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Income Tax Appellate Tribunal, JAIPUR BENCHES , JAIPUR
Before: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM vk;dj vihy la-@ITA No. 493 & 494/JP/2017
PER BENCH
Both these appeals have been filed by the Revenue against two
separate orders of the ld. CIT(A)4-, Jaipur dated 31-03-2017 for the A.Y.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
2010-11 and 2012-13. The assessee has filed the cross objections against
these appeals.
2.1 First of all, we take up the grounds of appeal No.493/JP/17 of the Revenue for the Assessment Year 2010-11 raising solitary ground as under:- ‘’Whether on the facts and in the circumstances of the case the ld. CIT(A) was right in deleting the addition of Rs.2,00,00,000/- made u/s 56(1) of the Act ignoring the fact that assets of the assessee company don’t commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee.’’
2.2 Apropos solitary ground of the Revenue, the AO made the addition
of Rs.2,00,00,000- u/s 56(1) of the Act in the hands of the assessee
company by observing as under:-
‘’16. Having dealt with each of the contention of the assessee and having found the same to be untenable it is important to place on record certain aspects which have a bearing on the issue at hand. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were not entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
In the above back ground of the facts and circumstances surrounding this case, it is hereby held that the receipt of share capital and share premium was part of a colourful transaction by way of which a sum of Rs. 2,00,00,000/- was introduced into the books of the assessee company in the form of share premium attached to the share capital. As discussion above the premium of Rs.90/- per share was not justified at all on the basis of absolutely no assets commensurate to premium charged, no business activity, no income, no net worth nor any promise for creation of this much assets, business activity, income or net worth in the future. Accordingly, the charging and receipt of share premium/ share capital to the tune of Rs. 2,00,00,000/- is held to be income of the assessee company in the nature of income envisaged u/s 56(1) of the Income Tax Act, 1961. The same is added back to the total income of the assessee.’’
2.3 In first appeal, the ld. CIT(A) has deleted the addition of
Rs. 2,00,00,000/- made by the AO by observing at pages 60 to 97 of
his order as under:-
‘’3.1.2 I have duly considered assessee's submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon.
Facts of the case are that no scrutiny assessment u/s 143(3) of the Act was done in assessee’s case for AY 2010-11 and the original return filed on 29.09.2010 declaring Rs. 46.34.460/- total income was only processed u/s 143(1) of the Act. Various courts have held that processing of returns u/s 143(1) of the Act is no assessment. It is obvious that if no incriminating material is found during search, then additions, if any, have to be made in the income shown in the return of income (in the case of pending assessments which abate) and to the computed income (in case of assessments were completed). Thus effectively, what was said in the case of Kabul Chawla was that making any addition in the returned income or income earlier assessed was not allowed if no material was found in the search which could lead to an addition on the basis of the said material. Now in this regard, I would
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
like to discuss the issue pertaining to assessment completed u/s 153A r.w.s 143(3) of the Act when no incriminating documents were found from the assessee’s premises. Before coming to the facts of the present case it would be appropriate to mention sec. 153A of the Act, the relevant part of which reads as under: "153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall — (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) Assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate.
As per the provisions of this section where a search is initiated u/s 132 of the Act, the A.O shall issue a notice requiring the person searched to furnish his return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Once such returns are filed, the AO has to assess or reassess the total income of such six assessment years.(emphasis supplied by me). (The decisive words used in the provisions are to 'assessee or reassess the total income'). The A.O. is thus duty bound to determine the 'total income' of the assessee for such six assessment years and it is obvious that 'total income' refers to the sum total of income in respect of which a person is assessable. The total income therefore will cover not only the income emanating from declared sources or any material placed before the Assessing Officer
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
but from all sources including the undisclosed ones, or based on the unplaced material before the AO. Some related Judgments a) CIT vs. Kabul Chawla (Delhi High Court) : Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not…
b) Gurinder Singh Bawa vs. DCIT (ITAT Mumbai) : In All Cargo Global Logistics 137 ITD 287 (Mum)(SB), the Special Bench held that in a case where the assessment has abated the AO can make additions in the assessment, even if no incriminating material has been found. However, in a case where the assessment has not abated, .…
c) Anil Kumar Bhatia vs. ACIT (ITAT Delhi) : S. 153A does not authorize the making of a de novo assessment. While under the 1st Proviso, the AO is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate.
d) Sanjay Aggarwal vs. DCIT (ITAT Delhi) : S. 153A: Addition in a search assessment for a AY which is not pending can be made only if incriminating material is found during search (i) The language of s. 153A has been structured in such a way so as not to permit the making of addition for the assessment… e) Trishul Hi-Tech Industries vs. DCIT (ITAT Kolkata) : It has been held by the ITAT, Kolkata Bench in the case of LMJ International Limited vs. DCIT 119 TTJ (Kol) 214 where nothing incriminating is found in the course of search relating to any assessment years, the assessments for………….
f) It has been held by the ITAT, Kolkata Bench in the case of LMJ International Limited vs. DCIT 119 TTJ (Kol) 214 where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such assessment years cannot be disturbed u/s 153C of the Act. Thus it is clear that the provisions of section 153C of the Act cannot be invoked automatically in respect of any assessment year unless there exists incriminating documents for that previous year. The provision of section 153C of the Act cannot be invoked on routine information or on income already accounted/disclosed in the original return, the assessment of which is complete. In this regard we may gainfully refer to the decision of the Mumbai Special Bench of the ITAT in the case of Al cargo Global Logistics Ltd vs. DCIT.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Apart from above, there are several decisions of various judicial authorities where it has been held that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law. Some of these decisions are discussed in the following paragraphs: (i) In the case of CIT vs. Kabul Chawla reported in 281 CTR 45, Delhi it has been held by the Hon'ble Delhi High Court that:
On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: Once a search takes place under Section 132 of the Act, notice i. underSection153 A(l) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previousyearrelevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search ii. shall abate. The total income for such AYs will have to be computed by the AO as afresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". Although Section 153 A does not say that additions should be iv. strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or properly discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
(ii) In the case of ACIT Vs. PACL India Ltd. New Delhi, the Hon'ble ITAT, F. Bench, Delhi has considered the various decisions of different judicial authorities and in para 10 of the order has held that: "Therefore, the question arises whether AO can make any addition in the reassessment proceedings u/s 153(A) after making inquiries which are not suggested by any d documents or asset seized during the search. It depends on the nature of addition. The facts and circumstances of the assessee clearly show that no incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on that basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. Particularly, when there is no incriminating material found and seized during the course of search u/s 132(1) of the Act and nothing is available in record to reassess the income of assessee. In view of the above, this is not a fit case for making the addition in the year under consideration, the same are deleted."
(iii) In the case of M/s Ideal Appliance Company Pvt. Ltd. Vs. DCIT, Central Circle-44, Mumbai, the following legal issues were raised before the Hon'ble ITAT'1" Bench, Mumbai: "1. The Ld CIT (A) failed to appreciate the fact that no incriminating documents /evidences were found during the course of search of third party, and hence, re-computing the income u/s I53A is bad in law and liable to be quashed.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
The Ld CIT (A) failed to appreciate the fact that original assessment was made u/s 143(3) vide order 31st August 2007 after considering all the documents and materials on record and due application ff mind and hence re-computing the income by merely changing head of income for the said year under the grab of section 153A based on same documents and materials, is bad in law and order is liable to be quashed,
The Ld CIT (A) erred in confirming the action of the AO reassessing the income u/s 143(3) r.w.s I53A, without appreciating the fact that only pending assessment abet and not the completed assessments and hence the order u/s 143(3) r.w.s I53A is bad in law and liable to be quashed.
The Ld CIT (A) erred in not allowing the decision of jurisdictional High Court wherein it was held that no addition can be made u/s I53A if no incriminating material / documents are found during search. Therefore, the order of the CIT (A) is bad in law." (iv) On these issues, it was held by the Hon'ble ITAT that:
"9. From the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground the assessee succeeds and rest of the grounds are dismissed as academic. 9.1. Further, regarding the non-abated nature of the assessments relating to the AYs 2007-2008, 2008-2009 and 2009-2010, it is a decided issued that the time limit for the issue of notice u/s 143(2) in the said AYs since expired on 30.9.2008 and they constitute non-abated assessments and therefore, the assessments for those AYs have to be reassessed under the special provisions in the light of the incriminating material seized during the search. The above said ratio was also followed by the Tribunal in the case of Gurinder Singh Bawa vs. CIT (supra) wherein it was held that „……… where the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search ………..there was no assessment pending ………in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search." (v) The relevant issues as arising out of the decision in the case of Kabul Chawla as under:
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
1) When there is no condition in section 153A of the Act that additions cannot be made without relevance to or without nexus to seized material, then is it for the Courts to read that condition into the provisions of section 153A of the Act? The answer is NO for the reason that the application of section 148 of the Act has been ousted by the non-obstante clause with which section 153A starts. Therefore, even if no incriminating material is found during search, if any undisclosed income has to be assessed for the relevant 6 years, it has to be in the proceedings under section 153A of the Act. a) Now there are two situations - either the assessment was complete before the search or pending at that time. If the assessment was complete, and if any income which had escaped assessment in the regular assessment is found during proceedings u/s 153A, what is the AO supposed to do? He has no power to act u/s 147/148 because of the non-obstante clause. He is now precluded from invoking provisions of section 148 because of the conclusion drawn in Kabul Chawla. b) The situation is even more serious if a pending assessment or reassessment abates. What if a show-cause notice had been issued on an undisclosed income prior to search? According to Kabul Chawla if no incriminating material is found during search, then NO ACTION can be taken in such cases also. No interpretation of a provision of an Act can be such that it leads to results which were never intended. By drawing a conclusion that the presence of incriminating material, and addition thereon is necessary for making an addition which is not based on material found during search, Kabul Chawla has done exactly that, and so it has to be held that the conclusion so drawn is per incuriam. In this regard I draw solace from the decision of the Allahabad High Court in the case of CIT v. Raj Kumar Arora [2014] 367 ITR 517(All.) and the decision of the Delhi High Court in the case of Filatex India Ltd. v. CIT[2014] 49 taxmann.com 465(Delhi) both of which precede the decision in the case of Kabul Chawla. 2) There is another situation which has not been anticipated in Kabul Chawla. In that case the Hon’ble High Court proceeded on the grounds that processing of a case u/s 143(1) was also assessment. It accordingly held that even if the returns have been processed u/s 143(1) it will be treated as if the assessments are complete. Now after the decision of the Hon’ble Supreme Court in the case of Deputy Commissioner of Income-Tax v. Zuari Estate Development & Investment Co. Ltd. [2015] 373 ITR 661 (SC) and Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500(SC) it is clear that
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
processing of a case u/s 143(1) is not an assessment, which fact has been admitted by the Delhi High Court in the case of Indu Lata Rangwala v. Deputy Commissioner of Income-Tax, WP(C) 1393/2002 in their decision dated 18.05.2016. 3) Hence, there now occurs a third category – of cases which have neither been completed nor are pending on the date of search. Kabul Chawla is silent on this situation, perhaps because it was not envisaged at that time. In view of these facts and legal position that the premise developed in Kabul Chawla, that additions can be made in the completed or abated assessments only if there is incriminating material in a proceeding u/s 153A, cannot and will not apply to such a situation. 4) Now we come to the question of whether it is necessary to have incriminating material in all the 6 years for an addition to me made on issues not covered by search. Though there is an attempt to interpret Kabul Chawla in a way that incriminating material is required in all the 6 years, this interpretation is incorrect because:
