JT CIT, CENT CIR-7(2), MUMBAI vs. M/S. CROSSWIZ TRADING PVT LTD., EARLIER KNOWN AS M/S.BENCO FINANCE AND INVESTMENTS PRIVATE LIMITED, MUMBAI

"On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of unexplained share premium and share application money amounting to Rs. 39,41,67,600/- made under section 68 of the Income Tax without appreciating the finding the Assessing Officer on the basis of Investigation Wing wherein share subscribers in the present case is being operated by Shri Jagdish Purohit who had control over a number of companies that do not conduct any real business but are mainly involved in providing accommodation entries to the other business concerns.

"On the facts and circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of unexplained share premium and share application money amounting to Rs. 39,41,67,600/- made under section 68 of the Income Tax, holding that the appellant has proved the genuineness of the transaction in the form of confirmation, PAN, Bank Statement etc, ignoring the recent decision of the Hon'ble Supreme Court of India in the case of Navodaya Castle (P) Ltd. [2015] 56 taxmann.com18 (SC), wherein the Hon'ble Apex Court has upheld the decision of the Hon'ble Delhi Court holding that certificate of incorporation, PAN etc were not sufficient for the purpose of identification of the subscriber company when there is material to show that subscriber was a paper company and not a genuine investor." 2.1 The assessee has filed an application under Rule 27 of the Appellate Tribunal Rules, 1963 seeking to support the order of the learned Commissioner of Income Tax (Appeals), inter-alia, on following grounds decided against it: i. Order u/s 143(3) r.w.s 153A Bad in law in absence of incriminating material. ii. Addition u/s 68-unsustainable and without jurisdiction - in the absence of incriminating material- iii. Proviso to section 68 inserted by Finance Act, 2012 - Not Retrospective

It was submitted that as the additional ground raised by the assessee are legal in nature, the same may be admitted in view of the P a g e | 3 A.Y. 2010-11 M/s Crosswiz Trading Pvt. Ltd., earlier-M/s Benco Finance & Investments Pvt. Ltd. judgements in the cases of National Thermal Power Co. Ltd 97 taxman.com 358 (SC) and Pruthvi brokers and shareholders 349 ITR 336 (Bom). On careful consideration, we find that the above grounds are legal in nature requiring no further investigation of facts and in the light of the cited decisions, we admit the application Rule 27 of the ITAT Rules, 1963. 4. The facts of the case are that a search and seizure operation under section 132(1) of the Act was conducted in the Ruchi Soya group of cases including the assessee alongwith its Directors. The AO issued notice under section 153A of the Act and the assessment under section 143 (3) read with section 153A of the Act was completed on 27.03.2015 makingaddition under section 68 of the Act amounting to Rs.39,41,67,600/- pertaining to share application money received by the asssessee from certain Group companies at substantially high premium.The addition is based on the premise that the assessee could not satisfy the identity, creditworthiness and genuineness of such share capital.

Aggrieved by the order, the assessee filed appeal before the ld.CIT(A). The main contentions were that share capital per se was a capital receipt and hence, question of application of section 68 of the Act

Devine 17-03- ITO 1(3) 1087443 1087443 9786987 108774300 Infracreation 2004 ITO Indore and Trading Pvt. Ltd 4 Morya 25-04- Ward 3 7344780 7344780 66103020 73447800 Erectors 1995 3(3) Private Mumbai Limited

1 The AO asked the assessee to give the method adopted for arriving at the premium at which the shares were to be issued. The assessee contended that the book value of the company as on 30.03.2010 was Rs. 468/- and the shares had been issued at Rs. 100/-

2 During the assessment proceedings, the assessee furnished copies of downloaded forms from MCA website and details of investments made by the 11 entities in the above named four entities. The AO was also given a list of 99 companies which had invested in the 11 companies which were the source of investment for these four companies which ultimately invested in the assessee company. The trail showed the source of the source and its source. The assessee company received share capital and premium from the four companies listed above. It was claimed by the assessee before the appellate authority that the AO brushed aside the evidences furnished by the assessee by stating that the contentions of the assessee had already been dealt with by the Investigation wing. According to the AO, multilayered enquiries had been conducted and it was proved that these four entities from whom the assessee had claimed to have received share application money were not genuine. He finally held that the assessee was a beneficiary of the above amounts after multiple layering of share capital and share premium receipt and the source was not explained. He relied upon the decision of the hon‟ble Bombay High Court in the case of Major Metal vs. Union of India and made an addition of Rs.39,41,67,600/- which included share capital of Rs.3,94,16,760/-and premium of Rs.35,47,50,840/-.

3 It was further stated that during assessment proceedings, the AO in this regard asked the assessee furnish certain details which were provided i.e. i. Name, address, date of incorporation, PAN details, Income-tax jurisdiction of investor companies (PAN of all investor companies is not available as the same was not taken due to non-existence of any legal requirement at that time); ii. Company's Master Data like company name, Company Identification Number (CIN), date of incorporation, registered address, e-mail ID, etc. of Investor's companies downloaded from www.mca.gov.in; iii. Certificate of Incorporation of the Investor's companies; iv. Form of application for equity shares filled by the Investor's companies; v. Copies of Allotment Advices given by the Appellant to the Investor's companies; vi. Copy of Director Report, Audit Report and Balance Sheet of the Investor's companies; vii. Confirmation of all Investor Companies; viii. Bank Statements of all investor Companies reflecting the transactions of share application money; ix. Income Tax Return along with Acknowledgement of all Investor Companies; x. Board Resolutions regarding allotment of share capital to investor companies; xi. Valuation report of the Chartered Accountant.

4 Further, the assessee also made submissions regarding the source of all four investor companies giving following details of various parties who made payment to the four parties towards share application moneys:

5 It is observed by the appellate authority that after above compliance,the AO did not call for any further explanation/documents regarding the said equity share application money received from the said investor companies and he added whole amount received towards equity shares amounting to Rs. 39,41,67,600/- including premium on equity shares received from the above Investors under section 68 of the Act on the alleged ground that it was Unexplained cash credit. The assessee submitted the Company's Master Data, Income-tax Jurisdiction details and financials of the Investor companies proved the identity as well as financial capacity i.e. creditworthiness of the investor companies. It had also allotted the shares to them in the current year and all the relevant details filed by the assessee to the ROC as well as with the Assessing

6 The Company's Master Data, Income-tax Jurisdiction details and financials of the Investor's companies clearly proved the identity of the Investor's companies. Hence, it was concluded that the aforesaid documents proved the identity of the investor companies.

7 As regard the genuineness of the transaction, the assessee submitted that it received the share application money through proper banking channels as evident from the bank statements of assessee.Further, the form of application for equity shares filled by the Investor's companies and copies of Allotment Advices given by the P a g e | 10 A.Y. 2010-11 M/s Crosswiz Trading Pvt. Ltd., earlier-M/s Benco Finance & Investments Pvt. Ltd. assessee to the Investor's companies showed the transaction was genuine.

8 As regard the creditworthiness of the shareholders,it was contended that the Company's Master Data, Income-tax Jurisdiction details and financials of the Investor's companies proved the identity as well as financial capacity i.e. creditworthiness of the Investor's companies. Further, the assessee submitted the details of share capital, reserve and surplus, net worth of the investor's companies was under:

9 Accordingly, it was submitted that all the investor companies had positive net worth and had only invested on an average 22.14% of P a g e | 11 A.Y. 2010-11 M/s Crosswiz Trading Pvt. Ltd., earlier-M/s Benco Finance & Investments Pvt. Ltd. their net worth in the assessee company. Hence, the creditworthiness of the Investor companies also could not be doubted. Further, the assessee had also given details of investors of investor's companies with the AO with the details of share capital, reserve and surplus, net worth of the investors of investor's companies. However, the Assessing Officer had treated whole amount received towards equity share capital as unexplained cash credit under section 68 of the Act without appreciating that the assessee had submitted the copies of director report, balance sheet, bank statements, share application forms, etc. which clearly brought out the nature of the transactions, amount involved and scope of the transaction. Therefore, the assessee company had discharged its onus of proving the identity of the parties, genuineness of the transactions and the creditworthiness of the shareholder.

The ld.CIT(A) has narrated the enquiries related to BFIPL. It is stated that information was received in the case of Shri Jagdish Purohit wherein reference of BFIPL was made as legal entity. Analysis of the change in shareholding pattern, change in directors' details and fund flow was made from 01.04.2005 onwards. During pre-search inquiries, it was found that the said company was initially promoted by one Mr. Jagdish Purohit, an entry operator. Further, on the basis of enquiry

2 It is further observed that the assessment order had been made mainly on the basis of reports from the Investigation wing. While making the addition the assessing officer placed reliance on the decision of the Hon'ble Bombay High Court in the case of Major Metal vs. Union of India 19 Taxmann.com 176. However, this decision was not applicable to the instant case. As could be seen from the assessment order itself,

The ld.DR relied on the assessment order claiming that the impugned share application was merely accommodation entry and the P a g e | 15 A.Y. 2010-11 M/s Crosswiz Trading Pvt. Ltd., earlier-M/s Benco Finance & Investments Pvt. Ltd. assessee failed to justify the huge premium charged on the share which carried little value considering no business activity carried out by the assessee.

The ld.AR on the other hand has placed reliance on the appellate order claiming that the assessee effectively discharged the onus of proving the identity, creditworthiness and the genuineness of the transactions. As such, no addition u/s 68 of the Act was justified. It is further claimed that the assessee proved even the source of source of impugned share application amounts even though it was not expected to do so as the amended provisions were not applicable in the impugned assessment year.

We have carefully considered all the relevant facts of the case and find sufficient merits in the appellate order as the ld.CIT(A) has duly examined all facets of the impugned transactions and after being satisfied deleted the addition. All basic details were duly furnished by the assessee before both the lower authorities. The AO, apart from placing heavy reliance on the Investigation wing report did not make any independent enquiry or investigation into the matter. He did not point out any infirmity in the contentions of the assessee and the evidences duly satisfying all the ingredients of section 68 of the Act i.e. identity,

We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with Sec. 78 of the Companies Act, 1956. Further, the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipts and is not income for its ordinary sense. It is not in dispute that the assessee had filed all the requisite details/documents which are required to explain credits in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the