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Income Tax Appellate Tribunal, KOLKATA ‘A” BENCH, KOLKATA
Before: SRI SANJAY GARG & DR. MANISH BORAD
order
: February 16th, 2023 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals)-11, Kolkata [in I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. short ld. “CIT(A)”] dated 30.01.2019 arising out of the assessment order framed u/s 143(3) of the Act dated 13.03.2015.
The assessee is in appeal before the Tribunal raising the following grounds: “
1. That the learned Commissioner of Income Tax (Appeals)-11, Kolkata erred in confirming the addition of Rs. 25,04,00,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on irrelevant considerations and arbitrary grounds.
2. That the learned Commissioner of Income Tax (Appeals)-11, Kolkata erred in confirming the addition of Rs. 25,044)0,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961 on the basis of judgments which are distinguishable on facts as well as on law.
3. That the learned Commissioner of Income Tax (Appeals)-11, Kolkata erred in confirming the addition of share capital of Rs. 25,04,00,000/- made under section 68 of the Income Tax Act, 1961 in disregard of the binding judgments of Hon’ble Apex Court, Hon’ble High Courts and the Hon’ble ITATs which directly lays down ratio on the merits of the addition of share capital under section 68 of the Income Tax Act, 1961.
4. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.”
3. Brief facts of the case as culled out from the records are that assessee is a private limited company engaged in the business of investment in shares. Income of Rs. 23,257/- disclosed in the e- return filed for AY 2012-13 on 30.09.2012. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. Ld. AO noticed that the assessee has issued share capital along with huge share premium on such shares amounting to Rs. 25.04 Cr. The assessee filed details to explain the source of the share capital and share premium, however, ld.
I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. AO remained to be unsatisfied with the identity, creditworthiness and genuineness of the said sources of fund introduced in the nature of share capital and share premium and concluded the assessment making addition u/s 68 of the Act at Rs. 25.04 Cr and assessed the income at Rs. 25,04,23,260/-.
4. Aggrieved, the assessee preferred appeal before ld. CIT(A) and filed detailed submissions. However, ld. CIT(A) on examination of the financials of the alleged share applicants, placing reliance on various judicial pronouncements, came to a conclusion that the alleged share capital is received from shell and paper companies who do not have any regular business activity to support the action of making huge investment in assessee company and thus, confirmed the action of ld. AO.
Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee referring to the detailed submissions before the lower authorities and also referring to paper book in 4 volumes and also referring to plethora of judgments placed in the index of paper book stated that the assessee has filed sufficient details to prove the identity and creditworthiness of the share applicants and genuineness of the transactions. Ld. Counsel for the assessee also stated that most of the companies who have invested in the assessee company are regularly assessed to tax and in some cases also passed through scrutiny proceedings.
On the other hand, ld. D/R filed paper book and also placed reliance on the decision of coordinate Bench Mumbai in the case I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. of DCIT vs. M/s. Leena Power Tech Engineers Pvt. Ltd. in order dated 21.09.2021.
We have heard rival contentions, perused the records placed before us and carefully gone through all the decisions and judgments referred and relied by the ld. Counsel for the assessee and also referred to by ld. AO as well as ld. CIT(A) and their respective orders as well as the decisions relied by ld. D/R.
We notice that the assessee is a company engaged in the business invested in shares has offered an income of Rs. 23,257/- . During the year the assessee company issued equity shares on the face value of Rs. 10/- each at a premium of Rs. 9,990/- each. Thus, share premium is almost 100 times of the face value of the share. It is not in dispute that the assessee company has earned a meagre income and does not possess any fixed assets nor it carries out any regular business activity. Nothing has been placed before us to indicate that the assessee company is planning to start a new project which will be very profitable in the future and the projected figures justify the charging of share premium of Rs. 9,990/- on the equity share of face value of Rs. 10/-. So, we find that there is no concrete ground which could justify the charge of premium of Rs. 9,990/- on the equity share of face value of Rs. 10/- by the assessee company.
Now, even for the sake of argument it is considered that the assessee company has taken a decision in its Board meeting and it is purely a business decision to charge premium on the issue of equity share capital, we need to consider that who are the share I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. applicants who venture to make a huge investment in the assessee company. During the course of assessment proceedings, the following details were filed by the assessee company with regard to share applicants and the same are also reproduced in the assessment order as under: “1. Proof of identity-Voter Card/Passport/Driving license/PAN Card 2. List of companies where you were Directors/shareholders from the A.Y. 2008-09 till date with dates of appointments thereto with DIN 3. Proof of acknowledgement of filing IT Return along with copies of accounts and that of the companies where you have been director as mentioned above in Sl. 2 for A.Yrs. 2010-11, 2011-12 & 2012-13.