a) this proposition has not been specifically spelt out in the Kabul Chawla case; this proposition has not been specifically spelt out in the Kabul Chawla case; this proposition has not been specifically spelt out in the Kabul Chawla case; this proposition has not been specifically spelt out in the Kabul Chawla case; b) b) b) b) the Delhi High Court in the ca the Delhi High Court in the case of the Delhi High Court in the ca the Delhi High Court in the ca se of se of CIT v. Chetan Das Lachman Das [2012] 211 se of CIT v. Chetan Das Lachman Das [2012] 211 CIT v. Chetan Das Lachman Das [2012] 211 CIT v. Chetan Das Lachman Das [2012] 211 Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) has specifically raised and Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) has specifically raised and has specifically raised and then has specifically raised and then then then answered the question in favour of the revenue. answered the question in favour of the revenue. It has stated that additions on answered the question in favour of the revenue. answered the question in favour of the revenue. It has stated that additions on It has stated that additions on It has stated that additions on non non-search issues can be made even if there is incriminating material in even non non search issues can be made even if there is incriminating material in even search issues can be made even if there is incriminating material in even search issues can be made even if there is incriminating material in even one year. This case is extremely important for the Revenue. one year. This case is extremely important for the Revenue. one year. This case is extremely important for the Revenue. one year. This case is extremely important for the Revenue. Similar sentiments have been expressed in the case of Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia Similar sentiments have been expressed in the case of Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia CIT v. Anil Kumar Bhatia CIT v. Anil Kumar Bhatia [2 [2013] 352 ITR 493 (Del) [2 [2 013] 352 ITR 493 (Del) 013] 352 ITR 493 (Del) where only one unsigned document dated 10.02.2003 013] 352 ITR 493 (Del) where only one unsigned document dated 10.02.2003 where only one unsigned document dated 10.02.2003 where only one unsigned document dated 10.02.2003 showing a loan of Rs. 1,50,000/ showing a loan of Rs. 1,50,000/- was found during search conducted on showing a loan of Rs. 1,50,000/ showing a loan of Rs. 1,50,000/ was found during search conducted on was found during search conducted on was found during search conducted on 13.12.2005. The Hon’ble High Court held that this material was enough to justify 13.12.2005. The Hon’ble High Court held that this material was enough to justify 13.12.2005. The Hon’ble High Court held that this material was enough to justify 13.12.2005. The Hon’ble High Court held that this material was enough to justify additions in all the 6 years. additions in all the 6 years. additions in all the 6 years. additions in all the 6 years. c) Recently, the Kerala High Court in Sunny Jacob Jewellers and Wedding Centre v. Sunny Jacob Jewellers and Wedding Centre v. Sunny Jacob Jewellers and Wedding Centre v. Sunny Jacob Jewellers and Wedding Centre v. Deputy Commissioner of Income-Tax [2014] 362 ITR 664 (Ker) Deputy Commissioner of Income Tax [2014] 362 ITR 664 (Ker) has also very Deputy Commissioner of Income Deputy Commissioner of Income Tax [2014] 362 ITR 664 (Ker) Tax [2014] 362 ITR 664 (Ker) categorically stated that incriminating material found during search is not necessary in all the 6 years for additions to be made on other issues. While giving these decisions, the Hon'ble ITAT, Mumbai as well as the Hon'ble ITAT, Delhi Bench has referred to the decision of the Hon'ble Mumbai High Court in the case of All Cargo Global Logistics Limited Vs. DC IT, Central Circle-44, Mumbai and the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla in ITA No. 707/2014 dated 22.8.2015. Here it is pertinent to mention that the Department has not accepted
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
the decisions of Hon'ble Mumbai High Court in the case of M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd., and SLP has been filed before the Hon'ble Supreme Court. The Hon'ble Supreme Court has granted leave vide order dated 12.10.2015 as reported in 64 taxmann.com 34 (S.C.). Similarly, in the case of Kabul Chawla SLP has also been filed. Now after the decision of the Hon’ble Supreme Court in the case of Deputy Commissioner of Income-Tax v. Zuari Estate Development & Investment Co. Ltd. [2015] 373 ITR 661 (SC) and Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500(SC) it is clear that processing of a case u/s 143(1) is not an assessment, which fact has been admitted by the Delhi High Court in the case of Indu Lata Rangwala v. Deputy Commissioner of Income- Tax, WP(C) 1393/2002 in their decision dated 18.05.2016. Hence, there now occurs a third category – of cases which have neither been completed nor are pending on the date of search. Kabul Chawla is silent on this situation, perhaps because it was not envisaged at that time. It is my contention that the premise developed in Kabul Chawla, that additions can be made in the completed or abated assessments only if there is incriminating material in a proceeding u/s 153A, cannot and will not apply to such a situation. Now we come to the question of whether it is necessary to have incriminating material in all the 6 years for an addition to me made on issues not covered by search. Though there is an attempt to interpret Kabul Chawla in a way that incriminating material is required in all the 6 years, this interpretation is incorrect because: a) this proposition has not been specifically spelt out in the Kabul Chawla case; b) the Delhi High Court in the case of CIT v. Chetan Das Lachman Das [2012] 211 Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) has specifically raised and then answered the question in favour of the revenue. It has stated that additions on non-search issues
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
can be made even if there is incriminating material in even one year. This case is extremely important for us. Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia [2013] 352 ITR 493 (Del) where only one unsigned document dated 10.02.2003 showing a loan of Rs. 1,50,000/- was found during search conducted on 13.12.2005. The Hon’ble High Court held that this material was enough to justify additions in all the 6 years. c) Recently, the Kerala High Court in Sunny Jacob Jewellers and Wedding Centre v. Deputy Commissioner of Income-Tax [2014] 362 ITR 664 (Ker) has also very categorically stated that incriminating material found during search is not necessary in all the 6 years for additions to be made on other issues. Therefore, in view of above discussion with regard to the provisions of Sec 153A of the Act, it is seen that from 01.06.2003 onwards the number of years from which assessments could be framed after search were reduced from 10 to six. Section 153A of the Act has mandated that there have to be 6 separate assessments instead of a block assessment. It also started with a non-obstante clause which stated that the operation of sections 139, 147,148,149,151,and 153 was ousted. In other words when an assessment was being completed u/s 153A, the sections mentioned above could not be invoked. The section did not, repeats, and did not mention that for making an assessment u/s 153A of the Act, it was necessary to have some incriminating material found during search. In the case of Kabul Chawla, it was stated that assessments had to be completed u/s 153A of the Act the moment a search has taken place. This is a common ground in all judicial pronouncements, and nobody has any objection to the said conclusion. It was also stated in the above case that, though not prescribed in the Act, but additions had to be made on the basis of incriminating material found during search. The additions could not be arbitrary. This conclusion, and others arrived at in para 37 of the judgment started the present controversy. It is obvious that if no
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
incriminating material is found during search, then additions, if any, have to be made in the income shown in the return of income (in the case of pending assessments which abate) and to the computed income (in case of assessments were completed). Thus effectively, what was said in the case of Kabul Chawla was that making any addition in the returned income or income earlier assessed was not allowed if no material was found in the search which could lead to an addition on the basis of the said material.
Therefore, facts of case laws relied upon by the assessee are quite distinguishable with that of the present case. In view of these facts, assessee’s contention is not correct that AO was not justified in reassessing the completed assessment. Assessee’s appeal fails in Gr No 1.
3.2 Ground No. 2 & 3: “Regarding addition of Rs. 2,00,00,000/- made by applying the provisions of section 56(1) of Income Tax Act, 1961 treating the share capital and premium thereon received from various companies as income of the assessee.” 3.2.1 Submission made: Relevant extracts of which AR of the assessee are reproduced here as under:
“…………………………………………………………………………………………..…… …………………..
1) During the year under consideration the assessee allotted 2,00,000 equity shares of Rs. 10 each to various companies at a premium of Rs. 90/- per share detail of which is as under: -
S. Name No. of Amount Rate Amount Rate of Issue Total N. Shares adjusted per adjusted premium price of Consideration alloted/ against share against per share the Received applied share share share during capital premium the year 1. Debdaru Vinimay Pvt. 25,000 2,50,000 10 22,50,000 90 100 25,00,000 Ltd
Jai Pitreshwar Vyapaar 15,000 1,50,000 10 13,50,000 90 100 15,00,000 Pvt. Ltd
Mainak Vincom Pvt. Ltd 50,000 5,00,000 10 45,00,000 90 100 50,00,000
Puspa Dealers Pvt. Ltd 50,000 5,00,000 10 45,00,000 90 100 50,00,000
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ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Snowfall Commercial 25,000 2,50,000 10 22,50,000 90 100 25,00,000 Pvt. Ltd
Vignesh Info Services 35,000 3,50,000 10 31,50,000 90 100 35,00,000 Pvt. Ltd
Total 2,00,000 20,00,000 1,80,00,000 2,00,00,000
2) During the course of assessment proceedings the assessee submitted the following documents to prove their identity of shareholders, creditworthiness of shareholders and genuineness of transaction with them: -
Name of Shareholder Particulars of Documents submitted Copy at PB Page � Debdaru Vinimay Pvt. Ltd Share application containing the name/address/PAN of party, 46 to 47 detail of payment received etc. � Copy of board resolution. 48 � Copy of PAN card of party. 49 � Copy of Ack. of ITR of AY 2010-11. 50 � Copy of audit report and audited balance sheet along with 51 to 60 annexure of 31.03.10. � Copy of bank statement showing the entry of payment made to 61 to 62 assessee. � Declaration of source of funds with party. 63 � Copy of Registration certificate of ROC. 64 � Jai Pitreshwar Vyapaar Pvt. Ltd Share application containing the name/address/PAN of party, 65 detail of payment received etc. � Copy of board resolution. 66 � Copy of PAN card of party. 67 � Copy of bank statement showing the entry of payment made to 68 assessee. � Copy of Ack. of ITR of AY 2010-11. 69 � Copy of audit report and audited balance sheet along with 70 to 78 annexure of 31.03.10. � Declaration of source of funds with party. 79 � Copy of Registration certificate of ROC. 80 � Mainak Vincom Pvt. Ltd Share application containing the name/address/PAN of party, 81 to 84 detail of payment received etc. � Copy of board resolution. 85 � Copy of PAN card of party. 86 � Copy of Ack. of ITR of AY 2010-11. 87 � Copy of audit report and audited balance sheet along with 88 to 97 annexure of 31.03.10. � Declaration of source of funds with party. 98 to 99 � Copy of Registration certificate of ROC. 100
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� Puspa Dealers Pvt. Ltd Share application containing the name/address/PAN of party, 101 to 104 detail of payment received etc. � Copy of board resolution. 105 � Copy of PAN card of party. 106 � Copy of bank statement showing the entry of payment made to 107 to 109 assessee. � Copy of Ack. of ITR of AY 2010-11. 110 � Copy of audit report and audited balance sheet along with 111 to 120 annexure of 31.03.10. � Declaration of source of funds with party. 121 to 122 � Copy of Registration certificate of ROC. 123 � Snowfall Commercial Pvt. Ltd Share application containing the name/address/PAN of party, 124 to 125 detail of payment received etc. � Copy of board resolution. 126 � Copy of PAN card of party. 127 � Copy of Ack. of ITR of AY 2010-11. 128 � Copy of audit report and audited balance sheet along with 129 to 138 annexure of 31.03.10. � Declaration of source of funds with party. 139 � Copy of Registration certificate of ROC. 140 � Vignesh Info Services Pvt. Ltd Share application containing the name/address/PAN of party, 141 to 142 detail of payment received etc. � Copy of board resolution. 143 � Copy of PAN card of party. 144 � Copy of bank statement showing the entry of payment made to 145 assessee. � Copy of Ack. of ITR of AY 2010-11. 146 � Copy of audit report and audited balance sheet along with 147 to 158 annexure of 31.03.10. � Declaration of source of funds with party. 159
All the share capital/share application was received through a/c payee cheques and verifiable from bank statement of assessee as well as bank statement of the party. The onus u/s 68 of the assessee is to prove the identity, capacity and genuineness of the transactions has been discharged which may be seen from the followings:-
i) Identity:- The assessee proved the identity of all the companies by filing the share application received from the parties and the parties are duly in existence and the existence of the parties can be verified from the official website of MCA. The ld. AO also not doubted the identity of the above named companies. Further the notice issued u/s 133(6) of Income Tax Act, 1961 was duly served on all the companies which also prove the identity of the parties.
ii) Creditworthiness All the companies are Income Tax assessee and duly filing the Income Tax return and Balance sheets. There is sufficient source of funds with all the companies to investment share capital/share application in the assessee company. The assessee submitted the copies of bank account/declaration of source of funds with them of investor companies. The bank statement shows the huge transaction of high value in the accounts of the companies. The chart
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ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
showing the amount invested by the above named companies in assessee company viz a viz own funds with the investor company are as under: -
Name of the Investor company Amount invested Share capital and Share capital and in assessee reserve & surplus reserve & surplus company with Investor with Investor companies as on companies as on 31.03.2010 31.03.2009 Debdaru Vinimay Pvt. Ltd 25,00,000 16,26,16,947 14,20,06,978 Jai Pitreshwar Vyapaar Pvt. Ltd 15,00,000 56,65,000 1,00,000 Mainak Vincom Pvt. Ltd 50,00,000 15,41,21,655 15,41,13,205 Puspa Dealers Pvt. Ltd 50,00,000 13,16,36,604 13,16,22,036 Snowfall Commercial Pvt. Ltd 25,00,000 19,97,89,784 18,37,75,295 Vignesh Info Services Pvt. Ltd 35,00,000 3,03,00,000 6,27,314
From the above chart it is clear that all the Investor companies were having their own share capital and Reserve & surplus which was much more than to the amount invested in the assessee company. The above chart shows that the investor companies were having their own independent funds and having their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved.
iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the Motisons Group and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found from the possession of the assessee group or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books of account or document was found showing payment of cash to these investor companies against receipt of cheques from these companies against allotment of shares. Therefore the genuineness of the transactions cannot be doubted.
The ld. AO also not doubted the identity of the shareholders and he only doubted the creditworthiness and genuineness of the transactions for the following reasons as given in para 11 (a to c) and para 12 of the assessment order: -
i) The assessee company was incorporated on 27.11.1989 and during the year the assessee company received the huge share premium.
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ii) As per the audited P&L account and balance sheet the assessee company did not have any business commensurate of share premium.
iii) Perusal of the balance sheet of the assessee company revealed that there were no physical assets/assets are not in commensurate to value of share with the company wither in the form of fixed assets, plant & machinery etc.
In the above background the receipt of share capital Rs. 20,00,000/- and premium to the tune of Rs. 1,80,00,000/- during the year under consideration was not only abnormal but also appeared to be a part of a well planned exercise of tax evasion as discussed earlier.
Regarding these findings/observations of ld. AO we may submit as under: -
i) Admittedly during the year under consideration the assessee company received huge share premium but the same does not automatically make the share premium as non genuine and taxable in the hands of the assessee. The investment by the investee companies was made after being convinced with the future business planning of the assessee company. The assessee company in NBFC and due to increase in demand of loans in market from NBFC the assessee company was expecting good business & revenue in near future and the investor companies were convinced to be partner of the assessee company, therefore they invested the funds in the assessee company. Thus the investment made by the investee companies in shares of the assessee company on the basis of future business plans of the assessee company and outcome there from.
ii) Admittedly when the share premium was received, the business activities of the assessee company was not commensurate to shares premium but as stated earlier the investment was made by the investee companies in shares of the assessee company on the basis of future business expansion plans of the assessee company and outcome there from. Further the assessee company is one of the group company of Motisons Group. The Motisons Group is very prestigious and well know group of the northern part of India, therefore the investor company invested the funds in the assessee company on the goodwill of the Motisons Group after knowing their future plans and future earnings. Therefore the share capital/share premium invested by investor companies was not on the basis of current affairs of the assessee company but the same was result of future business expansion plans coupled with goodwill of Motisons Group.
iii) Admittedly when the share were issued the book value of the assets of the assessee company was not in commensurate to the value of the shares but while making the investments the current market value of the assets (Including Goodwill) and future potentiality & profitability of the project/assets are also taken into consideration and then the investments are made. There are lots of
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companies which issue the shares in market through IPO and the shares of such companies are subscribed on the basis of their declaration regarding their future business planning for which the funds raised in IPO. Thus the existing fixed assets of the company always not to be the criteria for deciding the investment in shares by investor companies.
iv) Regarding observation of ld. AO that share capital and premium appeared to be a part of a well planned exercise of tax evasion as discussed earlier this is to submit that taxing event arose when the income is earned and the tax evasion is arose when the undisclosed income is generated. In the forgoing paras the ld. AO himself doubted the share premium on the ground that the assessee company did not have any business commensurate of share premium. When the assessee company is not having any such business than question of having any income either disclosed or undisclosed does not arise and when there is no such income than how the tax can be evaded thereon. Therefore in view of finding given in these paras by the ld. AO it had to be proved first by the department that the assessee was having some income on which it has not paid the tax and the same brought in books of accounts in the form of share capital & premium thereon. But in the instant case the department could not prove any kind of undisclosed source of income of the assessee as a result of search over assessee group as well as during the course of assessment proceedings. As a result of so called long inquiries/analysis the department could not evidentiary proved that the assessee company managed its funds with investor companies to brought the same in books of accounts in the form of share capital & premium thereon more so when the investor companies having their own sufficient funds to invest in the assessee company much prior to investment made in the assessee company and other investments made by such investor companies are much more than to the investment made in assessee company.
Reliance is placed on the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs Smt. P. K. Noorjahan 237 ITR 570 (SC) and CIT Vs Bharat Engineering and Construction Co. (1972) 83 ITR 187 (SC)
The ld. AO by doubting the creditworthiness and genuineness of the share capital/share premium in above paras issued a show cause notice dated 06.02.2015 (copy at PB Page 37 to 40) to the assessee for treating the share capital/premium as income of the assessee on the following grounds: -
a) Share premium/Share capital paid by investor companies is not justified on any account and it is clear that entire money has been introduced in the assessee company in the garb of share premium. The purpose and justification of charging the share premium in excess of the justifiable amount, which in this case cannot
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be more than Rs.10/- per share, is absent from the above exercise of issue and subscription of shares at a premium of Rs.90 per share.
b) The detailed enquiries revealed that most of the companies are Kolkata based. Directors of these companies are the employees of Moti Sons Group or the family members of Chhabra family. Detailed analysis showed the following facts:
(i) All the Directors were residents of Jaipur
(ii) Internet search showed that Directors of these Kolkata based Companies are related to MotiSons Group companies through employment or otherwise
(iii) ITDMS and ITD search on PAN of these directors corroborated the given addresses to a large extent
(iv) Residential address of Rajeev Jain was the same as that of MotiSons Shares Pvt. Ltd., mentioned on the visiting Card of Haridwar office as branch Head.
(v) All these directors appointed between 12th and 17th October 2011 which was more than a coincidence (the previously existing Directors resigned in February 2012)
(vi) The email ID given on MCA website for all the companies is common and the same is for Motisons Group Companies. The Compliance officer Ms. Neha Jain, Company Secretary is common between these and Motisons group Companies, indicating absolute Control of Motisons Group upon these Kolkata based companies.
(vii) Registered address of all the companies is the same, which has been changed on 01.03.2012.
(viii) Two of the said companies information on MCA website were examined in detail. M/s. Alliance Tradecom & M/s. Evershine suppliers Pvt. Ltd were incorporated on 25.11.2008 and 05.01.2009 respectively. The inflow of capital upon incorporation was through share sold at a very high premium and thereafter the said Capital was claimed to be invested in Unquoted shares worth Rs.11.06 Crores and Rs.10.39 Crores respectively.
(ix) All above factors indicate systematic and deliberate creation of a colorable device to introduce share capital into Motisons Group Companies.
In response to show cause notice the assessee filed its reply vide letter dated 13.02.2015 (Copy at PB Page 41 to 44). The submission of the assessee on the observations of ld. AO as mentioned above in para 5 above is as under: -
a) The share premium was decided by the company and investors mutually and share applicant companies have agreed to pay this share premium. There was
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no bar to issue shares on premium under Companies Act and Income Tax Act for the period under relevant. Further the ld. AO held that the “------it is clear that entire money has been introduced in the assessee company in the garb of share premium----” but the ld. AO did not clear that what was the source of such money with the assessee which it introduced in the garb of share premium. The show cause notice as well as assessment order is completely silent on this issue. Without having some money it cannot be introduce in books of accounts and for having the money there should be some unexplained source of income. In the case of assessee the department as a result of search as well as during assessment proceedings or as a result of investigation could not prove the source of income of the assessee wherefrom this much of money was earned, therefore the finding of ld. AO on this issue is totally incorrect and does not maintainable in the eye of law.
The allegation of ld. AO is patently wrong, without any basis and merely on surmises and conjectures. Hon’ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good “proof into no proof” Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof. Hon’ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof. b) Regarding the inquiries which are being discuss in the show cause notice this is to submit that whatever inquired being discuss by ld. AO was not in knowledge of the assessee that what sort of inquiries has been made by the department and what are the outcomes of such inquiries. Therefore the assessee requested from the ld. AO to provide the details of inquiries conduced in this regard along with supporting documents but the same not provided to the assessee. However on the issue raised by the ld. AO on the basis of so called inquiries we submit as under: -
i) The above finding of the ld AO is not relevant at all in deciding the issue of creditworthiness of the investor company and genuineness of the transactions. Even, if it is presumed that the investor companies are under the control of the directors of the assessee, then also the transaction cannot be treated as not genuine as the main issue is availability of funds in the hands of the investor company and if that is explainable then no question is arise for treating the share capital as not genuine.
(ii) The low creditability of directors of allottee company, their relationship with Motisons Group etc. have no relevance for examining the genuineness of share capital and creditworthiness of the investor company as in the case of assessee it is well proved by documentary evidence that the amount against share application money was received through genuine source of funds with investor companies and the amount was adjusted against allotment of shares. The source of funds with the investor companies which they invested in assessee
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company was also well explained genuinely. If department have some doubt regarding genuineness of funds with investor companies the necessary investigation of such funds should had been made in the case of investor companies and the necessary action should had been taken in their case. It is relevant to mention here that apart from the investment made in the assessee company the other assets/investment of such investor companies was much more which were also managed by those companies at their own. It is also relevant to notice here that why only the investment made by those investment companies in the assessee company is being treated as non genuine and other investment/assets of those company is being treated as genuine. This shows that the assessment order was passed by ld. AO with settled mindset that the amount is to be added as income of the assessee.
(iii) Further whatever inquiries/analysis discuss by ld. AO in his show cause notice have no relevance in the case of the assessee because from such discussion only it can be proved (not conclusively) that the employees of assessee group was managing affairs of some of the companies who made the investment in some years in the assessee/companies of assessee group but such inquiries nowhere proves that the funds with such companies was not from their own independent sources and the same was introduced by the assessee company. In the instant case for adding the share capital/premium as income of the assessee the department has to prove that the amount so received was revenue receipt of the assessee and in the instant case the department could not prove the same as a result of search proceedings over the assessee group or during the course of assessment proceedings or as a result of investigation/analysis. Without proving the source of income or without proving that amount so received is income of the assessee the same cannot be treated as income of the assessee merely on presumption, assumption and suspicious. (iv) The assessee group or employees of the assessee group does not have any concern from the investee companies. c) The ld. AO opined that the analysis/inquiries indicate the systematic and deliberate creation of a colorable device to introduce ‘Share capital’ in Motisons group companies. The investment in share capital of assessee company by above named companies was independent decision/judgment of those companies. The assessee has filed copy of the board resolution of the investor company. The income tax department carried out intensive search over Motisons Group and during the course of search no documents/evidence was found to show that the companies who made investment in shares of assessee company in the year under consideration were funded or undisclosed cash was given by Motisons Group. If these investor companies have their own independent funds, the same can be invested anywhere. It is admitted facts that during the year under consideration as well as in previous years the assessee company is not having such business activities where from this much of undisclosed income could be earned than question of having any undisclosed income does not arise and when there is no undisclosed income than how the same can be managed to brought in books of accounts in form of share capital. In this case the department could not prove any kind of undisclosed source of income of the assessee as a result of search over assessee
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group as well as during the course of assessment proceedings or as a result of inquiries. As a result of so called long inquiries the department could not evidentiary proved that the assessee company managed its funds with investor companies to brought the same in books of accounts in the form of share capital more so when the investor companies having their own sufficient funds to invest in the assessee company much prior to investment made in the assessee company.
Thus, from the above submission and record it is well proved that the amount so received by the assessee company from above named companies was received against share capital and the investment was made by them by their own disclosed source, therefore no addition in any way can be made in the hands of the assessee.
After considering the reply of the assessee on show cause notice issued by ld. AO he pointed certain issues in the reply of the assessee which have been discuss on page 16 to 23 (Para 15 to 17) of assessment. The finding of ld. AO and submission of assessee on such findings is as under: - (a) Finding of AO: - Identity, Credit worthiness and genuineness of the transactions have been proved by filing certain documents. The assessee company has attempted to limit the scope within which revenue authorities can operate only with a self serving interest to make it appear that the transactions entered into get justified. The three aspects certainly are some of those angles, but to say that the revenue cannot go beyond, is not apparently vested with self serving interest but also with ignorance of law.
Certainly, simply because some form of identification on paper has been provided does not mean that the transaction stands explained from the viewpoint of the credit worthiness and genuineness.
Submission of assessee: - i) The assessee submitted ample documents in supported to share application money received to prove the identity, creditworthiness and genuineness of transactions and from examination of those documents its proves that the investing companies were having sufficient funds to make investment in share capital of the assessee company. There was no cash deposit in bank a/c of the investor company for subscribing the share capital of the assessee company. The ld. AO rejected these evidences on surmises and conjectures. Hon’ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good “proof into no proof” Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof. Hon’ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof.
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ii) From examination of financial statements of investor companies your honor will find that the investor companies had huge share capital and reserves. Apart from the investment made in the assessee company they have huge other investments/advances. As per declaration of source of funds submitted by them they realized money from their old investments/advances and made the same money was utilized for making the investment in the assessee company. These companies are assessee of Income Tax department and in case of any doubt, necessary action could be taken in the hands of these companies and if these companies failed to explain the source of investment, necessary addition can be made in the hands of these companies by applying the provisions of section 69 of Income Tax Act. However the ld. AO made the addition in the hands of the assessee company under the complete disregard of provisions of Income Tax Act and merely on surmises and conjectures. The Hon’ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR 0195/ 6 DTR 308 (SC) held that if the share capital money is received by the assessee company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company. (iii) As alleged by ld. AO the assessee is not attempted to limit the scope within which revenue authorities can operate and the assessee also accept that the revenue authorities can examine the transactions from all possible angles. In the law in the case of credit entry (such as loan, share capital etc.) the identity, genuineness and creditworthiness of the credit entries has to be examine and in the instant case the assessee has proved all these three ingredients and the ld. AO did not find any infirmity in such details. If the ld. AO is having doubt regarding the detail and submission filed by the assessee than he could surely go beyond for further inquiries but the inquiries should have been with the angel to unearth the truth of the transactions and in the instant case the inquiries should have been made with the angel to find out the following: - � The huge amount received in the form of share capital/share premium. Whether the money so received is actually capital receipt in the hands of the assessee? � Whether money received in the hands of the assessee company was from genuine source or the same was own funds of the assessee? � If the money which flow in the hands of the assesses was managed affairs of the assessee than what was the source of inflow of such money? iv) The ld. AO has not carried out any short of inquiries in this regard in the case of the assessee. No inquiries from the shareholders, their bankers have been made to prove the contention of the assessee to be wrong. There is no evidence that the money received is a/c of the assessee’s own undisclosed income. The assessee filed sufficient documents to prove that the amount so received was capital receipt and the same was received against share capital/share premium. The source of the funds from investor companies was also proved and there is no positive material to show that the investor companies was not having sufficient source to invest the money in the assessee company. If the ld. AO is having doubt regarding genuineness of the source of funds with the investor
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companies he could have make the inquired in the case of such companies and if something found adverse than the necessary additions could have been made in the hands of such investor company only and in the inquiry if something positive reveals that the source of funds with such investor companies was funded by the assessee company than only the addition could be made in the hands of the assessee company. It is admitted facts that during the year under consideration the assessee company was not having such source of income from which this much of income could be earned and the ld. AO is completely silent on this issue that where from this much of money was earned by the assessee company.
v) The finding of ld. AO that simply because some form of identification on paper has been provided does not mean that the transaction stands explained from the viewpoint of the credit worthiness and genuineness this is to submit that by filing the sufficient documents the assessee discharge its onus cast on it by the law and now onus in on the department to disprove the submission and documents of the assessee by positive evidence. The department has not discharged its onus and no inquired were carried out and no evidence is in possession with the department to disprove the claim of the assessee. One the one hand the ld. AO is claiming that the revenue authorities can examine the transaction from all possible angles and on the other hands the transactions are being doubted and added merely on surmises and conjectures. It is further submitted that if the documents submitted by the assessee was not felt sufficient to accept the transaction than the ld. AO could ask from assessee to submit the further details/documents which is felt necessary for deciding the matter in justice & fair manner but the same was not done by ld. AO.
b) Finding of AO: - Regarding no bar of issuing of shares at premium, the assessee company has attempted to take an advantage out of the absence of a specific provision which bars the acceptance of share premium which does not match the net worth of the issuing company. In this regard, it needs to be pointed out that mere absence of a specific provision does not by itself mean that a particular colorable device or a sham transaction, acquires legal sanctity, there are numerous provisions related to Gift, sale consideration on sale of assets which came into being at a later stage, but the illegal and tax contravening transactions were still taken up and taxed by revenue authority of course, after the specific inclusion of governing statutes, the matter requires to be dealt within the framework of the specific provision. But, till such time it cannot be said about a transaction, which is patently beyond the realms of acceptability and which also are embedded within here tax implications, that they need to be left alone only because there was no specific bar.
Section 56 of the IT Act has already been existence since long and subsection (1) of section 56 adequately covered transactions like the one being dealt with at present. Only because, sub-section (1) was a broad manifestation of the intent of revenue, sub section (2) which was more specific in content was introduced to take case of the misinterpretation & confusion which was being derived out of
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sub section (4). It must be appreciated that introduction of sub section (2) of section 56 of the Act was only a specific expression of the manner in which a specific transaction requires to be dealt with the intent of legislature and the content thereof already existed within the same act and within the same section and in the preceding sub-section No new idea which was conceptually district from section 56(1) of the Act was brought into being.
Hence, the assessee company cannot be allowed to escape the provision of law, simply because it contained a broader & wider manifestation of its true intent which was enunciated only after the transaction took place. The contention of the assessee is a pervert argument & deserves to be rejected.
Submission of assessee: -
i) Share premium is capital receipt: If shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves. ii) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum observed that 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 section 78 of 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 is a capital receipts and is not income for its ordinary sense. In the case before Mumbai bench has to consider a case where premium of Rs.190 per share was charged. The Tribunal observed as under: “No doubt a non-est company or a Zero balance sheet company asking for Rs.190 per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether
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they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head “income from other sources” by inserting clause.(vii b) to section 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its, wisdom has made. The provision applicable w.e.f. 1.4.2013 i.e. on and from A.Y. 2013-14.” iii) The ld. AO taxed the share capital/share premium by holding that mere absence of a specific provision does not by itself mean that a particular colorable device or a sham transaction, acquires legal sanctity and a transaction, which is patently beyond the realms of acceptability and which also are embedded within here tax implications, that they need to be left alone only because there was no specific bar this is to submit that for bringing a transaction into a Income Tax territory first it is to prove by the revenue authorities that the transaction is colorable device or a sham transaction. In the case of the assessee the investor companies are confirming that they have gave the amount to the assessee company as share premium and the assessee company is entering such amount in its books of accounts as a share premium. There is no evidence on record to prove that the transaction is sham transactions or not real transaction. The onus is on department to prove that the transaction is sham or not real. The allegation should be based on the evidences. The ld. AO is duty bound to prove a transaction not real and not acceptable with evidences which is absent in the instant case. Admittedly there are numerous deeming provisions related to Gift, sale consideration on sale of assets under which the deemed income are taxed but the deeming fiction can only strictly applied on the transactions for which it was made applicable. The same cannot be extended further for other transactions until and unless such transaction is covered in the definition of Income or deemed income as per Income Tax Law. If some specific transaction is not income or deemed income in the Income tax law than the same cannot be presumed as income by the revenue authorities at their own without having any positive material to presume that the same is actually income of the assessee. These type of transaction can only be dealt within the framework of the specific provision after the specific inclusion of governing statutes. In the Income Tax Act the charging of certain amounts share premium deemed to be income of the recipient companies w.e.f. 1.4.2013 i.e. on and from A.Y. 2013-14 and the same cannot be made applicable retrospectively. iv) Admittedly the Section 56 of the IT Act has already been existence since long and but sub-section (1) of section 56 only covers the taxing the revenue transactions which not covered under other head of income but the same are included in the definition of income. The section 56(1) does not cover the taxing
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the deeming capital receipts and such receipts can only taxed under sub section 56 (2) of Income Tax Act, 1961 if consisting specific expression of the manner in which a specific transaction requires to be dealt with the intent of legislature. In the Income Tax Act the charging of certain amounts of share premium deemed to be income of the recipient companies w.e.f. 1.4.2013 i.e. on and from A.Y. 2013- 14, therefore the share premium received prior to that period cannot be taxed as income of the assessee. c) Finding of ld. AO: - It is wholly incorrect to say that the allegation is based on surmises and conjectures. The facts clearly prove that the assessee had entered into sham transactions as part of a well planned exercise of introducing unexplained money in the form of share capital and share premium without any justification of the value having been provided either by the issuing company or the subscribing company. The money so received was then immediately invested in the subscription of share capital at high premium with other companies, who in turn continued the exercise in the same form. The assessee company was thus part of this circular ring whereby unjustified and unsubstantiated share premium was being introduced. Submission of assessee: - i) The finding of ld. AO is patently wrong, perverse and not backed with any supporting evidence. First of all regarding allegation that the assessee introduced its own unexplained money in the share capital and share premium this is to submit that the department carried out intensive search over the assessee group and during the course of search not a single document/evidence was found to show that the assessee was having some undisclosed income or having some unexplained money. As a result of inquiries carried out by the investigation wing they also could not gathered any positive evidence to show that the assessee was having any undisclosed income or unexplained money. If there is no proof with the department to prove that the assessee was having some unexplained money than how it can be alleged that the assessee has introduced its unexplained money in the form of share capital and share premium. This is completely on the basis of surmises and conjectures. ii) As regard to not providing the justification of the value of shares this is to submit that the shares issued at high rates does not make the transactions itself shame or colorful device to evade the tax. From the record it is well proved that the amount was received from the investor companies against share capital & share premium, therefore the transaction are being genuine. As stated in earlier paras, the Hon’ble ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum observed that issue of shares at premium is always a commercial decision which does not require any justification. Further the company is not require to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature is a capital receipts and is not income for its ordinary sense. iv) The allegation of ld. AO is that the money so received was then immediately invested in the subscription of share capital at high premium with other companies, who in turn continued the exercise in the same form and the assessee company was thus part of this circular ring whereby unjustified and unsubstantiated share premium was being introduced. In this regard this is to submit that if someone is investing the money in the assessee company he must
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be having the inflow of money from some source. What is the source of inflow with the investor company and how it is managing its affairs is not concern of the assessee. In the case of the assessee, it has full filled its legal obligation. The assessee has proved the source of money with the investor companies. Thus in the case of the assessee the source of money is well proved. If the investor companies is not having proper source of funds with them than the action should have been taken in their hands and the same cannot be added as income of the assessee merely by holding that the assessee planned the funds of all the companies. There is no onus to prove source of source. In this regard, the assessee relies on the following decisions:- (i) Hon’ble Rajasthan High Court in the case of Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199 has held that once the existence of the creditors is proved and such persons own the credits, the assessee’s onus stands discharged and the assessee is not required to prove the source from which the creditors could have acquired the money deposited with him. Hon’ble jurisdictional High Court has held that merely because the depositors’ explanation about the sources of money was not acceptable to the AO, it cannot be presumed that the deposit made by the creditors is money belonging to the assessee itself. (ii) CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC) The assessee had given named and addresses of the cash creditors, who were income tax assessees. Revenue apart from issuing summon u/s 131 notices to creditors, did not pursue the matter further- it did not examine creditworthiness of the creditors- assessee could not, under the circumstances do anything further. Held that the additions were rightly deleted. (iii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj)
Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans. It is further submitted that the investor companies were having sufficient accumulated funds in the form of share capital and reserves & surplus much prior to the investment made in the assessee company and the same are much more than to investment made in the shares of the assessee company. The same funds were being managed by such company at their own and having investment in shares of other companies/loans & advances to various parties. The investment by such companies in the assessee company was of lesser amount in comparison to total investments made by such investor companies and if the other investments made by such companies are being treated as genuine than how the investment made in the assessee company can only be non genuine. Further if the allegation of the department that the assessee managed its unexplained funds in such companies than there should be inflow of new capital in such companies only for making the payment to the assessee company which has not been done in the instant case. The investment was made in the assessee company by some of the companies out of funds realized from previous investments/advances and some of the companies out of funds realized from allotment of shares. If the payment was made by some of the companies by realizing the funds already invested by such company how such funds can be treated as unexplained money of the assessee.
