ONE STOP COMMOSALE PVT. LTD.,KOLKATA vs. I.T.O.,WARD-6(3), KOLKATA

order

: May 3rd, 2023 ORDER

Per Manish Borad, Accountant Member:

That on the facts and the circumstances of the case and in law, the Ld. CIT(Appeals) has erred in confirming the addition of Share capital Rs. 4,88,00,000/- made by Ld. Assessing Officer solely on the order passed by the Ld. Assessing Officer, rejecting the submission of the Assessee arbitrarily which is wholly illegal and untenable in law. That on the facts and in the circumstances of the case Ld. CIT(Appeals) erred in disregarding the facts on record, altogether lacked the legality, fairness and reason in the appellate order. The appellant craves to add, alter or amend ground or grounds of Appeal on or before the date of hearing as may be allowed by appellate authority.”

3. Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in the business as service provider. Return for AY 2012-13 e-filed on 25.09.2012 declaring total income of Rs. 35,380/-. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. During the course of assessment proceedings ld. AO on going through the balance sheet observed that the assessee has received share capital along with share premium totalling to Rs. 4.88 Cr against the issue of 2,94,500/- equity shares having face value of Rs. 10/- and premium of Rs. 157/- per share. Ld. AO asked the assessee to explain the nature and source of the alleged share capital and share premium and also asked the assessee to produce the managing director of the company. However, limited explanations offered by the assessee was not sufficient to satisfy ld. AO and he was of the view that the assessee failed to explain Page 2 of 13 I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. the alleged share capital and share premium and, thus, invoked the provisions of Section 68 of the Act and made the addition of Rs. 4.88 Cr. Along with making disallowances u/s 14A of the Act income of the assessee assessed at Rs. 4,89,55,652/- 4. Aggrieved, the assessee preferred appeal before ld. CIT(A) only challenging the addition made u/s 68 of the Act and again reiterated the submissions filed before ld. AO. However, ld. CIT(A) was not satisfied and in his view, merely furnishing documents in routine way does not explain the source and the creditworthiness of the party. Ld. CIT(A) further, held that the basis on which the premium was charged has not been explained and no efforts have been made with the help of financial statement to justify the quantum of share premium charged. Ld. CIT(A) accordingly sustained the addition u/s 68 of the Act.

5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee vehemently argued referring to the written submissions dated 08.02.2023 running into several pages merely enumerating the documents of the share applicants. Ld. Counsel for the assessee also referred to another paperbook dated 02.12.2022 containing 191 pages indicating the financials of the assessee company and the replies given by various share applicants to the notices u/s 133(6) of the Act. It is contended by ld. Counsel for the assessee that the assessee company is engaged in investment and finance activities and the share capital and share premium received from various share applicants are duly supported by documentary evidences explaining the identity and I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. creditworthiness of the share applicants and genuineness of the transaction. Reliance placed on the following decisions: 1. CIT vs. Ganjeshwari Metals, ITA 597/2012, (Delhi High Court) 2. Finlease Pvt. Ltd 342 ITR 169 in ITA 232/2012 Judgment date 22.11.2012 3. ITO Vs. Cygnus Developers (I) Pvt. Ltd in dated 02.03.2016 (Hon'ble ITAT, Kolkata Bench) 4. ITO Ward 3(2)/Kol Vs. M/s Steel Emporium Ltd ITA No. 1061/Kol/2012, dated 05.02.2016 (Hon'ble ITAT, Bench Kolkata) 5. R. B. Horticulture & Animal Projects Co. Ltd, ITA No. 632/Kol/2011, dated 13.01.2016 (Hon'ble ITAT, Kolkata Bench) 6. DOT Vs. Global Mercantiles Pvt. Ltd in ITA No. 1669/Kol/2009, dated 13.01.2016 (Hon'ble ITAT, Bench Kolkata) 7. CIT Vs. M/s Nishan Indo Commerce Ltd, Income Tax Appeal No. 52 of 2001 dated 02.12.2013 (Hon'ble Calcutta High Court) 6. Ld. D/R vehemently argued supporting the orders of both the lower authorities and further submitted that the share capital and share premium received from various share applicants are merely in the nature of accommodation entries and all the alleged share applicants are Jama-Kharchi companies having no regular business activity and having poor financial strength which is not sufficient to justify the investment made in the assessee company.