Details of transaction with the above assessee company along with complete bank statements in respect of bank accounts through which such transactions have been made, also highlighting the relevant portions of the statement with regard to the said transactions.
5. Declaration of all sources of investment/transactions with the above party for the A.Y. 2012-13 6. Identification of family members who are directors in the assessee company and their relationship.
7. A write-up on justification of large share premium.”
Further, we notice that ld. AO asked ld. Counsel for the assessee to produce the directors of the assessee company. The reason behind calling the directors of the assessee company was mainly to identify the genuineness of the transaction regarding issuing of share capital with huge share premium as well as the process through which the assessee company approached various shareholders who in turn were satisfied to invest in the assessee company. However, in spite of various opportunities, the directors of the assessee company failed to appear and thus, the assessee I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. company failed to establish the three ingredients namely identity, creditworthiness and genuineness of the said sources of fund introduced in the nature of share capital. Ld. AO, after considering the ratio laid down by Hon'ble Apex Court in various judgments including that of CIT vs. Durga Prasad More reported in 82 ITR 540, Sumati Dayal vs. CIT reported in 214 ITR 801 and various other judgments mentioned in the assessment order, confirmed the addition u/s 68 of the Act at Rs. 25.04 Cr observing as follows: “Thus, respectfully following the above decisions of the Hon’ble Apex Courts and various other courts as discussed above and also considering the facts of the case, I am of the considered view that this is nothing but a case where the assessee has introduced its own undisclosed fund in the garb of subscription by shareholders. As the identity as well as the creditworthiness of the shareholders could not be established by the Directors of the assessee company. On verification of 1TD Database it was seen that company has raised capital this year under the head ‘equity share issued' to the tune of Rs.25,04,00,000/-. This sum of Rs. 25.04.00,000/- shown as share capital raised in the books of the assessee is treated as undisclosed income and added back U/s 68 of the Income Tax Act’61 to the declared total income for the A.Y. under consideration. Accordingly, penalty proceedings U/s 271(1) (c) have also been initiated separately for non compliance with the statutory notice and concealment of particulars of income respectively.”
Further, we notice that when the matter travelled before ld. CIT(A), the issue has been thoroughly examined. Ld. CIT(A) also minutely observed the financials of the share applicant companies and following observations are worth noting which has a direct bearing on the creditworthiness of the share applicants. Such observations are mentioned in para 7.6 of the impugned order which reads as follows:
I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. “7.6 Having gathered facts from the Returns of Income and bank account statements of the appellant as well as its investors, the following facts are highlighted: (i) The appellant’s Revenue from Operations is Rs. NIL. The only income earned by it is out of other sources such as interests. (ii) It filed a return declaring a loss of Rs. 1,830 and a loss of Rs. 3,722 for the AY 2011-12 and AY 2012-13. The total expenditure incurred by the appellant on various heads such as Financial Costs Employee Benefit Expenses Depreciation and Amortization Expenses, Administrative & Other Expenses amounts to Rs. 16,96,172. In other words, the total earnings (loss) and the outlays of Rs. 16,96,172 vis- a-vis share capital along with premium earned by the appellant at Rs. 25,04,00,000 is a tiny nothing. The financial results reveal that the appellant has not been doing any business worth notice. It has not earned anything from its ‘business operations’ and has also not spent any notable amount towards conducting its business. A company with no earnings attracting huge investments in shares, that too, at unreasonably high premium, beats the normal business prudence. This brings the entire transaction of issue of share capital and premium under a big question mark. (iii) A similar trend is witnessed in the case of the investors who have purchased the shares of the appellant company at a premium. Each of the companies indicated in the table above has shown the same character. The Revenue from Operations are NIL in all except two cases (Intellect Stock Broking Ltd. and Keynote Commercial Pvt. Ltd) which have shown it at Rs. 78,15,701 for AY 2011-12 and Rs. 74,53,847 for AY 2012-13 in the case of Intellect Stock Broking Ltd. and Rs. 5,51,000 (AY 2012-13) for Keynote Commercial Pvt. Ltd. All that the investor companies have earned from is interest. The returns are either of loss or of insignificant incomes below taxable limits. (iv) They have all issued shares at a very high premium without having earned any Revenue from business operations. (v) They also have invested in shares at a very high premium in other companies who also have not earned anything from business operations. (vi) The Balance sheet shows that even though they do not earn anything, they invite huge investments in their accounts. This money I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. is then used to make further investments at high premiums in other companies. They also issue unsecured loans to other companies. (vii) Thus, money obtained from the route of share premium is rerouted for supplying sources of receipt of money to other companies. The circuit of investment remains within a group of companies. In this manner, through a circular routing of funds, the capital of each of the companies is enhanced. The ‘inflated’ capital is then used for providing loans etc. to desiring entities. (viii) The bank accounts of the above concerns show that huge sums are received from one concern through cheques or through RTGS and are immediately diverted to another company of the group. The bank balances remain negligible before and after such transfers. (ix) Each of these companies invest in each other at a very high premium even though there is no business being conducted. (x) There is no reason or logic provided by any of these companies as to on what basis and which calculation did they arrive at the value of premium on share to be issued. Neither the appellant company nor its investors have followed any RBI or IGAI or any other guide line for determining the rate of premium on their shares. The fixing of the rates for premium appears to be arbitrary and devoid of any financial or accounting rationale. (xi) The investors have not bothered to ensure protection of their investments.”