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d) Finding of ld. AO: - The contention of the assessee company is only based on accounting jugglery by way of which the transaction has been recorded in the books of accounts of all such persons including the assessee company, who have participated in this exercise. It needs to be understood that merely because the assessee company adjusted the money received, as share capital/share premium in its books of account, the transaction cannot be showed with the character of a capital receipt. It must be said that the face value of a share is intrinsically capital in nature because it imparts to the subscriber a right of participation and ownership in the issuing company. However, the share premium attached to each such share does not entitle the subscribed of anything else other than what the face value by itself has achieved for him. This participation and ownership in the issuing company remains the same. It is in fact a cost which the subscriber bears for 1) The value or worth of assets & profits which the issuer company already possesses or deriver, or
2) The value or worth of such assets or profits which the issues company may create in the further or may derive, for the proportionate benefit of the subscriber.
In the instant case, both of above are absent. Neither does the issuing company possess any asset worth its name nor does it derive any profit.
Neither does the assessee company hold any promise for the creation of assets or wealth in the future nor is there any foreseeable possibility of any profit being derived in the future. The question which thus arises is that what is it that the subscriber company paid for in form of the share having face value of Rs. 10. The assessee company has failed to answer this question even when a specific query in this regard had been raised thus the same creates doubts regarding genuineness of share capital and premium thereon credited in books of accounts
Submission of assessee: -
i) The transfer of share application into share capital & share premium is not only based on accounting entries but they are supported by documentary evidence. It is not a case where the certain receipts has been accounted for by the assessee company as per its own sweet will. The investor companies filed the share application forms to subscribe the shares of the assesses company and in the share application form the detail of share premium is also mentioned. Thus this is not a case where the claim of the assessee is based on accounting entries. There is no contra material with the department to prove that the adjustment made in books of accounts by the assessee is not correct or not based on documents.
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ii) The ld. AO himself admitted that the face value of a share is intrinsically capital in nature because it imparts to the subscriber a right of participation and ownership in the issuing company and still while making the addition he made the addition of the share capital as well as share premium. Further if the shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. The book value of the share is increased by the amount credited in share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. The companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt.
iii) As himself admitted by ld. AO one of the deciding factor for share premium is the value or worth of such assets or profits which the issues company may create in the further or may derive, for the proportionate benefit of the subscriber. In forgoing paras we have described the future planning of the assessee by using the funds received from shareholders which also justified the share premium received from the investor companies.
Therefore the ld. AO is wrong in holding that in the instant case neither does the assessee company hold any promise for the creation of assets or wealth in the future nor is there any foreseeable possibility of any profit being derived in the future. From the financials of the assessee company the justification given by the assessee in forgoing para regarding acquisition of assets and future planning for earning of profit can be duly verify. Further as stated in forgoing paras the shares at premium is always a commercial decision between investor and investee companies which does not require any justification.
e) Finding of ld. AO: - The Inquiries which is being discussed in show cause notice admittedly have no relevance in the case of the assessee company as no share capital was issued to those companies. However the inquiries were discussed to justify the modus operandi of introduction of money in the shape of high share premium which is relevant in this case also as the shares were allotted in this case also at the rate higher to the justifiable amount.
Submission of assessee: - i) Whatever inquiries are being discussed in the show cause notice as well as in assessment order are not applicable in the case of the assessee for the instant year as in the year under consideration no shares were issued to such
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companies on which the inquiries were conducted by the department. In this year no any inquiry was made from the investor companies who made investment in the year under consideration. ii) As regard to presuming the modus operandi based on the inquired carried out in the case of some other companies presuming that the same modus operandi was followed in each and every case, this is to submit that as per law the inquiries conduced in the case of particular person should be restricted from that person only and can made applicable for the transactions carried out from such person. The same cannot be extended to making any presumption & assumption in each and every case where no inquiries were made. It is not correct to presume that all the companies are operating from modus operandi.
iii) There is no evidence with the department to prove that the companies to whom shares were issued during the year were being funded by the assessee company. All the companies have their own independent funds to invest at their wisdom. It is further relevant to mention here that whatever funds paid by the investor companies to the assessee company were transferred from their own source of funds which they were possessing from their own source and by no stretch of imagination it can be presumed that those funds were introduced by the assessee company in the investor companies. iv) Further from the show cause inquiries on the basis of which the modus operandi of issue of shares on share premium is being justify by the ld. AO no where it proves that the funds were introduced in such companies by the assessee company. There is no cogent reason to have such presumption either as a result of search over the assessee as well as inquiries carried out by the department. If we believe on the inquiries carried out by the department which is not in knowledge of the assessee, than there may be introduction of some suspicious funds in the intermediate companies where from the flow of funds started from one company/person to other company/person and part of such was received to the assessee company but still a question arose that how its prove that the same was unexplained money of the assessee company. The companies/persons from whom the assessee company received the share application money and the persons/companies from whom the investor companies of the assessee received the funds are separate Income tax assessee and having their own net worth, own source of funds much prior to the investment made in the assessee company and if some suspicious funds had been introduced in accounts of such companies then the explanation of such funds should have been called from concerning person/company and in case of failure to do so the action should have been taken in the case of concerning person. Instead of doing so the department adopted a short cut method of treating such suspicious money as unexplained money of the assessee and added the same income of the assessee without carrying necessary inquiries or taking necessary action against such persons by justifying its action on the
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basis of some irrelevant inquiries. There is no case or evidence with the department to presume that the assessee has introduced its explained money in accounts of such investor companies.
f) Finding of ld. AO: - Admittedly during the course of search over Motisons Group no documents/evidence was found to show that the companies who made investment in shares of the assessee company are run/manage by Motisons Group but from the inquiries and modus operandi its reveals that the allotee companies are merely paper companies and providing accommodation entries. Therefore the indirect evidence/inquiries conducts given clear sign of introduction of large money in the company in the form of share capital/share premium more so when the justification of charging such higher rate not genuinely proved.
Submission of AO: - i) In this para the ld. AO himself admitted that during the course of search over Motisons Group no documents/evidence was found to show that the companies who made investment in shares of the assessee company are run/managed by Motisons Group. Thus if the department is not in possession of any positive material against the assessee or its investor companies than how the inquiries made in the case of other companies can be used against the assessee more so when in the year under consideration no any transactions was made from such companies. Further there is nothing positive in the inquiries to alleged that the assessee has introduced its own unexplained money under the garb of share capital and share premium.
ii) The rate of share was decided after discussion of assessee company and investor company. The shares were issued to the investor companies at premium because of the reasons mentioned in forgoing paras. From the documents submitted to the AO no where it proves that all the companies are simply paper companies and providing only accommodation entries and the investment made by them in the assessee company is not genuine. The finding of the ld. AO is based on the assumption and presumption.
g) Finding of ld. AO: - It is also to be noted here that the notices u/s 133(6) were issued to the Kolkata based companies from where the assessee company received share capital/share premium. Till the stipulated date of compliance none of the company replied to the above said notices.
Submission of assessee: - i) The ld. AO had issued the notices u/s 133(6) of Income Tax Act, 1961 and he alleges that the same were not complied by the investor companies. But this fact was not brought to the notice of the assessee. The assessee has inquired from the investor companies and they reported that they have sent reply by post for all the notices received by them.
ii) Further from the assessment order it is not clear that what short of information’s were required by ld. AO from the investor companies and whether the same was over and above to the information’s/documents already submitted by the
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assessee. If such called information were that much important than why the same were not brought in the notice of the assessee. This shows that the ld. AO was bent for making the assessment and he issued the notice to the investor companies just to complete the formalities. iii) Simply that the parties not responded the notice, it does not empower to the ld. AO to treat the transactions as non genuine. Reliance is placed on following decisions: - � CIT v/s. Winstral Petrochemicals (P) Ltd. (2010) 41 DTR (Del) 139 Income—Case credit—Share application money—Assessee company was found to have received the money through banking channels—Assessee company also furnished written confirmations from the applicant companies, copies of certificates of incorporation, PAN cards, PAN details and company details etc. of the applicants—Finding of Tribunal that identity of the subscribers stood duly established from the documents produced by the assessee, cannot be said to be perverse—There is no legal bar to more than one company being registered at the same address—Merely because the applicants did not respond to the notices sent to them, AO was not justified in adding the amount of share application money to the income of the assessee.
� CIT v/s. Samir Bio-tech (P) Ltd. (2009) 17 DTR (Del) 224 Income—Cash credit—Share application money—Identity of the subscribers not being in doubt, share application money having been paid by account payee cheques, subscribers having shown the amounts in their audited balance sheets and having given complete details with regard to their returns and assessments, no addition could be made under s. 68 only because the subscribers did not initially respond to summons.
h) Finding of ld. AO: - It is clear that what is apparent is not real and the assessee's claim of having received investment is not genuine. As laid down by the Hon'ble Supreme Court in the case of CIT vs Sumati Dayal (1995) 80 TAXMAN 89 (SC), apparent must be considered real until it is shown that there are reasons to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities. Importing the ratio of the Hon'ble Supreme Court of India as propounded in the case of Sumati Dayal (supra), there is no dispute that the amount has been received by the appellant from various companies, some of which are listed companies, and the funds have been received against the issue of shares and that the funds have been received through banking channels. What is disputed is whether the funds received by the assessee is actually genuine investment or the unaccounted income introduced in the garb of investment. This raises the question whether the apparent could be considered as real. In the present case the claim of the assessee having received genuine investment is incorrect.
Submission of assessee: - i) As laid down by the Hon'ble Supreme Court in the case of CIT v/s Sumati Dayal (1995) 80 Taxman 89 (SC), (Also relied by ld. AO) apparent must be
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considered real until it is shown that there are reasons to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities.
ii) The ld. AO is also admitting in this para that the amount has been received by the appellant from various companies and the funds have been received against the issue of shares and that the funds have been received through banking channels.
The dispute is whether the funds received by the assessee are actually genuine capital application or the unaccounted income introduced in the form of share application.
In this regard this is to submit that there is no reason with the department to presume that the amount received from the above mentioned companies is accommodation entries to brought the unaccounted money of the assessee in books of accounts. Further during the course of search the department has not found any undisclosed source of income of assessee for the year under consideration by which this much of income could be earned which also proves that the share capital received by the assessee is genuine. CIT Vs Bharat Engineering and Construction Co. (1972) 83 ITR 187 (SC) In this case tribunal came to the conclusion that unexplained cash credit entries in the first year of business of engineering construction company could not be income of assessee. The High Court after careful examination of the various findings reached by the Tribunal has come to the conclusion that the Tribunal's findings are findings of fact. Hon’ble Apex court confirmed that conclusion.
This gives the answer in favor of the assessee that in this case the apparent should be considered as real as the assessee company is not having any source of income from which this much of income could be earned than received of non genuine share capital to brought its unaccounted income in its books of accounts does not arise.
iii) The assessing officer merely disbelieved the explanation/statements given by the assessee and has converted good proof into no proof. Hon’ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good “proof into no proof”
Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof.
Hon’ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof.
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By giving the above findings the ld. made addition of Rs. 2,00,00,000/- in total income of the assessee u/s 56(1) of Income Tax Act, 1961. Regarding the applying the provisions of section 56(1) of Income Tax Act, 1961 we may submit as under: -
a) As per provisions of section 56(1) of Income Tax Act, 1961 “Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.”