“(i) Unexplained cash credit u/s 68 of the I.T. Act, 1961. On perusal of Balance sheet of the assessee it has been gathered that during the year under reference the assessee has received share application money and premium thereon amounting to Rs. 4, 88, 00,000/- during the year in question. The assessee has issued 294500 shares having face value of Rs.10/- per share on a premium of Rs. 157/- per share. To verify the genuineness of the said transactions and to verify the identity and creditworthiness of the shareholders of the assessee company, notice u/s 131 of LT. Act was issued on 18/02/2015 to directors of the assessee company asking him to produce the Managing Directors of all the shareholders company to whom shares were allotted during the year under reference. They were asked to appear personally before the undersigned and to produce/ furnish details / documents in support of the justification for the investment made by them in the assessee company and other details as asked for. But, none of them appeared before the undersigned. Subsequently, Show Cause letter was issued to the Managing Director of the assessee company on 05.03.2015 informing the said facts and was asked to explain as to why the credit claimed to the tune of Rs. 4, 88, 00,000/- should not be added back to the total income of the assessee company u/s 68 of the I.T. Act 1961 as the credit in the books of accounts remained unexplained and identity and creditworthiness of the shareholders and the genuineness of the transactions could not be verified.

I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. Whenever a sum is credited in the books of the assessee, the onus lies on the assessee to prove three criteria:- (i) Identity of the creditors, (ii) Creditworthiness of the creditors and (iii) Genuineness of the transaction. As per the provisions of section 68 of the I.T. Act, the onus is on assessee to prove the above three criteria. Reliance is being placed on the decision of jurisdictional High Court in the case of CIT -vs- Precision Finance Pvt. Ltd. [208 ITR 463] wherein it was observed that:- Further reliance is placed on the judgment of the Hon’ble Calcutta High Court in CIT- v- Ruby Traders and Exporters Ltd, fl34 Taxman 29 (Cal)] which was pleased to hold, ‘it is incumbent on the assessee to prove and establish the identity of the subscribers, their creditworthiness and the genuineness of the transaction. Once materials to prove these ingredients are produced, it is for the Assessing Officer to find out as to whether on these materials the assessee was able to establish the ingredients mentioned above.’ As to how the onus can be discharged would depend on the facts and circumstances of each case. It is expected of both the sides - the assessee and the assessing authority - to adopt a reasonable approach. This view had been taken in the case of CIT Vs M/s Nipun Builders & Developers Pvt. Ltd. 30 Taxman.com 292 (Delhi) [2013]. The assessee was a private limited company, which cannot issue shares in the same manner in which a public limited company does. It has to generally depend on persons known to its directors or shareholders directly or indirectly to buy procure share application money. So far as creditworthiness of the share subscribers is concerned, there must be some positive evidence to show the nature and source of the resources of the share subscribers. If the assessee was serious enough to establish its case, it ought to have complied with the notices /letters issued by the Assessing Officer and it ought to have produced the directors of the subscribing companies before the assessing officer so that they could explain the sources from which the share subscription was made. In this case, there was no compliance either from the end of the assessee company or from the end of alleged subscriber companies. Page 6 of 13 I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. Section 68 of the I.T. Act provides for charging to income tax on any sum credited in the books of the assessee maintained for any previous year if the assessee offers no explanation about the nature and source thereof or the explanation offered is not, in the opinion of the Assessing Officer, satisfactory, it places no duty upon the Assessing Officer to point to the source from which the money was received by the assessee. Where an assessee fails to prove satisfactorily the source and the nature of certain amount of credit during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipt are of an assessable nature. This view was adopted in the case of A. Govindarajulu Mudaliar vs CIT [1958] 34 ITR 807. Similar view was also taken in the case of:- (i) CIT vs Devi Prasad Viswanath Prasad [1969] 72 ITR 194 (SC), and (ii) Commissioner of Income-tax vs Independent Media (P) Ltd. [2012] 25 taxman.com 276 (Delhi). Reliance is also being placed on the decision of jurisdictional ITAT in the case of M/s Star Griha Pvt. Ltd vs CIT and M/s Bisakha Sales Pvt. Ltd. vs. CIT. wherein Hon’ble ITAT has given detailed findings of modus operand! of such type of companies. To quote from Bishakha Sales the Hon’ble Tribunal has made the following observations: “It is for the assessee to prove its claim for share capital. Merely dumping papers on the table of the assessing authority does not in any way mean compliance. We do understand the predicament of the assessee in so far as any responsible person appears” Further from the analysis of bank statement of the assessee, it is found that almost similar amount was debited from the account of the assessee almost on same day when this share application money was credited to the account of assessee. From the P/L account and Balance sheet of the assessee, it is evident that assessee had not carried out any business activity. The worth of the assessee company, its activity and reputation in the market does not justify such a huge share premium amount for the shares of assessee-company. With the materials on record, it is not clear if the assessee-company has been taken over by any beneficiary - the stage of ‘third limb’. In view of the usual trend associated with such cases, I find it prudent Page 7 of 13 I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. and logical to treat the entire share Capital &Premium amount credited in the books of accounts during the year under reference as unexplained and added back u/s 68 of the I.T. ACT, 1961. Considering the facts and circumstances, the sum so credited amounting to Rs. 4,88,00,000/- in the books of the assessee company is hereby treated as bogus and added back to the total Income of the assessee u/s. 68 of the I.T. Act, 1961. Accordingly, penalty proceedings u/s. 271(1) (c) of the I.T. Act, 1961 has been initiated separately on this ground.”

