrieved with the finding of the ld. CIT(A) deleting the addition of Rs.14,20,50,000/- made by the Assessing Officer u/s 68 of the Act treating the alleged sum received towards issue of equity share capital along with share premium received from following eleven share applicants:- 1) Raghban Tie-up Pvt. Ltd. 2) Sahanbhuti Merchants Pvt. Ltd. 3) Sankatmochak Vanijya Pvt. Ltd. 4) Subhdrishti Marketing Pvt. Ltd. 5) Subhmayee Mercantile Pvt. Ltd. 6) Suhana Mercantile Pvt. Ltd. 7) SUkriti Vinimay Pvt. Ltd. 8) Surakshit Vincom Pvt. Ltd. 9) Vedic Mercantile Pvt. Ltd. 10) Wellplan Dealer Pvt. Ltd. 11) Zoom Vyapaar Pvt. Ltd.
We further observe that the assessee is required to explain the nature and source of the alleged sum and all relevant details were filed before the Assessing Officer and thereafter before the ld. CIT(A) also filed copies of assessment order of various share subscribing companies which have also passed through scrutiny proceedings for the very same Assessment Year. The ld. CIT(A) after examining all Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 8 these and considering the fact that all the notices u/s 133(6) of the Act issued to the eleven share subscribers were duly served and acted upon by each of the share subscribers by filing reply to the Assessing Officer and furnishing all these details and also considering the replies to the summons issued u/s 131 of the Act which were issued to Directors of few share applicant companies deleted the impugned addition. We in order to bring on record the details filed by the assessee before the lower authorities and specifically before the ld. CIT(A), would like to go through the documents mentioned in the index of the paper book, which is reproduced below:- Index:
“
Notice issued u/s 143(2)
Assessee files following preliminary papers in support of the return of income Letter along with 1. Power of Attorney
Acknowledgement of return of income
Audited Financial Statements
Notice issued u/s 142(1)
Assessee files following documents: Letter stating name, address, PAN of share applicants, Names and 1. addresses of directors, nature of business, details of bank account along with Statement containing name, address of share applicants, no of shares 2. allotted and amount received Bank Statement
Form 5 filed with ROC for increase in authorised share capital
Form 2 (return of allotment) filed with ROC along with list of allottees
Letter from TRO-5 stating transfer of case by Ld. CIT to TRO-5
Notice issued u/s 142(1) seeking details which were already filed by the assessee
Notice issued u/s 133(6) issued to all share applicants: Baghban Tie-up Pvt. Ltd. ■ Sahanbhuti Merchants Pvt. Ltd. ■ Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 9 Sankatmochak Vanijya Pvt. Ltd. ■ Subhdrishti Marketing Pvt. Ltd. ■ Subhmayee Mercantile Pvt. Ltd. ■ Suhana Mercantile Pvt. Ltd. ■ Sukriti Vinimay Pvt. Ltd. ■ Surakshit Vincom Pvt. Ltd. ■ Vedic Mercantile Pvt. Ltd. ■ Wellplan Dealer Pvt. Ltd. ■ Zoom Vyapaar Pvt. Ltd. ■
Replies filed by all the share applicants to notice u/s 133(6)
Baghban Tie-up Pvt Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Sahanbhuti Merchants Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Sankatmochak Vanijya Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, • details of directors along with copies of following documents Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 10 PAN Card • Acknowledgement of return of income • Audited Financial Statements • Bank Statement • Acknowledgements of share application money paid • Share allotment advice • Share certificate • Form 18 • Certificate of Incorporation • Identity Proof of Director •
Subhdrishti Marketing Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Subhmayee Mercantile Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Suhana Mercantile Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 11 PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Sukriti Vinimay Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Surakshit Vincom Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Vedic Mercantile Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 12 PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Wellplan Dealer Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Zoom Vyapaar Pvt. Ltd. Letter confirming issue price, amount invested with source thereof, ■ details of directors along with copies of following documents PAN Card ■ Acknowledgement of return of income ■ Audited Financial Statements ■ Bank Statement ■ Acknowledgements of share application money paid ■ Share allotment advice ■ Share certificate ■ Form 18 ■ Certificate of Incorporation ■ Identity Proof of Director ■
Summon issued u/s 131 to director of following two share applicants requiring to appear on 03.03.2015 whereas the summon was served on 09.03.2015:- Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 13 Surakshit Vincom Pvt. Ltd.
