RIVET ELECTRICAL PVT LTD,FARIDABAD vs. PR. CIT, FARIDABAD

ORDER

PER KUL BHARAT, JM :

2. That, the Ld. Pr. Commissioner of Income Tax has erred in law as well as on facts in assuming that no verification was made during the course of the assessment ignoring that during the course of the assessment, learned AO has verified the transactions by issuing Page | 1 notices u/s 133(6) of the Act and it is only when the investor companies filed their explanation alongwith documentary evidences, and no adverse material was found the credits were accepted as genuine.

3. That, the Ld. Pr. Commissioner of Income Tax has erred in law as well as on facts in failing to appreciate that once on the independent enquiry made by the ld. AO, the creditors accepted the transaction, and there was no adverse material, ld. AO was legally obliged in law to accept the transaction in view of the various judicial pronouncements of the jurisdictional and other High Courts and the Apex Court.

4. That, the Ld. Pr. Commissioner of Income Tax has erred in law as well as on facts in observing that the ld. AO has not verified the creditworthiness of the creditors failing to appreciate that once the sums have been received through banking channels and complete evidences was provided during the course of the assessment, suspicion raised purely on assumptions is wholly unsustainable in law.

5. That, the Ld. Pr. Commissioner of Income Tax has erred in law as well as on facts in relying on the report of the ld. AO obtained during the course of the revision proceedings wherein instead of making independent enquiry, the ld. AO merely relied on some other cases, and hence the reliance placed on such report of the ld. AO by the ld. Pr. CIT is wholly erroneous and unsustainable in law.

6. That, the Pr. Commissioner of Income Tax has erred in law as well as on facts in having assumed jurisdiction u/s 263 of the Act on surmise and conjecture and passed consequential order directing the ld AO to make a fresh assessment.

7. That, therefore, in view of facts and circumstances of the case, the assessment order passed u/s 143(3) of the Act accepting the returned income filed by assessee being not erroneous and hence not prejudicial to the interests of revenue, the order passed u/s 263

of the Act directing to make a fresh assessment is without any basis, bad in law and liable to be quashed.” BRIEF FACTS OF THE CASE 3. Facts giving rise to the present appeal are that in this case, the assessee e-filed return of income declaring an income of Rs.1,27,580/- on 04.10.2014. Subsequently, the case was selected for limited scrutiny through CASS. Statutory notice dated 18.09.2015 u/s 143(2) of the Income Tax Act, 1961 (“the Act”) was issued and duly served upon the assessee fixing the date of hearing on 28.09.2015. Thereafter, notice u/s 142(1) of the Act was issued to the assessee on 09.10.2015 fixing the date of hearing on 29.10.2015. Ld. Authorized Representative of the assessee attended the proceedings. The assessment u/s 143(3) of the Act was completed vide order dated 05.04.2016. The Assessing Officer [“AO”] after providing opportunity to the assessee accepted the return of income filed by the assessee. However, the Ld. Pr.CIT noticed that the case was taken up for scrutiny to verify large share premium received during the year but the AO has not carried out the requisite inquiry and passed the assessment order, without examining and conducting the inquiry. Thus, as per Ld. Pr. CIT assessment order is erroneous and prejudicial to the interest of Revenue. He proceeded to initiate proceedings u/s 263 of the Act that ultimately culminated into passing of impugned order dated 29.03.2019 u/s 263 of the Act. Thereby, he set aside the assessment order and directed the AO to frame assessment afresh after verifying the issues.

4. Aggrieved against the order of Ld. Pr. CIT, the assessee is in appeal before this Tribunal.

5. Ld. Counsel for the assessee submitted that Ld. Pr. CIT committed gross error in holding that the assessment order is erroneous and prejudicial to the interest of Revenue. Ld. Counsel for the assessee vehemently argued that Ld. Pr. CIT was not justified in revising the assessment order. Ld. Counsel for the assessee further reiterated the submissions as made in the written submissions. The written submissions of the assessee are reproduced as under:-

4. Due to unfavourable market conditions, the assessee company could not start its business activities. During the year the company utilized its funds to earn interest income and the same was disclosed in the statement of profit and loss account and computation of income for the year. 4.1 Later, the case was selected for scrutiny to verify large share premium received during the year and to verify the applicability of section 56(2)(viib) of the Act. A notice u/s 143(2) of the IT Act dated 18.9.2015 (PB II 184-185) and a copy of questionnaire dated 7.8.2015 were also issued to the assessee asking to furnish documents in support of the Return of Income (PB 177- 183). The assessee was issued notice u/s 142(1) of the Act dated 09.10.2015 and 03.11.2015. A copy of the notice u/s 143(2) along with the questionnaire is placed at pages 184-185 of PB II. 4.2 In response to the notice, the assessee filed the elaborate reply to the notice issued u/s 142(1) dated 09.10.2015. The reply of the assessee is placed at pages PB II 188-224. (Details in submissions). The details of the information provided to the Ld.AO is placed at pages PB 1-176. 4.3 Later, to verify the details from the investor companies, the Ld.AO issued notices u/s 133(6) dated 13.01.2016 to the investor companies. Copy of notices u/s 133(6) of the Act is placed at pages PB II 225-229. In response, the investor companies duly filed the reply which was directly sent to the AO confirming the investment along with courier receipt which are placed at pages PB II 230-235. 4.4 It is submitted that after having examined the documents, replies statements of the assessee and the investor companies which were promptly provided to the Ld.AO, the assessee satisfied the conditions and established the identity and creditworthiness of the shareholders and the genuineness of the transaction. 4.5 Thus, finally the return of income was assessed and accepted at Rs. 1.27.580/- vide order dated 05.04.2016 under section 143(3) of the Page | 5 Act. (PB II 236-237). A notice of demand u/s 156 of the Act calculating no demand pending against the assessee dated 05.04.2016 was issued to the assessee. (PB II 238). On 10.6.2016 an application u/s 154 was filed for rectifying the demand notice showing NIL as against refund of Rs. 94.400/- claimed by the ‘A'. Copy of application is placed at page 239 of the PB.

5. The Ld.AO accepted the documents furnished at the time of assessment, and the return of income was finally assessed and accepted on the basis of documents furnished. The genuineness and creditworthiness of the above investors were verified u/s 133(6) of the Act and thereafter accepted by the Ld.AO.

6. However, later a show cause notice u/s 263 was issued by Pr. CIT to the assessee on 19.2.2019 (PB II 240-241) where the questions on the genuineness of the transactions and creditworthiness of the above shareholders was raised that the same were not verified by the Ld.AO. despite having satisfactorily verified the genuineness of the transaction and identity, creditworthiness of the investors by the Ld.AO during the assessment stage. The assessee also filed the response of section 263 providing details of valuation report under Rule 1lUA(2)(a) (PB II 242-244) dated 26.2.2019. Further, a response dated 29.3.2019 was filed with Pr.CIT (PB II 245-250) explaining its stand that the assessee has furnished all the details satisfying the identity, creditworthiness of the investors and the genuineness of the transaction as required u/s 68 of the Act. Further, the nature and source of the share capital and the share premium received was fully explained by the assessee. With respect to section 56(2)(viib) of the Act, the assessee company issued the shares at a fair market value calculated by the assessee company as per the method enumerated under Rule 11UA of IT Rules, 1962, therefore, the provisions of section 56(2)(viib) are not applicable and the share premium should not be added back to the income of the assessee company. Thus, the burden shifts on the Department to show that even if share applicants did not have the means to make investment, the investment made by them Page | 6 actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In absence of such finding, addition can not be made u/s 68 in the hands of the assessee. However, rejecting the entire submissions of the assessee, the Ld.PCIT did not agree with the genuineness of transactions, identity and creditworthiness of the investors.

7. The main points raised by the Ld.PCIT challenging the assessment order dated 5.4.2016 are: a) That the genuineness and creditworthiness of the investors were not verified by the Ld.AO while framing the assessment order. b) That the genuineness of the share application money and share premium was accepted by the AO without making requisite verifications and thus it does not pass the test of genuineness. c) That the AO completed the assessment proceedings without considering the genuineness and creditworthiness of investors.

7. Later Pr.CIT held that the AO did not verify the genuineness, identity and creditworthiness of the shareholders during the assessment stage and held the assessment order dated 5.4.2016 to be erroneous and also prejudicial to the interest of the revenue u/s 263 of the Act. Consequently, Ld.Pr.CIT cancelled the assessment order dated 05.04.2016 and held to be framed afresh. Further, he directed the AO to hold proper enquiries to verify the issues before completing the assessment. Copy of order u/s 263 of the IT Act, 1961 is placed at pages PB II 251-253.

8. Aggrieved by the order of Ld.Pr.CIT dated 29.3.2019, the Assessee/Appellant filed the appeal before the Hon'ble ITAT on 20.7.2019 by raising 7 grounds of appeal. Submissions of the assessee: 8A. It is submitted that the grounds of appeal involves only one issue to be decided by your goodself namely: i) whether revision order can be made by the Ld.Pr.CIT or the assessment made which has been examined during assessment and accepted by the AO after verifying from the investors u/s 133(6) of the IT Act and satisfactorily examining the documents during assessment proceedings as per the law.