“I have gone through the assessment order, grounds of appeal and submissions made on behalf of the appellant. The A/R who is Director of the appellant stated that he did not want to submit any other details except relying on the submission made. The assessee received share application money and share premium thereon amounting to Rs. 4,88,00,000 during the year in question. The assessee had issued 294500 shares having face value of Rs. 10 per share on a premium of Rs. 157 per share. The Assessing Officer in his assessment order has discussed in detail the general modus operandi adopted in such cases as well as the specifics of this case. To verify the genuineness of the said transactions and to verify the identity and creditworthiness of the shareholders of the assessee company the AO issued summons to the directors of the assessee company asking to produce Managing Directors of all the shareholders company to whom shares were allotted during the year under reference. But none of them attended. During appellate proceedings, no reasons were furnished as to why the compliance as sought by the Assessing Officer was not made.

I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. As noted in the assessment order, the appellant company filed return of income disclosing total income of Rs. 35,380. The AO after considering the facts of the case and relying on various case laws made the addition. The AO has discussed the background of the case and facts of the case and the various judgements relied and the same are not reproduced for sake of brevity. Merely furnishing documents in routine way, does not explain the source or the creditworthiness of the party. The basis on which premium has been charged for the shares has not been explained. No efforts have been made with the help of financial statements to justify the quantum of share premium charged. Hon'ble ITAT, Kolkata in the case of M/s. Blessings Commercial Pvt. Ltd, being for the Assessment Year: 2010-11, order dt. 28.06.2017 has held as follows:- "11. The second argument of the Id. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor company as well as the genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed. There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case. The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved." The Bench of the ITAT confirmed the addiction u/s 68 of the Act on the ground that the assessee has not proved the genuineness of the transactions. The Hon'ble High Court of Delhi in its recent judgement dated 17/01/2019 in the case of Pr.CIT-6, New Delhi vs NDR Promoters Pvt. Ltd [ITA 49/2018] after discussing various case laws has held that Page 9 of 13 I.T.A. No.: 636/KOL/2019 Assessment Year: 2012-13 One Stop Commosale Pvt. Ltd. the addition in such cases was justified where the assessee did not have income justifying issues of shares at premium and where the assessee failed to produce Directors of the companies, though they filed confirmations and where assessee failed to produce the details and particulars with regard to issue of shares, notices etc. to the shareholders of AGM/EGM etc. In the normal course of conduct, no one will investment of such huge amounts without being concerned about the return and safety of such investment. Applying the propositions of law laid down in the case of M/s. Blessings Commercial Pvt. Ltd (supra) and M/s NDR Promoters Pvt. Ltd (supra), I uphold the order of the Id. Assessing Officer and dismiss the appeal of the assessee.”