Wellplan Dealers Pvt. Ltd.
Replies filed by share applicants to summon u/s 131 since summon served after date fixed of compliance:-
Surakshit Vincom Pvt. Ltd. Covering letter along with stating "details of AO where assessed" ■ Voter Id Card of director ■ Mentioning that other details/document have already been filed ■ Annual Return ■
Wellplan Dealer Pvt. Ltd Covering letter along with stating "details of AO where assessed" ■ Voter Id Card of director ■ Mentioning that other details/document have already been filed ■ Annual Return ■
Summon u/s 131 issued to director of assessee company requiring to appear on 03.03.2015 whereas the summon was served on 09.03.2015:-
Reply to summon u/s 131 filed by director of assessee company along with Covering Letter ■ Voter Id Card of director ■ Certificate of Incorporation ■ Annual Return ■
Show Cause Notice (SCN)issued requiring alleging that "source of funding has not been found to be satisfactorily substantiated." and requiring the assessee to explain why disallowance u/s 14A r/w Rule 8D should not be imposed. The SCN dated 05.03.2015 requiring compliance on 16.03.2015 was served on 13.03.2015
The assessee filed detailed reply to SCN along with copies of following documents of each of the share applicants ❖ Certificate of Incorporation Baghban Tie-up Pvt. Ltd. - Sahanbhuti Merchants Pvt. Ltd. - Sankatmochak Vanijya Pvt. Ltd. - Subhdrishti Marketing Pvt. Ltd. - Subhmayee Mercantile Pvt. Ltd. - Suhana Mercantile Pvt. Ltd. - Sukriti Vinimay Pvt. Ltd. - Surakshit Vincom Pvt. Ltd. - Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 14 Vedic Mercantile Pvt. Ltd. - Wellplan Dealer Pvt. Ltd. - Zoom Vyapaar Pvt. Ltd. - ❖ Memorandum and Articles of Association Baghban Tie-up Pvt. Ltd. - Sahanbhuti Merchants Pvt. Ltd. - Sankatmochak Vanijya Pvt. Ltd. - Subhdrishti Marketing Pvt. Ltd. - Subhmayee Mercantile Pvt. Ltd. - Suhana Mercantile Pvt. Ltd. - Sukriti Vinimay Pvt. Ltd. - Surakshit Vincom Pvt. Ltd. - Vedic Mercantile Pvt. Ltd. - Wellplan Dealer Pvt. Ltd. - Zoom Vyapaar Pvt. Ltd. - ❖ Share Application Forms Baghban Tie-up Pvt. Ltd. - Sahanbhuti Merchants Pvt. Ltd. - Sankatmochak Vanijya Pvt. Ltd. - Subhdrishti Marketing Pvt. Ltd. - Subhmayee Mercantile Pvt. Ltd. - Suhana Mercantile Pvt. Ltd. - Sukriti Vinimay Pvt. Ltd. - Surakshit Vincom Pvt. Ltd. - Vedic Mercantile Pvt. Ltd. - Wellplan Dealer Pvt. Ltd. - Zoom Vyapaar Pvt. Ltd. - ❖ Allotment Advice Baghban Tie-up Pvt. Ltd. - Sahanbhuti Merchants Pvt. Ltd. - Sankatmochak Vanijya Pvt. Ltd. - Subhdrishti Marketing Pvt. Ltd. - Subhmayee Mercantile Pvt. Ltd. - Suhana Mercantile Pvt. Ltd. - Sukriti Vinimay Pvt. Ltd. - Surakshit Vincom Pvt. Ltd. - Vedic Mercantile Pvt. Ltd. - Wellplan Dealer Pvt. Ltd. - Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 15 Zoom Vyapaar Pvt. Ltd. - Annual return of assessee company ■ Return of allotment (Form 2) filed by assessee company ■
Copy of assessment order of share applicants passed u/s 143(3) or 143(3)/147 orl43(l) Baghban Tie-up Pvt. Ltd. ■ Subhdrishti Marketing Pvt. Ltd. ■ Suhana Mercantile Pvt. Ltd. ■ Sukriti Vinimay Pvt. Ltd. ■ Surakshit Vincom Pvt. Ltd. ■ Vedic Mercantile Pvt. Ltd. ■ Wellplan Dealer Pvt. Ltd. ■
Further we observe that the ld. CIT(A) after observing the above details and also considering the ratio laid down by the Hon’ble Courts in various decisions and also the decisions of this Tribunal in other cases adjudicating similar issues, deleted the addition observing as follows:- “5.2. 1. I have considered the submission of the AR of the appellant in the backdrop of the assessment order I have also considered the various judicial citations as relied upon by both the AO as well as the AR in support of their respective stands in the matter I have also considered the materials on record by way of paper book filed by the AR in deciding the issue involved At the outset there is no dispute that during the year under consideration, the assessee company raised ^14,20.50,000/- by way of issue of 1,42,050 Shares of ?10/- each at a premium of t990/- each. An analysis of the events that occurred and my findings and decision thereto are elucidated as follows 5.2. 2. In course of the assessment proceedings the AO inter alia required the assessee to file details and evidences of share capital and premium raised during the year. In compliance thereto the assessee filed name, address and PAN of share applicants, no of shares allotted and amount received along with copies of form -2 (return of allotment) and form-5 (increase in authorised capital). Thereafter, the AO in order to verify the identities and creditworthiness of the investors and genuineness of the transactions issued notices u/s 133(6) to all the share applicants all of which were duly served. In compliance thereto the share applicants confirmed the amount invested in the assessee company and also explained source of such funds The investors also filed copies of their certificate of incorporation. PAN Card, form 18 (address proof), return of income, audited financial statements, bank Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 16 statements, share application acknowledgements, allotment advice, share certificates, address proof. 5.2. 3. Later, the AO issued summons to the director of the assessee company as well as directors of two investors viz. Surakshit Vincom Pvt Ltd. and Wellplan Dealers Pvt. Ltd. In compliance to the above summons, the directors of both the investor companies filed written submission along with voter ID Card of its director, juri iction of the share subscribers and submitted that the other details required have already been filed and are part of the assessment records. Similarly in compliance to the summon issued to the director of the assessee company, the director submitted copies of identity proof and certificate of incorporation of the assessee company as proof of their respective identities and further submitted that the details required are already filed. 5.2 4 Finally the AO issued a SCN stating that "source of funding has not been found to be satisfactorily substantiated" and required the assessee to explain why provisions of Sec. 14A r/w Rule 8D should not be applied 5.2. 5. In response to the same, the assessee filed copies of (i) Company master data downloaded from MCA showing that status of all share applicants on MCA is ACTIVE (ii) Signatory details downloaded from MCA (iii) Certificate of Incorporation (iv) Memorandum and Articles of Association (v) Share Application Forms (vi) Allotment Advice of all the share applicants. The assessee also submitted that (a) All the share applicants are companies registered under the Companies Act 1956 and are regularly filing their return of income and their status of MCA is active, (b) All the share applicants are income tax assessee and have filed their return of income (c) All the notices and summons issued to all the share applicants have been served and complied confirming the amount invested by them and explaining the source thereof and by filing details and documents as called for. (d) All the share applicants have sufficient net worth to invest. (e) All the transactions have taken place through banking channels and have duly been recorded in their regular books of account and reflected in their audited financial statements and returns of income filed by them (f) There is no finding that the returns of income filed by the share applicants have been rejected by their assessing officer, (g) No adverse material whatsoever has been brought on record by the AO. (h) The "nature of receipt" is share application money and the "source of fund" is the share applicants who invested the money from accounts held in their own names, (i) The assessee in not required to prove source of source yet the share applicants in their replies have explained the source of funds of amounts invested in the assessee company, (j) Necessary evidences in support of the identities and creditworthiness of the share applicants and genuineness of the transactions have been provided both by the assessee as well as the share applicants whereas no tangible adverse material whatsoever has been has been brought on record by the AO in the absence of which no addition can be made merely on the basis of surmises and conjectures. The assessee also cited various judgements to the proposition that (i) By furnishing names, address and PAN of the share applicants, details of amount received, nos. of shares allotted, amount adjusted against share capital and premium and copies of share application forms, certificate of incorporation, MOA/AOA PAN Card and Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 17 the share applicants having confirmed the transactions and explaining source of such funds and by filing copies of their acknowledgements of return of income, audited financial statements, bank statements, certificate of incorporation, MOA/AOA, share application acknowledgements, allotment advices, share certificates and identity and address proof of their directors had duly discharged the initial onus lying upon them u/s 68 (ii) Once the identity of the share applicants is proved who confirmed the transactions with the assessee no addition in the hands of assessee could be made (iii) all the share applicants had sufficient net worth to invest in the assessee company (iv) the share applicants are income tax assessee and the payment being received from bank accounts held by the share applicants in their own name the identities and creditworthiness of the share applicants and genuineness of the transactions cannot be doubted upon (v) the amendment to Sec 68 is applicable from AY 2013-14 and therefore the assessee is not required to prove source of source. In any case all the share applicants have also proved the sources of funds (vi) The share premium is a capital receipt and no additions can be made on account of high share premium as Sec. 56(2)(viib) has been brought on statute w e f AY 2013-14 and that fixing of share premium is a commercial decision and in the absence of any provision under the Act, the same cannot be interfered with and (vii) Both the assessee and share applicants filed necessary details and evidences in support of their identities, creditworthiness and genuineness of the transaction and therefore the onus had shifted upon revenue to prove otherwise. As no adverse material has been brought on record, no addition was called for. The assessee further submitted that there being no exempt income, disallowance u/s 14A was not called for 5 2. 6. However, the AO assessed the share capital and premium as unexplained cash credit on the ground that (a) the documents filed by the assessee and the share applicants were 'useless paper work' (b) the assessee did not comply with various notices issued by the AO (c) the assessee's conduct was 'mysterious' and 'recalcitrant' (d) the assessee company had no business activity (e) the assessee did not disclose its nature of business (f\identities of companies in which investments made was not disclosed by assessee (g) the assessee and the share applicants did not invest in quoted shares (h) the investments were made by unknown persons (i) the investors had no creditworthiness, (j) share premium charged was too high which is indicative of unaccounted money. The AO in support of his action relied on the decisions in the cases of CIT v Ruby Traders &'Exporters Ltd. 134 Taxman 29 (Cal), CIT v Precision Finance Pvt. Ltd. 208 ITR 463 (Cal), CIT v Nipun Builders & Developers Pvt. Ltd. (2013) 30 taxmann.com 292 (Delhi)) Kachwala Gems v JCIT, Jaipur 158 Taxman 71 (SC), A Govindarajulu Mudaliar c CIT [1995] 34 ITR 807, CIT v Devi Prasad Viswanath Prasad [1969] 72 ITR 194 (SC), CIT v Independent Media Pvt. Ltd. [2012] 25 taxmann.com 276 (Delhi), Star Griha Pvt. Ltd v CIT and M/s Bisakha Sales Pvt. Ltd. v CIT. 5.3. 1. I have gone through the assessment order and the submission and evidences adduced by the appellant. Based upon the same, I deal with the various adverse findings of the AO based upon which the share capital and premium have been assessed as unexplained cash credit. Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 18 5.3. 2. Regarding ‘useless paper work’ from the perusal of the notices issued and the replies submitted by the assessee and the investor, I have noted that assessee and the investors have submitted only the details, documents and explanation as called for by the AO. The AO has also not mentioned that what irrelevant papers were filed. The copies of documents relating to each of the share applicants being (i) Company Master Date (ii) Director Details (iii) Certificate of Incorporation (iv) MOA/AOA (v) PAN Card (vi) Share Application Form (vii) Allotment Advice (vii) Share Certificates (ix) returns of income (x) audited financial statements (xi) bank statement, (xii) confirmation of investment and source thereof are relevant papers and cannot be rejected merely terming the same as 'useless paper work. Therefore, the finding of the AO that the assessee or the investors submitted 'useless paper work' is against the facts and materials on record and are merely based on surmises and conjectures. 5.3. 3. Regard non-compliance to 'various notices', the AO has not specifically pointed out any specific instance of non-compliance. On going through the assessment order and evidences adduced by the assessee, it is apparent that the in response to notice u/s 143(2) dated 14.08.2013, the assessee on 12.11.2013 filed copies of acknowledgement of return of income and audited financial statements. Thereafter on 26.11.2013 the AO issued notice u/s 142(1) and in compliance thereto the assessee on 23.12.2013 filed names, address, PAN of share applicants, details of share application money received, details of shares allotted, amount adjusted against share capital and premium, bank statement, form -2 (return of allotment), form -5 (increase in authorised share capital). On 27.1 1.2014, the AO issued another notice u/s 142(1) seeking details which were already filed. On 19.01.2015, the AO issued notices to all the share applicants which were complied with by the share applicants by filing replies from time to time. Later the AO issued summons to the directors of the assessee company and two share applicants which were also complied with by filing necessary details. Finally the AO issued a Show Cause Notice on 05.03.2015 to which the assessee filed its reply on 16.03 2015 As such the finding that the assessee did not comply with 'various notices' is factually incorrect. 5.3. 4. The AO has in the assessment order has mentioned that during the course of the assessment proceedings, the conduct of the assessee was 'mysterious' and 'recalcitrant' However, the AO has not mentioned any basis for arriving at such conclusion. From the perusal of the evidences on record, it is apparent that the assessee has complied with each and every notices, summons and show cause notices issued by the AO. The AO has also not referred to any notice/summon that was not so complied with As such I find no basis to hold that the conduct of the assessee was 'mysterious' or 'recalcitrant'. 5.3. 5. Regarding finding of the AO that the assessee had no business and it did not disclose its business, it is evident from the assessment order against column 'nature of business' the AO has mentioned the nature of business as share investment'. The same is also evident from the audited financial statement of the assessee company. As such the findings that the assessee had no business or it did not disclose it nature of business are contrary to the facts and materials on record. Assessment Year: 2012-13 M/s. Safeline Marketing Pvt. Ltd. 19 5.3. 6. Regarding the finding of the AO that the assessee did not disclose the companies in which it made investment is also factually incorrect. The details of investments were filed along with the audited financial statements. 5.3.7 Regarding the observation of the AO that the assessee as well invested in unlisted shares instead of quoted shares, I note that it is settled law that it is for the assessee to manage its own business affairs and the AO cannot sit in the judgement of the assessee. In any case, the AO himself accepted the genuineness of the investments which is evident from the fact that he computed disallowance u/s 14A in respect of such investments 5.3. 8. The finding of the AO that the investors were unknown person is also factually incorrect as the assessee company and the share applicants had common directors 5.3. 9. Regarding, the finding of the AO that the investors had no creditworthiness the appellant has successfully demonstrated that each of the investors had net worth many times the amount invested in the assessee company. 5.3. 10. Regarding high share premium, I find that once the identities and creditworthiness of investors and genuineness of transactions is proved section 68 cannot be invoked on account of high share premium. Therefore, the findings made by the AO based upon which he has assessed the share capital and premium as unexplained cash credit are factually incorrect contrary to material on records and merely based upon surmises and conjectures
On the issue of adverse inference being drawn by the AO on account of high share premium, I find that the first and second proviso to Sec 68 have been inserted by the Finance Act, 2012 w.e.f. 01.04.2013. As such the same applies from AY 2013-14. Similarly 2(24)(xvi) to tax the difference in consideration of value of shares exceeding the fair market value has also been brought on statute by the Finance Act w.e.f. 01.04.2013 and applicable from AY 2013-14. Therefore the said provision does not apply to this year i.e. AY 2012-13. In this regard reference is made to the following judicial decisions:
In the case of ACIT v Gagandeep Infrastructure Pvt. Ltd. ITA No. 5784/Mum/2011 decided on 23.04.2014 the Hon'ble ITAT on the issue of high share premium held as under:
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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 nature in a capital receipts and is not income for its ordinary sense It is not in dispute that the assessee had filed all the requisite details/documents which are required to explain credits in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the