In the case of the assessee company, the amount was received from investor companies were against share application and the same is capital receipt which was adjusted against share capital and share premium. The money so received to assessee company was capital receipt and was not revenue receipt, therefore the same cannot be taxed in the hands of assessee company under section 56(1) of Income Tax Act, 1961 because this section deal with income and not with capital receipts. The investors who subscribed the share capital of assessee company is also showing the amount paid to assessee as their investment in shares of assessee company and necessary documents in this regard was submitted to ld. AO. Therefore the assessee has proved with documentary evidences that the amount was received against share application i.e. capital receipt, therefore the same cannot be treated as income of the assessee. Further for treating the share capital/share premium as income of the assessee company no cogent reason has been given by ld. AO.
b) There is no deeming fiction has been given in section 56(1) of Income Tax Act, 1961 wherein the income can be taxed under deeming provision. Certain deeming income has been charged as Income Tax Act which has been provided in section 56(2) of Income Tax Act, 1961 and as per provision of section 56(2) of Income Tax Act, 1961 the share premium received prior to AY 2013-14 were not taxable in any circumstances if the assessee has proved the identity, creditworthiness and genuineness of the transactions.
c) The Income for the purpose of the Income Tax Act has a well understood meaning as defined in section 2(24) of the Income Tax Act 1961. It is true that section 2(24) of the Income Act 1961 contains inclusive definition but it cannot be disputed that income should have been look into its normal meaning. The income will not include capital receipts unless it is specified in Income Tax Act. This argument clarifies after the amendment made by Finance Act 2012 w.e.f. 1.4.2013 in section 56(viib) of Income Tax Act, 1961 wherein certain share premiums were made taxable w.e.f. 01.04.2013. If the same were already taxable u/s 56(1) o Income Tax Act, 1961 and the same was already included in the definition of Income than why this amendment was made. Therefore the ld. AO is wrong in making the addition u/s 56(1) of Income Tax Act, 1961.
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d) Charge of tax is on income as understood in the I. Tax Act and measure of income as per the computation provision. In case there is no charging provision for specific receipt, then it cannot be taxed. The five member Bench of the Apex Court in CIT V Vatika Township P Ltd 367 ITR 466 observed at page 494.
“Tax Laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction and any ambiguity must be resolved against imposition of the tax. In Billings V U.S 232 U.S.261 at page 265, 34 S.Ct 421 (1914), the Supreme Court clearly acknowledged this basic and long standing rule of statutory construction.
Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favour of citizen.
“If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be” As observed in Partington V Attomey General LR4HL100.
Since for the year under consideration there was no provisions in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the same cannot be taxed. The reliance is placed in following cases: -
i) The Hon’ble Bombay High Court in the case of Cadell Wvg. Mills Co.(p) Ltd. V CIT 249 ITR 265 had an occasion to consider the taxability of a sum received in respect of consideration of tenancy Right. It was accepted both by revenue and the assessee that tenancy right is a Capital receipt. Income as defined in section 2(24)(vi) is the income chargeable u/s 45. Hence capital gain chargeable u/s 45 or not will be taxable in case the argument of the revenue is accepted. Legislature has not stopped with the word Capital gain but has mentioned that Capital gain chargeable u/s 45. Before the Bombay High Court, it was argued that in case surrender of tenancy rights is not taxable u/s 45 then it should fall u/s 56 of I.T. Act. If the capital asset has no cost then entire receipt is capital receipt. Before the Hon’ble High Court, the revenue contended that section 14, it is mentioned as capital gain and not capital gain chargeable u/s 45. This contention was not accepted by the High Court. If the computation provision do not apply to a case then such a case will not be covered under charging section. At later stage, a reference will be made to 56 (vii b) inserted by Finance Act 2012 w.e.f. 1.4.2013 as the same will be a computation provision. For the A.Y. 2011- 12, computation provision were not there. In absence of computation provision, entire value of share premium cannot be taxed u/s 56. As for tenancy right, the full consideration cannot be taxed u/s 56, similarly entire share premium is not taxable u/s 56(1).
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ii) The Hon’ble Apex Court in the case of CIT V D.P. Sandu Bros. Chembur (P) Ltd 273 ITR 1 also hold that as per 2(24)(vi) only income which is chargeable u/s 45 is to be included in income and if computation provision u/s 45 fails then charging provisions will fail. Ref. to CIT V B.C. Srinivasa Setty 128 ITR 294. iv) The Hon’ble Rajasthan High Court in the Case of CIT V Gotan Lime Stone Khanij Udyog 269 ITR 399 also held that in case computation provision u/s 48 could not be applied for want of ascertainable cost of acquisition, then capital gain does not arise to be included in total income on account of failure of applicability of computation provision. The Hon’ble High Court referred to decision of Bombay High Court in the case of Cadell Wvg. Mills Co (P) Ltd. (Supra).
v) The Hon’ble Rajasthan High Court in the case of S. Zoraster and Co. V/s CIT 322 ITR 35 had on occasion to consider the taxability of receipt of Rs.20,000 received by vendee on default of the purchaser as per agreement for sell of Prem Prakash Talkies. The Hon’ble High Court after referring to the decision of Apex Court in the case of Travancore Rubber and Tea Co Ltd. V CIT 243 ITR 158 held that such receipt is capital receipt. Such Capital receipt is not taxable in view of judgment of Apex Court in D.P. Sandu Bros. Chembur (P) Ltd (Supra). Hence capital receipt is not taxable unless there is charging provision for a capital receipt and computation provisions are also applicable. e) The Hon’ble Bombay High Court in the case of Vodafone India Services P. Ltd. V UOI 368 ITR 1 had an occasion to consider the difference between the share premium determined by revenue and the share premium charged as deemed loan and taxing of national interest on deemed loan. The Hon’ble Bombay High Court has referred to the decision of Apex Court in the case of Mathuram Aggarwal V/s State of MP (1999) 8 SCC 667 for the test to interpret a taxing statue which reads as under: “ The intention of the legislature is a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not flow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spent and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.” Hon’ble Bombay High Court in this case (Vodafone case) observed that issue of shares at a premium is on capital account and gives rise to no income. 56(1) provides the income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However before section
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56 of the Act can be applied there must be income which arises. If the receipt is capital then it is not income. Hence share premium is not an income. f) The CBDT vide circular/instruction No.2 dated 29.01.2015 has stated as under [371 ITR 6(st)]. In reference to the above cited subject, I am directed to draw your attention to decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd V UOI for the Assessment year 2009-10 (WP No.871 of 2014) wherein the court has held interalia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment.
It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned writ petition. In view of the acceptance of the above judgment, it is directed that the ratio decided of the judgment must be adhered to by the field officers in all cases where the issue is involved. This may also be brought to the notice of the ITAT, DRP’s and CIT (Appeals).
In view of above instruction, it is clear that ratio deciding of treating of share premium as capital receipt is binding on revenue authorities.
g) By finance Act 2012 a new clause (viib) was inserted in 56(2). Memorandum explaining the provisions in Finance Bill 2012 stated as under:-
Share premium in excess of the fair market value is to be treated as income.
“Section 56(2) provides for the specific category of incomes that shall be chargeable to income tax under the head “income from other sources”. It is proposed to insert a new clause in 56(2). The new clause will apply where, accompany, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income Tax, under the head “income from other sources”. This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent Assessment years. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. This suggests that premium in excess of fair market value was not an income but is to be treated as income due to amended provision. Before the amendment, consideration received as premium was not income. The legislature in its wisdom required the share premium in excess of fair market value to be income from Assessment year 2013-14 and not the entire premium to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for Assessment year 2013-14 onward.
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h) Section 56 is not a charging section. This section starts with the following sentence.
“Income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head.” Income from other sources if it is not chargeable to income tax. Under any of the heads specified in section 14, items A to E.
For an income to be taxed u/s 56, it has to satisfy three conditions.
(a) It shall be classifiable as income as per the charging section of the Act. (b) It shall not be excluded from the total income (e.g. section10). (c) It is not chargeable to tax under any of the specified Heads in section 14, items A to E.
The finance Bill 2012 as presented on 16th March 2012 included a new clause (viib) u/s 56(2) of I.T. Act [342 ITR1(st)]. No proposal in the original bill to insert a new clause u/s 2(24). Subsequently Notice of amendments to Finance Bill was given [See 343 ITR 37(st)] and amendments also included the in section of clause (xvi) in 2(24) of I.T. Act and such clause is as under:
(xvi) Any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of subsection (2) of 56.
The amendment introduced in 2(24) signifies that section 56 is not a charging section. Unless the income which is to be taxed u/s 56(2)(vii b) is included in the definition of income, then it can be taxed and be part of total income. Nature of income as mentioned in section 28(iiia), (iiib), (iiic),(iiid) and (iiie) are also included in definition of income.
i) This amendment if section 56(2)(viib) of Income Tax Act, 1961 effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent assessment years and the provisions of this section cannot be made apply in previous years. In this regard the ratio has been laid down in following judgments: -
a) By Finance Act 1994, section 55(2) was amended to provide that cost of acquisition of a tenancy right will be taken as Nil. The Hon’ble Apex Court in the case of D.P. Sandu Bros. Chembur (P) Ltd (supra), held that amendment took effect from 1st April, 1995 and therefore will not be applicable for A.Y. 1987- 88. Similar finding has been recorded by Hon’ble Raj, High Court in the case of Gotan Lime Stone Khanij Udhyog.
The ratio of law in respect of amendment in 55(2) being held as prospective is applicable for 56(2)(vibe) and hence share premium in excess of fair market value cannot be held taxable for A.Y. 2011-12.
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b) Recently the Hon’ble Apex Court in the case of M.G. Pictures (Madras) Ltd V/s ACIT 373 ITR 39 held that amendment in section 40A(3) w.e.f. from 1.4.1996 is prospective and cannot be applied to previous years of Block period prior to F.Y. 1995-96.
c) The figure of 10,000 was changed to 20,000 u/s 40A(3) of Income Tax Act, 1961 and 269SS of Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act 1987 w.e.f. 1.4.1989. The CBDT vide circular No.522 dated 18.08.1988 stated that amendment in section 40A(3) is applicable for A.Y. 1989-90 as it is a substantive provision and since 269SS is a procedural provision, the effective date will be 1.4.89 i.e. previous year relevant to A.Y. 89-90.
d) The five Judge Constitution Bench in the case of CIT V Vatika Township (P) Ltd. 367 ITR 466 had an occasion to consider as to whether Proviso added to section 113 of the I.T. Act, is prospective or retrospective. The Hon’ble Apex Court while considering the various decisions held (as per page 469 Of ITR 367).
That surcharge levied by assessing Officer for the block assessment pertaining to the period from June 1, 2002 was liable to be deleted.
An amendment made to a taxing statute can be said to be intended to remove hardships only of the assessee, not of the department. Imposing a retrospective levy on the assessee would have caused undue hardship and for that reason parliament specifically chose to make the proviso effective from June 1, 2002.
Where a benefit is conferred by a legislation, the rule against a retrospective construction is different. In a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators objects, then presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provision as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. The Hon’ble Apex Court further noticed that CBDT circular mentioned that proviso is applicable from 1.6.2002. In respect of 56(2)(vii b), CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for assessment year 2013-14 onward. Hence Share premium even if in excess of Fair market value is not taxable u/s 56(1) for the A.Y. 2011-12.