10. During the year in concern the assessee/appellant company desirous of reviving the business invited the shareholders to invest. The assessee filed the RoI for AY 2014-15 at Rs. 1,27,580/- which was accepted and the assessment was framed at the returned income dated 05.04.2016.

11. Later, the return was picked up by the Pr.CIT and the order was passed u/s 263 by Pr.CIT holding that the assessment was erroneous and prejudicial to the interest of the revenue. Ld.Pr.CIT held the assessment order passed under 05.04.2016 to be cancelled and ordered it to be framed afresh.

14. It is submitted that in view of above, for exercising revisional jurisdiction u/s 263 following twin conditions must be met: i. Erroneous order - The order should be erroneous. Thus, if any order is not erroneous it could not be subject to revision u/s 263. This issue is discussed below in detail along with Explanation 2 to section 263(1). ii. Prejudicial to the revenue’s interests -The order should be prejudicial to the interests of the revenue. Inter-alia. in the following Page | 9 situations, an order can be said to be prejudicial to the interests of the revenue: - Income has been under assessed: - Loss has been over assessed; - Income has been assessed at a lower rate; - Excess deductions, allowances and reliefs have been allowed to assessee.

17. In this regard, it is submitted that the Principal Commissioner of Income tax has erred in invoking the provisions of section 263 as the assessment was framed and accepted by the Ld.AO after having examined the documents furnished. The assessee had filed the relevant documents based on which the AO had not accepted but verified the same from the investors u/s 133(6) of the IT Act and thereafter framed the assessment order dated 05.04.2016. A list of documents filed before Ld.AO is tabulated as under:

Particulars PB page Form I Certificate of Incorporation alongwith Memorandum and Articles of 1-22 Association Auditors Report and Balance Sheet and Profit & Loss account for FY 2013- 23-37 14 relevant to AY 2014-15 Acknowledgment of Return of Income along with Computation of Income 38-69 and Form 6 ITR Bank Statement from the period 01.04.2013 to 31.3.2014 70-71 Ledger account in the books of the appellant company 72-73

Particulars PB Page

M/s Best Buildmart Pvt. Ltd. i. auditors report and balance sheet and profit and loss account for 74-85 FY 2013 - 14 relevant to assessment year 15-16 ii. Acknowledgment of return of income along with computation of 86-87 income iii. Confirmation of accounts 88 iv. Bank statement of IDBI Bank 89-90 Assessment order u/s. 143(3) assessment Year: 08-09 91 -92 V. M/s Goodluck Industries Pvt. Ltd. i. auditors report and balance sheet and profit and loss account for 93-104 FY 2013 - 14 relevant to assessment year 14-15 ii. Acknowledgment of return of income 105 iii. Confirmation of accounts 106 iv. Bank statement of AXIS Bank 107-108 Intimation U/s 143(1) of the Income Tax Act. 1961 assessment 109- 114 V. year: 2014-15 M/s Metalcity Construction Industries Ltd. i. auditors report and balance sheet and profit and loss account for 115 - 124 FY 2014 - 15 relevant to assessment year 15-16 ii. Acknowledgment of return of income 125 iii. Share Application Form 126 iv. Confirmation of accounts 127 V. Bank statement of IDBI Bank from 01.03.2013 to 31.03.2014 128 vi. Intimation U/s 143(1) of the Income Tax Act. 1961 for '129-134 assessment year 2014-15

M/s Radha Ballabh Nest-build Private Limited i. auditors report and balance sheet and profit and loss account for 135-146 FY 2013-14 relevant to assessment year 14-15 ii. Acknowledgment of return of income 147 iii. Confirmation of accounts 148 iv. Bank statement of IDBI Bank from 01.04.2013 to 31.03.2014 149-150 V. Intimation u/s. 143(1) A.Y. 14-15 151 - 156

M/s Tcxcity Construction Kovai Pvt. Ltd i. auditors report and balance sheet and profit and loss account for 157-166 FY 2014 - 15 relevant to assessment year 14-15 ii. Acknowledgment of return of income 167 iii. Confirmation of account 168 iv. Bank statement of IDBI Bank from 01.04.2013 to 31.03.2014 169-170 v. Intimation order u/s 143(1) of the income tax act 171-176 18A. Additional documents in order to prove the identity in the form of Incorporation Certificate, Memorandum of Association and Articles of the Association of the investor companies are placed at Page PB II 254-331.

282, Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 are aptly applicable in the present case as the Hon'ble Apex Court wherein it is held that Section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. The case laws relied by the Revenue in respect of Section 263 also reiterates the said ratio as well. Some of the decisions relied by the Revenue are not at all applicable in the present case as distinguishing facts involved in those cases. Therefore, order us 263 of the Act in present appeal is not justified. Accordingly, we allow the Grounds of Appeal of the assessee and the order us 263 is passed by the Principal Commissioner of Income Tax is set aside.

46. It is submitted that in order to exercise the power u/s 263 of the Act the Ld. Principal CIT has to satisfy the twin conditions as mentioned in the section. In the case of Malabar Industrial Co. Ltd. case , the Supreme Court held that there must be two conditions namely that the order of assessment is erroneous and that the order is prejudicial to the interests of the Revenue which must be satisfied before the Commissioner may invoke his powers under Section 263 of the Act. In the instant case of assessee the Ld. AO had conducted proper enquiry of the case and all the relevant documents were placed before him during the assessment proceeding therefore it cannot be held that the assessment is erroneous. The relevant para of the above case is cited below.

A. Malabarlndustrial Co. Ltd. v. Commissioner of Income- tax, [2000] 109 Taxman 66(SC) “6. A bare reading of this provision makes it clear that the pre- requisite to exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied with twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue - recourse cannot be had to section 263(1). ”

7. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Page | 24 Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fall into the area of the Commissioner having a different opinion. " 2) Narcndra Gocl Vs PCIT (ITAT Delhi) , 17/05/2022 “9 ………In our considered view merely on the basis of suspicion, invoking of powers u/s 263 would not be justified. The concluded assessment should be revised where there is blatant error committed by the assessing officer, which culminated into the prejudice to the interest of Revenue. But where the Assessing Officer made necessary inquiry and satisfied itself about the explanation offered to him, revising such an order is highly unjustified and contrary to the ratio laid down by the Hon’ble Supreme Court in the case of M/s Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83. Therefore, in the present case the action of the learned Pr. CIT is unjustified and the same is hereby set aside and the assessment is restored. ”

5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Limited (supra), the inquiry should have been conducted by the Commissioner or Director himself to record the finding that the assessment order was erroneous. "

Please refer to the assessment order dated 05 04.2016 passed u/s 143(3) of the Income Tax Act, 1961 by the Income Tax Officer, Ward 2(2), Faridabad for the assessment year 2014-15 in your case, 2. On perusal of the case record and documents submitted by you during the assessment proceedings, it has been found that applicability of section 56(2)(viib) of the Income Tax Act on the issue of share premium received had not been taken into consideration while framing the assessment by the assessing officer. It is noticed that in terms of Rule 11UA of Income tax Rules, 1962, Fair Market Value of shares of the company is less whereas share premium amount received from investors (share holders) is in excess of Fair Market Value. As per the balance sheet, 60,875 shares issued is found to have fetched Rs. 1,31,98,750/- i.e. Share capital + Share premium which is equivalent to Rs.216.82/- per share. The Fair market value of 1,16,125 shares held by you at the beginning of the year comes to Rs. 1,38,77,190/- i.e. Share Capital + Reserve & Surplus which is equivalent Rs.119.50/- per share. Thus, it is clear that the excess amount received per share is Rs. 97.32/- (Rs.216.82 - Rs. 119.50). Under the provisions of section 56(2)(vii b) of the Act, the aggregate consideration received from the shares that exceeds the FMV of the shares is taxable under the head * Income from Other Sources.

The said excess value of shares comes out to Rs.59,24,355/ (60,875 X 97.32) which was not assessed during the assessment proceedings by the assessing officer. Therefore, the same needs to be added back, u/s 56(2)(vii b) of the Act under the Head “Income from Other Sources.”

3. In view of the above, the order dated 05.04.2016 of the ITO, Ward- 2(2), Faridabad is considered erroneous and also prejudicial to the interest of revenue. Before taking action under section 263 of income tax Act, you are hereby given an opportunity u/s 263 of being heard on 26.02.2019 at my office at 12.40 P.M. Faridabad. In case you do not wish to avail of the said opportunity of being heard in person or through an authorized representative, you may send a written submission so as to reach this office on or before 26.02,2019 which shall be considered before passing order u/s 263. In case of failure, the decision would be taken on merits.”

9. The assessee filed his reply dated 26.02.2019. The relevant contents of the reply filed by the assessee are reproduced as under:-

“With all due respect, we hereby acknowledge the receipt of your above notice and in this connection it is humbly submitted that we have been appointed as authorised representative to represent the case before your good -self. We are enclosing herewith power of attorney in our favour. In connection with the above notice, we on behalf of the assessee are submitting as under:- I. It may please be noted that for the purpose of valuation of unquoted equity shares of a private limited company u/s 56(2)(viib) read with Rule 11UA(2) of the Income Tax Act, 1961 has enumerated two methods as under: [2] Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of such section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessor, namely: (a) the fair market value of unquoted equity shares (A-L) x (PV) (PE) Where, A. book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset: L. book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:

(i) the paid-up capital in respect of equity shares: (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company: (iii) reserves and surplus, by whatever name -called, even if the resulting figure is negative, other than those set apart to wards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative, preference shares; PE - total amount of paid up equity share capital as shown in the balance sheet; PV - the paid up value of such equity shares; or (b) the fair market value of unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash flow Method For the purposes of this rule and rule 11 UA,-— (b) "balance-sheet", in relation to any company, means, (i) for the purposes of sub-rule (2) of rule 11 UA, the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under section 224 of the Companies Act, 1956 (I of 1956) and where the balance-sheet on the valuation date is not drawn, up, the balance-sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; From the perusal of the above clause, if may please be seen that the assessee company has opted for clause (a) for valuation of unquoted equity shares based on which the value came as under: - the fair market value of unquoted equity shares (A-L) x (PV) (PE)

(14683105-5226655)

10 1161250 the fair market value of unquoted equity shares - 81.43 the fair market value, of unquoted equity shares (rounded off) - 80/- Working Note: A= Fixed Assets 110513 Cash and Cash Equivalents 237989 Short Term Loans and 14334603 Advances Total A 14683105 L= Trade Payables 5225000 Other Current Liabilities 1,655 Total L 5226655 1161250 PE= 10 PV= Or in simple terms,

Paid up capital as on 1161250 31.03.2013 Add: Reserves and Surplus 8366530 Total 9527780 A No. of shares 116125 B Page | 32

Value per share (A/B) 82.04 R/o in multiple of Rs.10/- 80/- and accordingly for the sake of rounding off the new shares were issued during the captioned assessment year at Rs. 80/-. From the perusal of above calculation, it may please be seen that the assessee company has issued shares at a fair market value during the year under consideration, therefore, the provisions of Section 56(2)(viib) are not applicable to the assessee company and the share premium should not be added back to the income of the assessee company. In the notice it is mentioned that 60,875 shares issued is found to have fetched Rs. 1,31,98,750/-i.e. Share Capital i Share premium which is equivalent to Rs. 216.82/- per share. It is true that the assessee company has issued 60,875 shares at Rs, 10/- each at a premium of Rs. 70/- per share aggregating to Rs.48,70,000/- and the same is evident from the calculation mentioned above, therefore, the assessee has never issued share at Rs. 216.82/ and did not collected Rs.1,31,98,750/ rather it has issued 60,875 shares and collected Rs. 48,70,000/- during the year under consideration. The same can be verified from the balance sheet attached herewith for your kind reference. In view of the above submission, it is humbly submitted before your good- self that the assessee company has issued shares at a fair market value calculated by the assessee company as per the method enumerated under Rule 11UA of Income Tax Rules, 1962., therefore, the provisions of Section 56(2)(viib) are not applicable to the assessee company and the share premium should not be added back to the income of the assessee company. Thus the excess amount charged as mentioned in the notice i.e. Rs. 59,24,355/- should not be added back to the income of the assessee company as the same would amount to be an injustice to the assessee company, hence we request your good-self to please do the needful and drop the proceedings u/s 263 of the Income Tax Act, 1961.”

“With all due respect and in continuation of our previous reply, we on behalf of the assessee are submitting as under;- During the assessment proceedings, the assessee company has furnished that it has allotted 60,875 equity shares of Rs 10/- per share at a premium of Rs. 70/- per share and vide its reply has submitted confirmed ledger accounts from the investors, copy of their ITR for the year under consideration along with computation of income, their audited financial statements with annexures for the year under assessment, Bank Statement reflecting the transactions made during the year and Share Valuation Report as per rule 11 UA of the Income Tax Rules, which were duly considered and placed on records by the Ld. AO. During the assessment proceedings, the Ld. AO has also called for information u/s 133(6) from investor companies and in response the investor companies have submitted requisite documents to establish its identity, creditworthiness and genuineness of the transactions, which has been considered by the Ld. AO and placed on records. Further, it is humbly submitted that that the company is a company and as per our limited understanding of law, there is no definition of paper companies as per Income Tax Act or Companies Act. The assessee company/investor companies have fully discharged its onus by any standards cast upon it under the IT Act by establishing the identity, creditworthiness and genuineness of the transactions and the concerned investor have also complied with the inquiries and submitted requisite details and from the same it is categorically established that the assessee company has discharged its initial onus cast upon it and thereafter the onus shifted to the Ld. AO to disprove the documents furnished by the assessee company and investors and considered by him.

Further, (a) the identity of the shareholder can be proved by before the AO or by way of documents, registered address, PAN, Income Tax Return, etc (c) The genuineness of the transaction can be shown from the fact that the money has been received from the shareholder. If the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be share application forms, share certificates, etc which were duly submitted in the course of assessment proceedings. (d) The creditworthiness or financial strength of the creditor/ subscriber can be proved by producing the bank statement and balance sheet of the subscribers showing that it had sufficient balance or reserves and surplus to enable/ it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharge the onus cast upon him. The AO can discredit the documents produced by the assessee with cogent reasons and materials but not on the realm of suspicion; (f) There is an additional burden on the Department to show that even if share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such finding, addition cannot be made u/s 68 in the hands the assessee. Reliance is placed on the following judgements/judicial announcements:- Decision of Hon'ble High Court in the case of CIT vs. Winstral Petrochemicals P. Ltd., 330 ITR 603, in which it was held as under: "Dismissing the appeal, that it had not been disputed that the share application money was received by the assessee-company by way of account payee cheques, through normal banking channels. Admittedly, copies of application for allotment of shares were also provided to the Assessing Officer. Since the applicant companies were duly incorporated, were issued PAN cards and had bank accounts from which money was transferred to the assessee by way of account payee cheques, they could not be said to be non-existent, even if they, after submitting the share applications had changed their addresses or had stopped functioning. Therefore, the Commissioner (Appeals) and the Tribunal were justified in holding that: the genuineness of the transactions had been duly established by the assessee," In Mod. Creations Pvt, Ltd. v. Income Tax Officer (2013) 354 ITR. 282 (Del), the position was clarified by the Court and it was held: "It will have to be kept in mind that Section 68 of the I.T. Act only sets up a presumption against the Assessee whenever unexplained credits are found in the books of accounts of the Assessee. It cannot but be gainsaid that the presumption is rebuttable. In refuting the presumption raised, the initial burden is ort the Assessee. This burden, which is placed on the Assessee, shifts as soon as the Assessee establishes the authenticity of transactions as executed between the Assessee and its creditors. It is no part of the Assessee's burden to prove either the genuineness of the transactions executed between the creditors and the sub-creditors nor is it the burden of the Assessee to prove the credit worthiness of the sub- creditors." Judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. G.P. international Ltd., (2010) 325 ITR 25 (P & H) in which it was held as under: "AO having not doubted tire identity of the persons from whom the assessee company has shown receipt of share application money, impugned transactions cannot be treated as non-genuine merely because some of the applicants did not respond to the notice issued by the AO under s, 133(6) and, therefore, addition was not sustainable." Judgment of Hon'ble Delhi High Court in the case of CIT vs. Victor Electrodes Ltd., (2010) 329 ITR 271 in which it was held as under:

"When the assessee had filed copies of resolution passed by the board of directors of applicant companies, besides their bank statements and IT returns which were not found to be non- genuine, without: making further inquiry from the internal record of the Department or from the concerned banks, the addition could not be made on the ground that the directors or representatives of the applicant companies were not produced." Judgment: of the Hon'ble Delhi High Court in the case of CIT vs. Value Capital Services (P) Ltd., (2008) 307 ITR 334 (Del.) in which it was held as under : 'CIT(A) having accepted the existence of the share applicants and the Revenue having not shown that the applicants did not have the means to make the investment and that such investment actually emanated from the coffers of the assessee company, addition was rightly deleted by the Tribunal; no substantial question of law arises." From the above discussions, it may be submitted that in the absence of proper opportunity of being heard, the addition u/s 68 of the Act would amount to injustice towards the assessee company. To sum up Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the present case, both the nature and source of the share capital and share premium received was fully explained by the assessee. Confirmed ledger accounts from the investors, copy of their UR for the year under consideration along with computation of income, their audited financial statements with annexures for the year under assessment, Bank Statement reflecting the transactions made during the year and Share Valuation Report as per rule 11UA of the Income Tax Rules were placed on AO's records and accordingly all the three conditions as required u/s 68 of the Act i.e. identity, creditworthiness and genuineness of the transactions were disclosed and placed in the form of documents before the Ld, AO.

With respect to Section 56(2)(viib) of the Act. it was submitted with our previous reply that the assessee company has issued shares at a fair market value calculated by the assessee company as per the method enumerated under Rule 11UA of Income Tax Rules, 1962, therefore, the provisions of Section 56[2)(viib) are not applicable to the assessee company and the share premium should not be added back to the income of the assessee company. Further, reliance is also placed on the following judgments/judicial announcements I. Judgment of Hon'ble Delhi High Court in the case of CIT &Ors, Vs. Five Vision Promoters Pvt. Ltd., &Ors. (2016) 380 ITR 289 (Del.) in which it was held as under: "Provisions of s 68 can be invoked only where assessee offers no explanation at ail or explanation offered is unsatisfactory; and addition thereunder can be made only on that condition." II. Judgment of Hon'ble Delhi High Court in the case of CIT vs. Shiv Dhooti Pearls & Investment Ltd., (2016) 237 Taxman 109 (Del.) in which it was held as under ; "In terms of section 68, assessee is liable to disclose only source(s) from where he has himself received credit and it is not burden of assessee to show source(s) of his creditor nor is it burden of assessee to prove creditworthiness of source(s) of sub-creditors." III. Decision of Hon'ble High Court in the case of CIT vs. Vrindavan Farms Pvt Ltd., etc. ITA.No.71 of 2.015 dated 12th August, 2.015 (Del.), in which it was held as under; "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It: was observed by the ITAT that: the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee. the departmental appeal was dismissed by the Hon'ble High Court. IV. Share Capital/Premium cannot be regarded as undisclosed income. High Court deleted addition made for share premium u/s 68 ABCAUS Case Law Citation: ABCAUS 2478 (2018) 08 HC Important Case Laws Cited/relied upon: Commissioner of Income Tax v. Electro Polychem Ltd. (2.007) 294 ITR 661,Commissioner of Income Tax v. Steller Investment Ltd. (2001) 251 ITR 263 The instant appeal was filed by the assessee against the order of the Income Tax Appellate Tribunal (Tribunal /ITAT) in upholding the addition confirmed by the Commissioner of Income-tax (Appeals) u/s 68 of the Income Tax Act, 1961 (the Act). The assessee assessee was a Private Limited Company which during the relevant assessment year had issued share capital at premium. The entire share premium and the paid up value was apparently by book adjustment. The assessee company had allotted shares at premium to a person to an individual allottee to whom the loan creditor of the company had assigned the loan amount payable by the company. Consequently, in the books of accounts of the assessee assessee, the said amount was shown as due to the said allottee. The assessee, therefore, had allotted its shares to the allottee in settlement of the amount due to loan creditors. The return filed by the assessee assessee was selected for scrutiny. The Assessing Officer treated share premium and the share capital as unexplained cash credits under Section 68 of the Act. The AO was of the view that the assignment agreement furnished by the assessee assessee was only a purported agreement without any substance and the transaction was a mere book adjustment.

The assessee assessee appealed to the Commissioner of Income Tax (Appeals) who upheld the addition of share premium and share capital as unexplained cash credit under Section 68 of the said Act and dismissed the appeal of the assessee assessee. The-Appellate Tribunal held that by way of introducing cash credit in the name of share premium and share capital, the assessee assessee attempted to reduce the tax liability. The Tribunal further held that when the Assessing Officer found credit in the books of account and the assessee assessee could not offer any satisfactory explanation, then the entires found in the books have to be treated as income of the assessee assessee and, thus, dismissed the appeal by confirming the orders passed by the authorities below. Aggrieved by the order of the Tribunal, the assessee filed the instant appeal raising the question whether the learned Tribunal erred in holding that value of shares allotted to individuals would amount to unexplained cash credit? The assessee argued that when there was no cash involved in the transaction of allotment of shares, provisions of Section 68 of the said Act treating it as unexplained cash credit were not attracted. It was also contended that inasmuch as the source of credit in which shares were allotted was clearly explainable, the same cannot be treated as unexplained cash credit. Moreover, the identity of the share holders and the liability of the company to shareholders has been established and, therefore, the allotment of shares cannot be treated as unexplained cash credit. The Tribunal observed that the Division Bench or the High Court had held that in case of cash credit of share application money, even if it were to be assumed that the subscribers to the increased share capital were not genuine, the amount of share capital would in no circumstances be regard as undisclosed income of the company.

Also, the Hon'ble Supreme Court held that even if the subscribers to the increased share capital of assessee-company were not genuine, the amount could not be regarded as undisclosed income of the company. The Tribunal answered the question raised in favour of the assessee and against the Revenue. V. It was held by the Hon’ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) 159 ITR 78 and the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR. 360 /[2003] 127 Taxman 523 , that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, Assessing Officer is dissatisfied about the source of cash deposited in the bank accounts of the creditors, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word "may” in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:- "Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation [1986] 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, tire burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by' treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. VI. When a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon’ble High Court, Calcutta in the COMMISSIONER OF INCOME TAX, KOLKATA-III Versus DATAWARE PRIVATE LIMITED of 2011 Date: 21st September, 2011 wherein the Court held as follows: "In our opinion, in such circumstance':, the Assessing officer of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the Assessing officer should enquire from the Assessing Officer of the creditor as to the genuineness" of the transaction and whether such transaction has been accepted by the Assessing officer of the creditor but instead of adopting such course, the Assessing officer himself could not enter into the return of the creditor and brand the same as unworthy of credence. So long it is not established that the return submitted by the creditor has been rejected by its Assessing Officer, the Assessing officer of the assessee is bound to accept the same as genuine when the identity of the creditor and the genuineness" of transaction through account payee cheque has been established. We find that both the Commissioner of Income Tax (Appeal) and the Tribunal below followed the well-accepted principles which are required to be followed in considering the effect of Section 68 of the Act and we thus find no reason to interfere with the concurrent findings of fact recorded by both the authorities." VII. Decision of Hon'ble High Court in the case of CIT vs. (i) Dwarakadhish Investment P. Ltd., (ITA.No. 911 of 2010) and (ii) Dwarkadhish Capital P. Ltd., (ITA.No.913 of 2010) (2011) 330 ITR 298 (Del.) (HC), in which it was held as under: "In any matter, the onus of proof is not a static one. Though in section 68 of the Income Tax Act, 1961, the initial burden of proof lies on the assesses yet once he proves the identity of the creditors/share applicants by either furnishing their PAN number or income-tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee cheque or by draft or by any other mode, then the onus of proof would shift to the Revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke section 68. One must not lose sight of the fact that it is the Revenue which has all the power and wherewithal to trace any person. Moreover, it is settled law that the assessee need not to prove the "source of source". The assessee- company was engaged in the business of financing and trading of shares. For the assessment year 2001-02. on scrutiny of accounts, the Assessing Officer found an addition of Rs.71,75,000 in the share capital of the assessee. The Assessing Officer sought an explanation of the assessee about this addition in the share capital. The assessee offered a detailed explanation. However, according to the Assessing Officer, the assessee failed to explain the addition of Page | 43 share application money from five of its subscribers. Accordingly, the Assessing Officer made an addition of Rs.35,50,000/- with the aid of section 68 of the Act, 1961 on account of unexplained cash credits appearing in the books of the assessee. However, in appeal, the Commissioner of Income-tax (Appeals) deleted the addition on the ground that the assessee had proved the existence of the shareholders and the genuineness of the transaction. The Income- tax Appellate Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) as it was also of the opinion that the assessee had been able to prove the identity of the share applicants and the share application money had been received by way of account payee cheques. On appeal to the High Court: Held, dismissing the appeals, that the deletion of addition was justified." From the above submissions, it may please be seen that the assessee company has submitted all the necessary information with documentary evidences and have justified the share premium received during the year under consideration, therefore the addition on account of share premium received from investor companies should not be made u/s 68 of the Act. Further, it is submitted that the notice dated 26.03.2019 fixing the hearing on 29.03.2019 has been received by the assessee company on 28.03.2019 and the assessee company has no time to compile the requisite documents again to justify the share premium. Therefore, without providing ample opportunity of being heard, the addition would amount to be an injustice to the assessee company. Hence, we request your good-self to not to add the share premium received from investor companies u/s 68 of the Act and kindly drop the proceedings u/s 263 of the Income Tax Act, 1961. Without prejudice to our above submission, in case your good-self is still not satisfied with this reply, then the assessee company may please be granted opportunity to furnish the relevant information as per the Income Tax Act and opportunity of rebuttal should be given to the assessee company to meet the natural justice before forming adverse view against: the assessee company.” Page | 44

Section 263 63. “For the purposes of sections 60, 61 and 62 and of this section,— (a) a transfer shall be deemed to be revocable if— (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets ; (b) "transfer" includes any settlement, trust, covenant, agreement or arrangement.”

13. In the case in hand in sum and substance, the contention of Ld. Counsel for the assessee is that order so revised by Ld. Pr. CIT is not erroneous and prejudicial of the interests of the Revenue. The Ld. Pr. CIT has revised the assessment primarily on the ground that the AO had completed the scrutiny assessment without making any requisite verification. He further observed that AO did not make any inquiry to examine the genuineness of claim of the assessee. However, Ld. Counsel for the assessee has pointed out that AO had Page | 46 carried out requisite inquiry regarding genuineness of claim of the assessee regarding share application money. We find that the AO issued detailed questionnaire to the assessee and in response thereto, the assessee made submissions and also submitted the valuation arrived at as per Rule 11 UA of the Income Tax Rules, 1962. Ld. Pr. CIT has not pointed out that the valuation of shares as arrived at by the assessee, is not correct. In absence of such finding and coupled with the fact that the Ld. Pr. CIT did not revise the order on the basis which notice u/s 263 of the Act was issued. Moreover, there is no specific finding above the prejudice being caused to the Revenue. Therefore, in the absence of a specific finding by Ld. Pr. CIT regarding both the conditions i.e. order is erroneous and prejudicial to the interest of Revenue, the impugned order cannot be sustained as it fails the test of law. Therefore, respectfully following the binding precedents, we hereby set aside the impugned order and restore the original assessment order. Thus, grounds raised by the assessee are allowed.