After having examined the financials of the share applicant companies as well as also considering the fact that the assessee company had no foundation to attract a huge premium of Rs. 9,990/- on the equity shares of the face value of Rs. 10/- each clearly raises a doubt about the genuineness of the transaction and rather indicates that the said transaction of receiving share capital and share premium are in the nature of accommodation/bogus entry. The conclusion drawn by ld. CIT(A) on basis of these facts appearing in the financials of the share I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. subscriber companies as well as that of the assessee company have been summarised in the following manner: “7.16 If the facts of the appellant’s case are viewed in the light of the above referred judgments, it will be clear that on similar facts, the courts have ruled that the onus of establishing the identity, creditworthiness and genuineness of the share transactions was not discharged by those appellants. In the same vain, in the instant case too, the returns of income filed by the appellant’s shareholders show that they did not have any real business activity and had never earned taxable income, yet they were dealing in crores in the name of investing and receiving funds towards share capital at unreasonably high premium. The bank accounts too show that they were being used only to rotate money and never had any substantial balance left either before or after transaction. Thus, once an amount through cheque or RTGS was received from one entity, it would immediately be diverted to another entity and the resultant cash balance was left at a paltry sum of few thousands. These facts, as ruled by the courts in the above referred decisions, establish that the transactions were not genuine. The thin cash balance left in the bank accounts pre and post the ‘rotational transactions’ also established that the shareholders’ did not have a creditworthiness to invest in shares at high premium in the appellant company. These facts are further buttressed by the fact that the appellant has not followed any guideline, be it by the RBI or the ICAI for ascertaining the value at which premium as high as Rs. 9,990 on a share of face value of Rs.10 could be charged. There is no logic or rationale behind this decision on the part of the appellant. A company having no revenue from business operation and having shown no future prospects could garner such huge investments exceeding 24 crores in one year eludes all human probabilities. As a result, the appellant’s case fails miserably in its bid to establish the genuineness of share transactions. Therefore, its arguments are held worthy of rejection.”
As far as the contentions of ld. Counsel for the assessee are concerned, they are repetitive in nature only indicating that all the documents including the bank statement, ITR, balance sheet, PAN card have been filed and the transactions have taken through banking channel and thus, all the three ingredients to explain the I.T.A. No.: 783/KOL/2019 Assessment Year: 2012-13 Tribhuvan Dealtrade Pvt. Ltd. identity, creditworthiness and genuineness of the said transaction of share capital and share premium are fulfilled.
We, however, after considering the facts of the case as well as the detailed finding of ld. CIT(A), are of the considered view that firstly the financials of the assessee company itself are so poor that by no stretch of imagination the assessee company can attract the investors to invest in its share capital and pay a huge premium of Rs. 9,990/- without having certainty of the return on such investments since there is hardly any future prospect of the assessee company giving rise to profitability. This fact itself shows that the genuineness of the transaction is in doubt. As far as identity of the share applicants is concerned, there cannot be any doubt because they all are registered with the Registrar of Companies having PAN number and regularly filing the income tax return. So far as the creditworthiness of the share applicants is concerned, we notice that there is a common pattern that in all such companies the income is very meagre and in comparison, of such income in the present as well as in the past period do not carry a weight and is beyond human probability to venture for a huge investment in the assessee company which itself has poor financials. Therefore, these peculiar facts of the instant case bring us to a conclusion that all the transactions involving the issuing of share capital on the equity shares of face value of Rs. 10/- and share premium of Rs. 9,990/- as well as the huge investments by alleged shareholders neither prove the genuineness of the transaction nor prove the creditworthiness of such shareholders. Therefore, we fail to find any infirmity in the finding of ld. CIT(A)