In view of the above submissions, it is clear that share premium received is a capital receipt and consideration received cannot be considered as income for the year under consideration. Without prejudice to our submission in this regard this is to submit in the in the show cause notice the ld. AO mentioned that share
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
premium/share capital should be taxable in the hands of assessee company u/s 56(1) of Income Tax Act, 1961 on a/c of share premium/share capital alleged to be not in accordance with the value of the shares. In this regard without prejudice to our submission on this issue this is to submit that in case the share premium is made taxable as income of the assessee on the ground that the same is not as per fair market value and held as taxable than still the amount received against share capital amounting to Rs. 20,00,000/- cannot be treated as income of the assessee. 10. In addition of above submission it is further submitted that the assessee submitted sufficient documents to prove identity, creditworthiness and genuineness of share capital. To support that shareholders were genuine and creditworthiness is proved, the assessee enclosed necessary details, in respect of incorporation of such companies and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application. Therefore, the addition on share application received to the assessee neither can be made u/s 56(1) of Income Tax Act, 1961 nor can be made u/s 68 of Income Tax Act, 1961. The various judgments and arguments regarding addition made u/s 56(1) of Income Tax Act, 1961 has been submitted in forgoing paras. The reliance regarding addition cannot be made u/s 68 of Income Tax Cat, 1961 is placed on the following decisions: - i) Shalimar Buildcon (P) Ltd. vs ITO (2011) 128 ITD 0396 (Jaipur) In this case Hon’ble ITAT Jaipur Bench has relied on its old decision in the case of Hotel Gaudavan ITA No. 1162 and 1137/JP/2008 and addition on account of share capital was deleted. 28.5 On identical issue, the Tribunal, Jaipur Bench in the case of Hotel Gaudavan (P) Ltd. (supra) has held as under : "6. As regards the issue on merit in the Departmental appeal, we concur with the views of the learned CIT(A) that the AO has not considered the explanation of the assessee. The amount under consideration of Rs. 1.89 crore has been received by the assessee as share application money from M/s Jalkanta Technical & Financial Service (P) Ltd. (JTFSPL) after a proper resolution passed by the board of directors of the aforesaid company through banking channel. M/s JTFSPL is having permanent account and filing its return of income regularly. The AO has nowhere mentioned that money belongs to the assessee company and therefore, provisions of s. 68 cannot be invoked. The learned CIT(A) has rightly relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 which has been confirmed by the Hon’ble Supreme Court of India. The learned CIT(A) has also relied upon the decision of Hon’ble jurisdictional High Court in the case of Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 and also the decision of Tribunal, Jodhpur Bench in the case of Uma Polymers (P) Ltd. vs. Dy. CIT (dt. 27th Feb., 2006) [reported at (2006) 101 TTJ (Jd)(TM) 124—Ed.] where it has been held that the assessee has to prove the existence of the shareholders which in the present case is not under dispute. Therefore, the assessee has discharged the burden and therefore the AO was not justified in making any addition under s. 68 of the Act. The learned counsel for the assessee has
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referred to the decision of Hon’ble Supreme Court of India in the case of Divine Leasing & Finance Ltd. dt. 21st Jan., 2008, the copy of which is placed on record where it has been observed by the Supreme Court as under :
‘Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961 ? We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Therefore, we find no infirmity in the order of the learned CIT(A), with the impugned judgment.’
The said decision of Hon’ble Supreme Court of India has been followed by the Tribunal, Delhi Bench in the case of ITO vs. Bhor Mal Dhansi Ram Ltd. in ITA No. 4670/Del/2007, dt. 3rd March, 2006. The copy of the said decision of Tribunal, Delhi Bench is placed on record. The learned counsel for the assessee Shri H.M. Singhvi, chartered accountant has also relied upon the decision of Hon’ble Supreme Court of India on the said issue in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 wherein it has been held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
28.6 The Hon’ble Delhi High Court in the case of CIT vs. Divine Leasing & Finance Ltd. (supra) had an occasion to consider the addition on account of share application money. We are reproducing the held portion from the decision of Hon’ble Delhi High Court as mentioned in (2007) 207 CTR (Del) 38 (supra).
"Income—Cash credit—Share application money—Burden of proof can seldom be discharged to the hilt by the assessee—If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations—But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company—If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders registers, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee—Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices— Tribunal has noted that the assessee company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange—Complete details were furnished—Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources."
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28.7 The Hon’ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (supra) held that if the share capital money is received by the assessee company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company.
28.8 The Hon’ble High Court in the case of First Point Finance Ltd. (supra) held that burden of proof on the assessee company lies to the extent of making out a case that investor exists and thereafter it is not for the assessee to further prove where they have brought money from to invest with it.
28.9 The Hon’ble Delhi High Court in the case of CIT vs. United Bio-tech (P) Ltd. 2010 TIOL-533-HC-Del held that in case the identity of the share applicants has been established and it is found that the said applicants are corporate assessees who are assessed to tax with IT Department then there is no case of any substantial question of law. In the instant case, the share applicants are corporate assessees.
28.10 The Hon’ble Delhi High Court in the case of CIT vs. Samir Bio-tech (P) Ltd. (supra) held that if investments have been shown by the share applicants in their audited balance sheet then the addition cannot be made under s. 68 of the Act.
28.11 In view of the legal position as discussed above, the AO was not justified in making the addition of Rs. 1.10 crore without bringing on record any material for the addition. Simply on the basis of information which is not substantiated in the course of assessment proceedings against the assessee, the AO could not have added the amount.
(ii) The Honb’le ITAT, Jaipur Bench, Jaipur in its recent judgment the case of M/s Jadau Jewellers & Manufacturers Pvt. Ltd., B-1, Trimutri Circle, Govind Marg, Jaipur in ITA No. 686/JP/2014 dated 14.12.2015 gave the following findings:- “.6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director’s report, auditor’s report, copy of balance sheet, copy of P&L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee
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and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT(A) i.e. decision of Hon’ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the case as there was short time available with the Assessing Officer as well as Investigation Wing of Kolkata. The copy of inquiry has not been provided by the Assessing Officer to the assessee. As per findings of the Hon'ble Delhi High Court in the case Nipun Builders and Developers Pvt. Ltd. Vs. CIT (supra), the Investigation Officer at Kolkata had not deputed Inspector to enquire the whereabouts of the company. The case laws referred by the assessee are squarely applicable on the facts and circumstances of the appellant’s case, therefore, we reverse the order of the ld CIT(A) on technical ground as well as on merit also….”
(iii) CIT v/s. Shree Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175 Appeal(High Court)—Substantial question of law—Cash credit vis-a-vis share application money—Tribunal found that 6 out of 7 companies from which the share application money had been received were genuinely existing and no enquiry was conducted in respect of the source of share application money at the time of making the investment in the assessee-company and thus the assessee has discharged its initial burden except in one case—As regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO—Thus, additions were sustained only in respect of investments said to have been made by U, an individual investor and by W Ltd., for the reason that such investments were not proved—Finding of the Tribunal is essentially a finding of fact which is not vitiated in law—No substantial question of law arise for consideration
iv) CIT vs. First Point Finance Ltd. (2006) 206 CTR (Raj) 626 : (2006) 286 ITR 77 (Raj) Income—Cash credit—Share application money—Tribunal found that the investors are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded— Amount of share capital/share application money could not be treated as unexplained cash credits and no addition could be made under s. 68—No substantial question of law arises.
(v) 2014 (8) TMI 605 - MADRAS HIGH COURT The Commissioner of Income Tax Versus Pranav Foundations Ltd. T. C. (A). No. 262 of 2014 Dated - 12 August 2014 Addition u/s 68 – Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved – Held that:- Following the decision in CIT v. Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment - the assessee
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has categorically established the nature and source of the sum and discharged the onus that lies on it in terms of Section 68 of the Act - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted – Decided against Revenue. (vi) INCOME TAX OFFICER vs. MS. SUPERLINE CONSTRUCTION P. LTD. ITAT, BOMBAY TRIBUNAL (A) ITA No. 3644 TO 3648, 3650, 3651Mum/2014 30th November, 2015 (2015) 45 CCH 0281 MumTrib Addition—Addition on account of bogus share application money—Assessee was in business of builder and developer—Assessment was completed u/s 143(3) r.w.s. 147—Re-assessment proceedings were initiated on basis of information received from Directorate of Income-tax (Investigation) without recording AO’S own satisfaction and information was accepted in mechanical manner—After reopening of assessment u/s 147, AO made addition of Rs.40 lakhs received by assessee from various corporate entities—Addition was made by AO on account of bogus share application money under provisions of s 68— CIT(A) deleted addition made by AO—Held, in case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held that If share application money was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company—It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147—That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capital and advances received by established identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences—Assessee company substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO—These facts had not been rebutted on behalf of Revenue—ITAT was not inclined to interfere with findings of CIT(A) who thus rightly deleted entire impugned additions of Rs.40 lakhs made by AO u/s 68 on account of share capital subscription received by assessee-company
Held: It was pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC) that if the share application money is received by the assessee company from alleged bogus shareholders whose name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company. (para 2.3) In this background, it was submitted on behalf of the assessee that the Assessing Officer failed to appreciate that there was no documentary evidence against the assessee-company to support such impugned additions. It was further submitted by the assessee that the Assessing Officer failed to appreciate that the statements of any person recorded u/s 143(3) r.w.s. 147. The assessee- company had fully discharged the burden of proof, onus of proof and explained the source of share capital and advances received by established the identity, creditworthiness and genuineness of transaction by banking instruments with
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documentary evidences. The further stand of the assessee had been that the assessee-company substantiated the details with the documentary evidences as extracted from the website of Ministry of Corporate Affairs, Government of India before the Assessing Officer. These facts had not been rebutted on behalf of the Revenue. (para 2.4) In view of the facts and circumstances of the present case as well as considering the decisions as discussed above on the similar issue, ITAT was not inclined to interfere with the findings of the CIT(A) who had rightly deleted the entire impugned additions of Rs.40 lakhs made by the Assessing Officer u/s 68 of the Act on account of share capital subscription received by the assessee-company. (para 2.5) Conclusion: When Assessee-company had substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO, then additions made by AO u/s 68 on account of share capital subscription received by assessee-company was rightly deleted. vii) CIT vs. Illac Investment (P) Ltd. (2007) 207 CTR (Del) 687; assessee- company has satisfactorily established the identity of the share subscribers and deleted the addition under s. 68, no substantial question of law arises for consideration. viii) CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38; Income— Cash credit—Share application money—Burden of proof can seldom be discharged to the hilt by the assessee—If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations—But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company—If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc. it would constitute acceptable proof or explanation by the assessee—Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices— Tribunal has noted that the assessee-company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange—Complete details were furnished—Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources—As regards receipt of share capital on issue of rights shares to five companies, these companies were duly incorporated under the Sikkimese Companies Act and were assessed under the Sikkimese Taxation Manual—Their share subscriptions were also received through banking channels and found to be valid by the jurisdictional AO—Therefore, no addition could be made under s. 68 ix) Bhav Shakti Steel Mines (P) Ltd. vs. CIT (2009) 18 DTR (Del) 194 Income— Cash credit—Genuineness—CIT(A) not only found that the identity of each of the
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shareholders stood established, but also examined the fact that each of them were income-tax assessees and had disclosed the share application money in their accounts which were duly reflected in their IT returns as well as in their balance sheets—Tribunal was not therefore justified in coming to the conclusion that the CIT(A) had not considered the matter in the right perspective—Order passed by Tribunal remanding the matter for examining the share applicants set aside and that of CIT(A) restored x) Meera Engineering & Commercial Co. (P) Ltd. vs. Asstt. CIT (1997) 58 TTJ (Jab) 527 Income—Cash credits—Genuineness of share capital of company—All the 51 shareholders filed their affidavits and confirmatory letters and 24 of them filed their replies also to notice under s. 133(6)—Names of parties purchasing the shares with amount subscribed were furnished before AO—All documents clearly show that shareholders do exist— Assessee-company had discharged its onus of explaining the cash credits as required under law—If the company is able to establish that shareholders existed and they have invested money for purchase of shares burden of company to prove the credit is discharged— Identity of shareholders not in dispute—Assessee is not required to prove credit- worthiness of shareholders—Addition deleted
xi) Allen Bradley India Ltd. vs. Dy. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del); Income—Cash credit—Subscription to share capital and loan—In case of limited companies jurisdiction of AO would be limited only to see whether identity of shareholders is established and whether they exist or not— Once identity is established, then, possibly no further enquiries need to be made—Since the shareholders of assessee-company were in existence, they were assessed to tax, complete details were available, share capital money as well as loan were received through account payee cheques and they were cleared through proper banking channels, AO was not justified in disbelieving the capital invested by the shareholder companies—Similarly, AO was not justified in disbelieving the loan taken from DTL as the cheques were cleared through bank channels and confirmation and supporting evidence was filed— CIT(A) was justified in deleting the additions. xii) CIT vs STL Extrusion (P) Ltd. 333 ITR 269 (MP) Income—Cash credit—Share application money—Assessee has duly established the identity and source of credits—Assessee having duly furnished the name, age, address, date of filing the application of shares, number of shares of each subscriber there was no justification for the AO for making the impugned addition—Once the existence of the investors/share subscribers is proved, onus shifts on the Revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee itself—Additions not sustainable. xiii) CIT vs Arunanda Textiles (P) Ltd. , 333 ITR 116 (Karnataka) Income— Cash credit—Share application money—Assessee able to identify the shareholders—It is not for the assessee-company to establish but it is for the Department to enquire with the investors about the capacity to invest the amount in the shares xiv) Uma Polymer (P) Ltd. , 101 TTJ 124, Jodhpur Income—Cash credit—Share application money—In respect of share capital money, the assessee-company has to prove only the existence of the person in whose name share application is received—No further burden is cast on the assessee to prove whether that person himself has invested the money or some other person has made the
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
investment in his name—Burden to prove that the money did not belong to him but to somebody else is on the Revenue—Distinction between a public company and a private company is not very material for this purpose—AO treated the investments made by ten shareholders in the assessee-company as bogus and made addition under s. 68 —Not justified—In all the cases except that of V, AO had obtained the bank statements of the shareholders which clearly show that the accounts were regularly maintained and the shareholders had made deposits—Further, the shareholders are also assessed to tax—Simply because scrutiny assessments were not made in the case of shareholders, such assessments could not be made in the course of assessment of the assessee— Having regard to the information collected by the AO from the banks, identity of the shareholders was fully established—If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee—U had invested in the share capital through cheque except for a small sum which was returned to her—Her bank account shows several entries, both credit and debit, which have no relation with the amount invested with the assessee- company—Merely because she has not submitted her returns after the asst. yr. 1984-85, it cannot be said that she was not assessed to tax—Though V has not been shown to be assessed to tax, he had made major part of investments towards share capital through cheques and his identity is not doubted— Accordingly, share capital advanced by U and V is also to be accepted as genuine—Therefore, no addition of share capital money could be made in the hands of the assessee-company.
Without prejudice to above this is to submit that the share application money cannot be treated as income of the assessee. Reliance is placed in following decisions: - i) CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 Income—Cash credit—Share application money—If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company ii) CIT vs. Steller Investment Ltd. (200) 251 ITR 263 (SC) 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 assessee-company. iii) Commissioner of Income Tax Vs. Bhaval Synthetics (Raj HC) (2013) 84 DTR 0449 (Raj) Held that even in case of doubt about subscribers to increased share capital, amount of share capital could not be regarded as undisclosed income of company—Amount referable to share application could not be attributed to assessee and could not be assessed in its hands—Appeal dismissed iv) Commissioner of Income Tax Vs. Akj Granites (P) Ltd. (Raj HC) (2008) 301 ITR 0298 held that in respect of share applications received from different places accompanied with share application money, no presumption can be drawn that same belong to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application
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ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
money for augmenting the investment in business has flown from assessee’s own money—No substantial question of law arises—Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 followed.
In view of the above submission this is to submit that the addition made by ld. AO is unjustified and deserve to be deleted.…….” 3.2.2 I have duly considered assessee's submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. I have already given a detailed findings in para 2.1.4.7 wherein total of Rs. 8,71,97,727/= has been sustained in the hands of M/s Motisons Global Pvt Ltd, M/s Motisons Entertainment Pvt Ltd, M/s Motisons Buildtech Pvt Ltd and M/s Shivansh Buildcon Pvt Ltd, details of which are as under: Name of Appellant Company ITA No AY Addition Made by AO Addition Addition Sustained deleted/ Relief Given Motisons Global Pvt. Ltd 753/14-15 2009-10 2,75,00,000 ------------- 2,75,00,000 Motisons Global Pvt. Ltd 754/14-15 2011-12 6,96,50,000 --------------- 6,96,50,000 Motisons Global Pvt. Ltd 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Motisons Global Pvt. Ltd 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Motisons Entertainment (I) Pvt. Ltd 760/14-15 2009-10 3,40,00,000 --------------- 3,40,00,000 Motisons Entertainment (I) Pvt. Ltd 766/14-15 2011-12 1,95,00,000 ---------------- 1,95,00,000 Motisons Entertainment (I) Pvt. Ltd 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Motisons Buildtech Pvt. Ltd 758/14-15 2009-10 3,03,00,000 --------------- 3,03,00,000 Motisons Buildtech Pvt. Ltd 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Godawari Estates Pvt. Ltd 769/14-15 2010-11 2,00,00,000 -------------- 2,00,00,000 Godawari Estates Pvt. Ltd 768/14-15 2012-13 10,30,00,000 -------------- 10,30,00,000 Bholenath Real Estates Pvt Ltd 770/14-15 2009-10 2,90,00,000 --------------- 2,90,00,000 Rainbow Buildcon Pvt. Ltd 757/14-15 2009-10 2,00,00,000 --------------- 2,00,00,000 Shivansh Buildcon Pvt. Ltd 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Total additions 94,14,07,100 8,71,97,727 85,42,09,373 In view of above facts and circumstances of the case as discussed above addition of Rs. 2,00,00,000/= made on a/c of bogus share capital in the hands of assessee M/s Godawari Estate Pvt Ltd is hereby deleted. Assessee gets relief in Gr No. 2 & 3.
Para 2.1.4.7 reads of ld. CIT(A)’s order as under:- ‘’2.1.4.7 In view of the above findings, it is also seen that this cash /DD was deposited at 4th Channel of source/ stage. This money came to
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter, it is also seen that the assessee has not controverted the facts narrated by Shri Santosh Choube, Shri Rajesh Kr Singh and Shri Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts as evidences (both documentary & oral) gathered during search and & Post-search operation, addition to the extent of Rs. 8,71,97,727/- is sustained and balance is deleted, details given as under:-
Name of ITA No. A.Y. Addition made Addition Addition Appellant by AO sustained deleted/Relief Company given Motisons 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Global Pvt Ltd Motisons 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Global Pvt Ltd Motisons 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Global Pvt Ltd Motisons 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Global Pvt Ltd Motisons 760/14-15 2009-10 3,40,00,000 - 3,40,00,000 Entertainment (I) Pvt. Ltd Motisons 766/14-15 2011-12 1,95,00,000 - 1,95,00,000 Entertainment (I) Pvt. Ltd Motisons 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Entertainment (I) Pvt. Ltd Motisons 758/14-15 2009-10 3,03,00,000 - 3,03,00,000 Buildtech Pvt. Ltd Motisons 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Buildtech Pvt. Ltd Godawari 769/14-15 2010-11 2,00,00,000 - 2,00,00,000 Estates Pvt. Ltd Godawari 768/14-15 2012-13 10,30,00,000 - 10,30,00,000 Estates Pvt. Ltd Bholenath 770/14-15 2009-10 2,90,00,000 - 2,90,00,000 Real Estates Pvt. Ltd. Rainbow 757/14-15 2009-10 2,00,00,000 - 2,00,00,000 Buildcon Pvt. Ltd Shivansh 771/14-15 2012-13 90,00,000 3,50,000 86,50,000
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Buildcon Pvt. Ltd 94,14,07,100 8,71,97,727 85,42,09,373
It is pertinent to mention here that M/s. Mayukh Vinimay Pvt.Ltd received share application of Rs. 10,54,95,000/- in AY 2009-10 which was added as income of M/s.Mayukh Vinimay Pvt. Ltd in A.Y. 2009-10. Thereafter in subsequent years the part of the funds owned by this company was invested in the companies under appeal as under:-
S.N. Name of company Assessment Year Amount (under your appeal) 1. Motisons Global 2012-13 6,93,49,800 Pvt. Ltd 2. Motisons Global 2013-14 2,24,50,000 Pvt. Ltd 3. Motisons 2012-13 1,55,00,000 Entertainment (India)Pvt ltd. TOTAL 10,72,29,800
Further it is also submitted that addition made by the AO tantamount to double addition. It is also mentioned here that as per Ld. ARs request, appellate proceedings in case of M/s. MayukhVinimay Pvt. Ltd have been kept in abeyance till the dispostal of appeal by Hon'ble ITAT.
In view of aforementioned findings, now additions made by the AO are being discussed with respect to grounds of appeal raised by the respective assessee in para below.’’
During the course of hearing, the ld. DR supported the order of the 2.4
AO and submitted that the order of the ld. CIT(A) may be set aside.
2.5 To this effect, the ld.AR of the assessee filed the following written
submission praying therein to dismiss the appeal of the department.
2.01.2 Submission of assessee:-
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
a) During the year under consideration the assessee allotted 2,00,000 equity shares of Rs. 10 each to various companies at a premium of Rs. 90/- per share detail of which is as under: - S.N. Name No. of Amount Rate Amount Rate of Issue Total Shares adjusted per adjusted premium price Consideration alloted/ against share against per of the Received applied share share share share during capital premium the year 1. Debdaru Vinimay 25,000 2,50,000 10 22,50,000 90 100 25,00,000 Pvt. Ltd 2. Jai Pitreshwar 15,000 1,50,000 10 13,50,000 90 100 15,00,000 Vyapaar Pvt. Ltd 3. Mainak Vincom Pvt. 50,000 5,00,000 10 45,00,000 90 100 50,00,000 Ltd 4. Puspa Dealers Pvt. 50,000 5,00,000 10 45,00,000 90 100 50,00,000 Ltd 5. Snowfall 25,000 2,50,000 10 22,50,000 90 100 25,00,000 Commercial Pvt. Ltd 6. Vignesh Info 35,000 3,50,000 10 31,50,000 90 100 35,00,000 Services Pvt. Ltd Total 2,00,000 20,00,000 1,80,00,000 2,00,00,000
b) Initially vide show cause notice dated 06.02.2015 (Copy at PB Page 37-40) the ld. AO opined that entire share capital/share premium of Rs. 3,40,00,000/- should be added in total income of the assessee.
c). The ld. AO has not made the addition under the deeming provisions of section 68 of Income Tax Act. The ld AO made the addition by applying the provisions of section 56(1) of Income Tax Act on the ground that the assets of the assessee company don’t commensurate to premium charged and any business activity was not performed or any business income has not been shown by the assessee. The ld CIT(A)
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
has not confirmed the addition made by ld AO by applying the provisions of section 56(1) of Income Tax Act, on the basis of his detailed findings at page 38-41 of his order. The assessee relies on the findings of ld CIT(A). d) Justification of Charging share premium The assessee has submitted the justification for charging the share premium which is summarized as under: -
Name of Company Reason for Charging Share Premium Godawari Estates 1. NBFC Company expecting good revenue. Pvt. Ltd 2. Goodwill of Motisons Group.
e) Share premium/Capital is capital receipt: If shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence Companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves.
f) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L- 656-ITAT-Mum (PB pg 354-359 of case laws) observed that issue of
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
shares at premium is always a commercial decision which does not require any justification. The finding of the ITAT was confirmed by Mumbai High Court in its decision dated 20.03.2017 in appeal No. 1613 of 2014. PB page 306-366 /Case Laws) Further the premium is a capital receipt which has to be dealt with in accordance with section 78 of 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 is a capital receipts and is not income for its ordinary sense. In the case before Mumbai bench has to consider a case where premium of Rs.190 per share was charged. The Tribunal observed as under (pg 358 to 359/Case laws):
“11. 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 Registrar of Companies. The entire dispute revolves around the fact that the assessee has charged a premium of � 190/- per share. No doubt a non-est company or a zero balance sheet company asking for � 190/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head "Income from other sources" by inserting Clause (viib) to Sec. 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
provision applicable w.e.f 1.4.2013 i.e. on and from A.Y. 2013-14. In so far as the year under consideration is concerned, the transaction has to be considered in the light of the provisions of Sec. 68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos, the bank details and the confirmatory letters.
11.1. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee . Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s. 68 of the Act. We draw support from the decision of the Hon’ble Supreme Court in the case of Loevely Exports Pvt. