SANGITA DEVELOPERS PVT.LTD,KOLKATA vs. ITO,WARD-9(4). , KOLKATA

For that on the facts and in the circumstances of the case, Ld. CIT(A) was not justified in confirming the addition of Rs.2,32,50,000/- made by the A.O. by treating the share capital as unexplained cash credit u/s. 68 of the Act. Assessment Year: 2012-13 Sangeeta Developers Pvt. Ltd. 2

For that the Ld. CIT(A) was not justified in confirming the action of the Ld. A.O. in treating the share capital as unexplained merely on the ground of non-appearance of the directors of the share applicant companies.

The appellant craves leave to add further grounds of appeal or alter the grounds at the time of hearing.”

Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of investment in shares. Loss of Rs.2,07,816/- was declared in the e-return filed for Assessment Year 2012-13 on 19/09/2012. Case selected for scrutiny through CASS to examine large share premium received.

During the course of assessment proceedings, the ld. Assessing Officer noticed that the assessee has received share capital and share premium of Rs.2,32,50,000/-. Various details were called for to examine the identity and creditworthiness of the share applicant and genuineness of the transactions. The assessee filed all these details on 10/03/2015 but failed to produce the investors physically. On this ground itself, the Assessing Officer came to the conclusion that the assessee has failed to prove the identity and creditworthiness of the shareholders and accordingly made addition under section 68 of the Act at Rs.2,32,50,000/-. Aggrieved the assessee preferred appeal before the ld. CIT(A) but failed to succeed.

The ld. CIT(A) based on the various judgements referred in the impugned order confirmed the view taken by the Assessing Officer and observed as follows:- “5.11 All these above-mentioned cases are also applicable in which the various judicial authorities have decided the cases in favour of revenue after Assessment Year: 2012-13 Sangeeta Developers Pvt. Ltd. 3 going through the entirety of the facts and circumstances. The case laws relied upon by the appellant have been decided with reference to the specific facts and situations present in the context of those distinct cases and cannot be made universally and squarely applicable to all cases where similar issues but in different setting of facts and accompanying circumstances are found to be involved. The proviso to section 68, added through Finance Act 2012 has made a clear cut distinction between company making private placement of shares and company raising funds through public issue of shares. The intention of the amendment was to place a higher onus on the assessee in addition to general onus of "identity, credit worthiness and genuineness". This is because it was observed that closely held companies have a special knowledge of investments made in their shares as a result of which they must be held accountable if "source of source" is not proved. So if a shareholder is not able to satisfactorily prove the source of its investment, addition can be made in the hands of assessee company and not its shareholder. The proviso thus cleared the confusion created by an earlier decision of Supreme Court in CIT Vs. Lovely Exports 216 CTR 195 in which relief was given only to public issue of shares. The decision was being erringly quoted by assesses to evade their onus of proving "source of source" even in case of private placement of shares. Even prior to this amendment, the onus was always on the assessee to prove the identity, credit-worthiness and genuineness of the entities in whose name the credit entries were appearing by way of share capital. The appellant has miserably failed on this account.

12 A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be a sum during the previous year and if the assessee offers no explanation about the nature and source of such credit or the explanation offered is not satisfactory, then the sums so credited can be treated as income of the assessee for that previous year. The expression no explanation is offered, or the explanation offered is not satisfactory puts an onus on the assessee to offer a lucid, reasonable and acceptable explanation before the Assessing Officer and thereupon the Assessing Officer should form an opinion accepting or rejecting the explanation based upon appreciation of facts/materials and other attending circumstances. In this case, the appellant has failed to discharge the onus cast upon it. Even during the course of appellate proceedings, no evidences have been furnished by the appellant to establish its case. The appellant has thus failed to prove the identity and credit- worthiness of shareholders and genuineness of the transaction with the companies from whom it has obtained share capital on ground realities. Assessment Year: 2012-13 Sangeeta Developers Pvt. Ltd. 4

13 Considering the above facts, since appellant failed to establish identity, creditworthiness and genuineness of the transaction, addition made by the AO on account of unexplained share capital at Rs. 2,32,50,000/- u/s. 68 is hereby confirmed. The grounds of appeal are dismissed.”

Aggrieved, the assessee is now in appeal before the Tribunal.

The ld. Counsel for the assessee by referring to the index of the paper book stated that the ITR Acknowledgement, computation of income and final accounts of the assessee company, source of funds of the share applicants and all other relevant details have been filed. There is an account of share application money along with the list of share applicants which has been filed. Reference was also made to the master data as on date to show that the alleged share applicants are active companies. Reference was also made to the audited financial statements to prove that sufficient funds were available with the share applicants to invest in the assessee company and they also are having regular business operations. The assessee placed reliance on the following decisions of the ITAT Kolkata, wherein the decision of the Hon’ble Calcutta High Court in the case of Crystal Networks P. Ltd. v. CIT (2013) 353 ITR 171 (Cal.)(HC), has been followed to hold that no adverse inference can be drawn due to the non-appearance of the shareholders:-  ITO vs. M/s. Tara Re-Rolling Pvt. Ltd. ITA No. 49/K/2021, order dt. 01/05/2023  Atlantic Dealers Pvt. Ltd. vs. ITO; ITA No. 530/Kol/2020; dated 08/05/2023 Assessment Year: 2012-13 Sangeeta Developers Pvt. Ltd. 5  ITO vs. Forceful Estates Pvt. Ltd.; ITA No. 2558/Kol/2018, order dt. 03/04/2023  ITA No. Subhavani Projects Pvt. Ltd.; ITA No. 2609/Kol/2018, order dt. 05/04/2023. The ld. D/R, on the other hand, vehemently argued supporting the orders of the lower authorities and submitted that all these investor companies are jamakharchi companies.

We have heard rival contentions and perused the material placed before us.

The assessee in the present case is aggrieved with the addition u/s 68 of the Act for unexplained share capital. We notice that the alleged sum of share capital and share premium was received from the various share applicants for which following details were called for by the assessing officer during the course of assessment and the same were duly produced:- “1. Proof of identity-Voter Card/Passport/Driving license/PAN Card

List of companies where you were Directors/shareholders with dates of appointment with DIN

Proof of acknowledgement of filing IT Return alongwith copies of accounts.

All bank statements explaining debit and credit entries highlighting the relevant entries with regard to share capital.

To produce all investors who have made investment 6. the source of funds in the hands of the investors with their respective bank statements

Identification of family members who are directors in the assessee company and there relationship.

A write-up on justification of large share premium.” Assessment Year: 2012-13 Sangeeta Developers Pvt. Ltd. 6

We further notice that the ld. Assessing Officer has duly acknowledged that all these details were filed and without indicating any discrepancy in these details the focus of the AO was only with regard to the non-appearance of the directors of the share applicant companies in view of the summons u/s 131 of the Act. We note that the assessee has discharged the primary onus cast upon it as per the provisions of section 68 of the Act and it has filed a sufficient details to prove the identity and creditworthiness of the share applicants for making investment in the assessee company and also the genuineness of the transactions which is further evidenced by the fact that the assessee company is into a regular business activity and has fixed assets to the tune of Rs.1,78,79,552/-and apart from the share capital it also has long term assets and other long-term liabilities. The assessee being a developer company has made investment in land and office and was in the process of making further expansion. All these information is available in the audited balance sheet placed before us, which thus shows that the transactions of making investment in the assessee company is genuine. Once the assessee has satisfied to the best possible extent, the nature and source of the sum as required under the provisions under section 68 of the Act and the provision to section 68 which came into effect by way of Finance Act, 2015, is applicable for 2013-14, requiring the assessee to prove the source of source, is not applicable in the case of the assessee. The burden shifts upon the assessee to first bring on record any discrepancy in the details filed by the assessee to prove that he was not satisfied with Assessment Year: 2012-13 Sangeeta Developers Pvt. Ltd. 7 these details for the reasons which needs to be show caused to the assessee. In absence of the same it has to be presumed that since the assessee has explained the nature of source and in other words identity and creditworthiness of the share applicants and genuineness of the transactions, provisions of section 68 of the Act will not be invoked. The assessee has placed reliance on plethora of decisions, we, however take note of the decision in the case of Atlantic Dealers Pvt. Ltd. vs. ITO (supra), wherein similar issue came up for adjudication before this Tribunal and except for no personal appearance of the directors of the assessee company/investor companies, all the details were filed to the satisfaction of the assessing officer and this Tribunal held against the revenue observing as follows:- “5. We have heard the rival contentions and gone through the record. The Ld. Counsel for the assessee has contended that in this case, the assessee had filed all evidences to prove the identity and creditworthiness of the subscribers and genuineness of the transaction including the address, PAN & Form 2 & Form 5 filed with