ROBERT HOLDING PVT. LTD.,KOLKATA vs. I.T.O.,WARD-4(1), KOLKATA

The assessee in this appeal has contested the addition of Rs.13680000/- constituting share capital of Rs.2280000/- and share premium of Rs.11400000/- treating the same as unexplained income of the assessee u/s 68 of the Act. The another issue raised by the assessee through grounds of appeal is that the assessee had returned income at a Assessment year: 2012-13 Robert Holding Pvt. Ltd loss of Rs.5030/-, whereas, the Assessing Officer has treated the returned income at nil.

We have heard the rival contentions and gone through the record. Before proceeding further, we deem it proper to reproduce the relevant part of the assessment order as under:

“The assessee company e-filed the return of income tax for the A.Y.2012- 13 on 28.09.2012 showing total income of Rs.NIL. The case was selected for scrutiny assessment through Computer assisted Scrutiny Selection [CASS] with the reason 'large share premium received'. Accordingly, notice u/s 143(2) have been issued and served on the assessee company. Later notice u/s 142(1) was also issued to the assessee company as per Act. In response to said notices Shri K. P. Jhawar, Authorized Representative [A/R] of the Assessee Company appeared to represent the case of the assessee company. From the statements of accounts submitted by the assessee company for the A.Y-2012-13 including the e-filed returns of the assessee company, it is noted that the assessee company during the F.Y-2011-12 issued its shares involving different entities against high premium. Accordingly, it was important to understand as to how the investment decisions that too at a huge premium was taken, whether the applicants did not have their own profit making apparatus to invest. Also whether the transactions in the bank statements were merely for rotating money or the transactions are commensurate with any financial prudence with respect to those companies etc. The assessee company is a closely held company in which public are not substantially interested. Keeping this in consideration, notice under section 131 were issued, and sent to the assessee requiring it to appear personally along with all the Principal Officers, Directors of all the investor companies and/or individual investors as the case may be for the purpose to primarily verify the identity and credit worthiness of the shareholders and genuineness of the transaction made by them in the assessee company, as well as analysis of various entries in bank statements, cash book, ledger etc. for ascertainment of primary sources, reasons for raising capital, rationality of reasons for investment by the investors ,procedure and certifications involved in respect of calculation and determination of such a high premium amount in their respective parts for business and financial justification etc in presence and discussion with all the directors at a time for the purpose of providing the opportunities of cross interaction and cross examination regarding above especially for ascertaining primary

Before the ld. CIT(A), the assessee submitted that no amount was received on account of share capital and share premium during the year. That during the year the assessee had issued 228000 equity shares of Rs.10/- each at a premium of Rs.50/- each. The said shares were issued and allotted by conversion of existing loan into capital by taking share applications from the concerned creditors stating therein that the loans/credits be adjusted by way of issuing of shares on premium. That the loans were past loans and were adjusted and converted into shares of the assessee company. However, the ld. CIT(A) observed that there was no compliance to the notices by the assessee company not only at assessment stage but also during the appellate stage before him. He further observed that merely because the share application/share premium money has been routed through banks, the assessee cannot be Assessment year: 2012-13 Robert Holding Pvt. Ltd said to have discharged its onus cast upon him in the surrounding circumstances of the case. The ld. CIT(A) further noted that the contribution received by the assessee company from the contributors of share capital/share premium were from persons who did not have the creditworthiness. He relied upon various decisions of the Hon’ble High Courts, wherein, it has been held that merely establishing identity of the share applicants would not suffice, the assessee is bound to bring on record and satisfy the revenue about the genuineness of the transaction as well as creditworthiness of the share applicants. He also observed that document/material produced by the assessee was not enough to justify the genuineness of the transaction in question. The ld. CIT(A) therefore dismissed the appeal of the assessee.

Before us, the ld. counsel for the assessee has reiterated his submissions to the effect that the loans were past loans and during the year the said loans were converted into shares by issuing the shares at Rs.10/- along with premium of Rs.50/-. That no cash credits were received during the year. He has further submitted that the source of credits could have been examined at the time of taking of the loan, however, no scrutiny assessment u/s 143(3) was done in the earlier assessment years.

The ld. DR, on the other hand, has submitted that it was a scheme devised by the assessee to introduce his unaccounted income. That firstly in the earlier years the unsecured loans were booked which were appropriated to its capital by the assessee in this year by issuing of shares at high premium. That the assessee could not justify the financial worthiness and profit making apparatus of the assessee, so that the investors will take the shares of the assessee at premium and further that the creditworthiness of the investors were also not established.

After going through the impugned order of the Assessing Officer and that of the CIT(A), we find that the contentions of the assessee that the past loans were converted into shares, has not been properly examined by any of the lower authorities. Though the Assessing Officer and the CIT(A) have written that the assessee had not furnished the relevant evidences to prove the identity and creditworthiness of the creditors and genuineness of the transaction, however, the case of the assessee is that the assessee had furnished the requisite documents to prove the genuineness of the transaction. We note that the summons issued by the Assessing Officer has remained uncomplied. The assessee in pages 17 to 31 of paper-book has placed confirmation of accounts of share applicants. However, we note that the said confirmations have been issued by the assessee itself. There are no confirmations received by the Assessing Officer from the creditors regarding the confirmation of the aforesaid transactions. The entire issue, in our view, is required to be examined at the hands of the CIT(A). We therefore restore the matter to the file of the CIT(A) with a direction that the ld. CIT(A) will examine the contention of the assessee that the past loans were converted into shares and that no fresh amount was received during the year and the ld. CIT(A) will also examine the contention of the revenue that the entire transactions are a scheme devised to introduce unaccounted money of the assessee by way of firstly booking the loan in earlier year and then to convert the same into share price and premium in the next year. The ld. CIT(A) will verify all the aspects and thereafter will pass a speaking order in this respect. The ld. CIT(A), if so deem fit, may cause to make an enquiry through Assessing Officer and call for a remand report in this respect.

With the above observations, the appeal of the assessee is treated as allowed for statistical purposes. Kolkata, the 22nd May, 2023. Sd/- Sd/- [डॉ�टर मनीष बोरड /Dr. Manish Borad] [संजय गग� /Sanjay Garg] लेखा सद�य /Accountant Member �या�यक सद�य /Judicial Member Dated: 22.05.2023. RS Copy of the order forwarded to: 1. Robert Holding Pvt. Ltd 2. ITO, Ward-4(1), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR),