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Income Tax Appellate Tribunal, AHMEDABAD – BENCH ‘SMC’
Before: SHRI RAJPAL YADAV
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ - अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD – BENCH ‘SMC’ BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER आयकर अपील सं./ ITA No.1480/Ahd/2016 �नधा�रण वष�/Asstt. Year: 2012-2013 Ayaana Comtrade P.Ltd. Vs. ITO, Ward-1(1)(4) Flat No.3, Noopur Apartment Ambawadi 133, Azad Society Ahmedabad. Ambawadi Ahmedabad 380 015. PAN : AAHCA 2708 H
अपीलाथ�/ (Appellant) �त् यथ�/ (Respondent)
Assessee by : Ms.Urvashi Sodhan, AR Revenue by : Shri Virendra Singh, Sr.DR सुनवाई क� तार�ख/Date of Hearing : 04/03/2019 घोषणा क� तार�ख /Date of Pronouncement: 05/03/2019 आदेश/O R D E R Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-1, Ahmedabad dated 29.3.2016 passed for the Asstt.Year 2012-13.
The grounds of appeal taken by the assessee are not in consonance with the Rule 8 of the Income Tax (Appellate Tribunal) Rules, 1963 - they are descriptive and argumentative in nature, though subsequently, the assessee has filed concise grounds of appeal also. In brief, the grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs.36,33,000/- which was added by the AO on the ground that share application and share premium money received by the assessee is unexplained cash credit under section 68 of the Income Tax Act, 1961.
ITA No.1480/Ahd/2016 2 3. Brief facts of the case are that the assessee-company has filed its return of income on 29.9.2012 declaring total income at Rs.30,162/-. The case of the assessee was selected for the scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee had issued share capital of Rs.2,73,330/- (27,330 nos. of face value of Rs.10/- each) during the year under consideration. The company has also received share premium of Rs.38,26,200/- (at the rate of Rs.140/- per share). The AO has compiled the details of all share applicants on page no.3 of the assessment order, which reads as under: Details of Increase in Share Capital Name & Address Date No. of Issue Share Total PAN s. premium considerati of Shares price No. applicant/all if any on received of the otted during with @ share the year of per s share
1 Devilal Meena 31/08/2011 4570 10 140 685500 AQZPM4906G 2 Savita Meena 31/08/2011 3465 10 140 519750 AQYPM2236N 3 Devilal Meena 31/08/2011 3840 10 140 576000 AAFHD5664J (HUF) 4 Laxmanlal Meena 31/08/2011 3550 10 140 532500 AQZPM4905F
5 Nathulal Meena 31/08/2011 3650 10 140 547500 AQZPM4907H 6 Hasmukh Barot 31/08/2011 3110 10 140 466500 AACHH9610 HUF M 7 Karm Barot 31/08/2011 2885 10 140 432750 ANSPB6501E
8 Bhavesh Khatri 31/08/2011 805 10 140 120750 AYKPK6374P 9 Sushilaben Machhar 31/08/2011 1455 10 140 218250 AQYPM2042A 4. He noticed their income as under: S. No. Name Return of Gross income income
ITA No.1480/Ahd/2016 3 1. Devilal Meena A.Y.2012-13 167225/- 2 Savita Meena A.Y.2012-13 12000/- 3. Devilal Meena (HUF) A.Y.2012-13 23391 4. Laxmanlal Meena A.Y.2012-13 64000/- 5 Nathulal Meena A.Y.2012-13 57000/- 6 Hasmukh Barot HUF A.Y.2009-10 297980/- A.Y.2010-11 193262/- 7 Karm Barot A.Y.2009-10 298080/- A.Y.2010-11 149249/- 8 Bhavesh Khatri A.Y.2012-13 76334/- 9 Sushilaben Machhar A.Y.2012-13 6926/-
After a detailed analysis, and in light of various authoritative pronouncements, the ld.AO has arrived at a conclusion that it was not a genuine transaction. Share applicants were not credit- worthy except Shri Hasumukh Barot HUF. He made addition of Rs.36,33,000/- out of the total. He did not make addition qua share application money received from Shri Hasumukh Barot HUF amounting to Rs.4,66,500/-. Rest of the amounts received as share application as well as share premium has been treated as unexplained cash credit. Appeal to the First Appellate Authority did not bring any relief to the assessee.
Before me, ld.counsel for the assessee reiterated contentions as were raised before the ld.Revenue authorities. She submitted that confirmation was given from all the share applicants; copy of their income tax returns were given; in order to prove their identity PAN card, motor driving licence; copy of the share application forms were produced; copy of share certificate allotted to the applicants were produced; copy of communication given to the Registrar of Companies showing allotment of shares was
ITA No.1480/Ahd/2016 4 produced before the AO; all the applicants are income-tax assessees; they are individuals, hence the assessee has discharged onus cast upon it by virtue of section 68. Only lapse at the end of the assessee is that it failed to produce share applicants before the AO. According to the ld.counsel for the assessee, this is not such a fatal circumstance, which would amount to rejection of all other evidences so as to disbelieve the version put-forth by the assessee. She made reference to the decisions relied upon before the ld.First Appellate Authority, which has been noticed by the ld.CIT(A) in the submissions of the assessee.
On the other hand, ld.DR relied upon orders of the Revenue authorities. He pointed out that ld.AO has specifically directed the assessee to produce all the share applicants because they have very meager source of income, and the AO wanted to verify their credit-worthiness as well as genuineness of the transaction. He made reference to pages 60 to 70 of the paper book and contended that all the cheques and other details are in same hand-writing. It also gave raise to doubt about the genuineness of the transaction. For buttressing his contentions, he specifically drew my attention towards paragraph no.2.6 and 2.7 of the ld.CIT(A)’s order.
I have duly considered rival contentions and gone through the record carefully. Before I embark upon an inquiry on the facts of the present appeal, in order to find out whether the share capital and share premium money received by the assessee during the year is required to be treated as its unexplained credit and deserves to be added under section 68 of the Income Tax Act,
ITA No.1480/Ahd/2016 5 1961. We deem it appropriate to bear in mind certain basic principles/tests propounded in various authoritative pronouncements of the Hon’ble High Courts and Hon’ble Supreme Court. It is also pertinent to observe that assessee has made reference to a large number of decisions in the submissions filed before the ld.CIT(A). We do not deem it necessary to recite and recapitulate them because that would make this order repetitive and bulky. We take cognizance of some of them. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the
ITA No.1480/Ahd/2016 6 accounts of the assessee, then role of section 68 would come. It is pertinent to take note of this section. It reads as under:
“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the officer, satisfactory the sum so credited may be charged to income tax as the income of the assessee of that previous year.”
A perusal of the section would indicate that basically this section contemplates three conditions required to be fulfilled by an assessee. In other words, the assessee is required to give explanation which will exhibit nature of transaction and also explain the source of such credit. The explanation should be to the satisfaction of the AO. In order to give such type of explanation which could satisfy the AO, the assessee should fulfill three ingredients viz. (a) identity of the share applicants, (b) genuineness of the transaction, and (c) credit-worthiness of share applicants. As far as construction of section 68 and to understand its meaning is concerned, there is no much difficulty. Difficulty arises when we apply the conditions formulated in this section on the given facts and circumstances. In other words, it has been propounded in various decisions that section 68 contemplates that there should be a credit of amounts in the books of an assessee maintained by the assessee, (b) such amount has to be a sum received during the previous year, (c) the assessee offers no explanation about the nature and source of such credit found in the books, or (d) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The Hon’ble Delhi High Court in the case of CIT v. Novadaya Castles (P.) Ltd.
ITA No.1480/Ahd/2016 7 367 ITR 306 has considered a large number of decisions including the decision of Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad [1971] 82 ITR 540 (SC). According to the Hon’ble Delhi High Court basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish identity of the share-holder and bank account from which payment was made. The fact that payment was received through bank channels, filed necessary affidavit of the shareholders or confirmations of the directors of the shareholder company. But thereafter no further inquiry was made by the AO. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct. In this connection, the Hon’ble Delhi High Court has made reference to the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad More [1971] 82 ITR 540 (SC) and observed that adjudicating authority should find out the reality of transaction. In other words, if the AO is able to demonstrate that apparent transaction projected by the assessee was not real, then claim of the assessee should not be accepted. This can be tested on the
ITA No.1480/Ahd/2016 8 surrounding circumstances, making reference to the substantial evidence produced by the assessee as well as collected by the AO. The Hon’ble High Court also made observation that certificates of incorporation/PAN are being referred by the assessee to demonstrate identity of the share applicants. According to the decision of the Hon’ble Delhi High Court, these are not sufficient documents, because they have their own limitation. A permanent account number is being allotted on an application made by an assessee. It is pertinent to observe that in these days, such account number is being allotted on on-line application. There is no investigation about the identity of an assessee who obtains PAN. Similarly, certificate of incorporation can be given a corroborative evidence in support of identity, but it will not exhibit whether share applicant company was a paper company or not. In brief evidence in the shape of PAN, certificate of incorporation would not be sufficient for proving the identity of the share applicant company. Similarly, payments received through banking channels would not be sacrosanct and sufficient to believe genuineness of the transaction. The AO can examine the source of such money in the accounts of applicants in order to form a belief that such transaction was not genuine rather an arranged transaction. All these factors would be relevant on the quality of investigation carried out by the AO. It has been debated before us that there are large number of sham companies which are in turn providing accommodation entries to various companies/individuals, and therefore, while deciding this type of issue, the adjudicating authority should bear in mind that a racket of floating bogus companies with sole purpose of landing entries is
ITA No.1480/Ahd/2016 9 being unearthed by the investigation wing of the Income Tax Department.
No doubt on one hand such kind of dubious practices are rampant, but on the other hand, the adjudicator has to keep in mind that merely because there is an acknowledgment of such practice would mean that it would be presumed that the assessee was indulged in this practice.
In the light of the above, let me examine the facts of the present case. It is pertinent to note that in the present case share applicants are individuals and not companies who could be termed as paper entities. However, while appreciating their financial capabilities to subscribe shares at premium and other surrounding circumstances, the ld.CIT(A) has recorded a specific finding. It is worth to note the relevant part of his finding recorded in his order, which reads as under:
“2.6. After going through the facts of the case, it is seen that the depositors (table supra) at Sr.No.1 to 9 are fifing the return of income with meager total income. Therefore, in order to justify the increase in share capital and share premium, the company has been issued the letter by the A.O. to produce all the shareholders along with proof of identity, documents proving creditworthiness and genuineness of the transactions and other relevant details of the shares. In response to the above, only one shareholder namely Hasmukh Barot HUF, Shri Hasmukh barot attended in capacity of Karta of the HUF and filed the relevant details, other shareholders have neither attended nor filed any submission in response to the details required by the office of AO. At the time of appellate proceedings a/so no new facts have been produced before me to show the capacity of the above mentioned investors. It is difficult to apprehend as how the persons who have disclosed total income of Rs. 1,50,000/- to Rs. 2,00,000/- could investment such a huge
ITA No.1480/Ahd/2016 10 amount of Rs. 2,00,000/- to Rs. 7,00,000/- in the appellant company on a hefty premium. The appellant has failed to produce any evidence to prove the creditworthiness and genuineness of the transactions of the investors mentioned as above, except Hasmukh Barot HUF.
It is also noticeable in this case that all the investors have opened the bank account in the same bank and from there the money is company. It is also noticeable that just before the investment; the bank accounts of all the persons are credited with identical amount as it was to be invested. Another very crucial fact is that all the above investors have opened the accounts in State Bank of Bikaner, C.G. Road, Ahmedabad. The money deposited in these accounts and cheques were issued to the appellant for the purchase of shares. This all leads to the conclusion that it was the unaccounted money of the appellant itself which was being channelized to give it a garb of investment in the name of various persons. No doubt, the appellant has tried to layer it down to camouflage from the eyes of the department. It is really surprising that persons of small means, why they will purchase shares of unlisted company at hefty premium. The probabilities of evidences lead to the conclusion that it was the amount of share capital and share premium received from the above shareholders remained unexplained and therefore be treated as unexplained cash credit under section 68 of the Act.
2.7. It is a well settled law that once an amount is found credited in the accounts of the assessee; it is the assessee who has to prove that identity, source and creditworthiness of such persons/parties/depositors. In all the decision cited by the appellant the Hon'ble Courts have held that the appellant has to prove the identity, source and creditworthiness of such persons/parties/depositors. In view of the abovementioned facts, it becomes clear that appellant introduced its own and accounted income in the garb of share premium application. The initial source of funds in the case of all allottee persons remains unexplained. Allotment of shares by appellant at the huge premium proves involvement of the appellant All these facts taking in totality do not leave an iota of doubt that the transactions are bogus. The assessing officer has duly discharged his burden in this case by pointing all various contradictions in the claim
ITA No.1480/Ahd/2016 11 of appellant while appellant has miserably failed to discharge his burden to prove genuineness of these transactions.”
At this stage, I would like to make reference to the audit reports. The audit reports have been produced on the instruction of the ITAT. These are for the period as on 31.3.2011, 31.3.2012, 31.3.2013 and 31.3.2014. In the audit report at serial no.32, the assessee has made a mention showing particulars of earning per share. It is worth to take note of this report in the audit report, which read as under:
“32. Particulars of Earnings per share: Earning per share computed in accordance with Accounting Standard 20 issued by the Institute of Chartered Accountants of India.
Particulars 2011-2012 2010-2011 2012-13 Net profit 18,969 68,182 36,969 attributable to share holders Number of 225,249 210,000 237,330 equity shares/weighted equity shares Nominal value 10 10 10 of share Earning per 0.08 0.32 0.17 share (in Rs.)
The AO has specifically directed production of these share applicants. But the assessee failed to produce them. The question, for example, is that the applicant Sushilaben Machhar has filed a return for the Asstt.Year 2012-13 showing gross income of Rs.6,926/-. She has contributed Rs.2,18,250/-. Could it be anticipated that a lady having income less than Rs.10,000/- could contribute a sum more than Rs.2 lakhs in a transaction
ITA No.1480/Ahd/2016 12 where return is 0.08 paisa per share ? There is no justification at the end of the assessee to demonstrate that these shares could be subscribed at such a higher premium that too by a marginal person who has very nominal income. They are not family members, who have some interest in the company. The ld.CIT(A) has appreciated this aspect. It is also noted that in their accounts identical amount of deposits were made before issuance of cheques for share applications. After taking into consideration material available on record as well as finding of the ld.CIT(A) extracted (supra), I do not find any merit in the grounds of appeal of the assessee. It is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Court on 5th March, 2019.
Sd/- (RAJPAL YADAV) JUDICIAL MEMBER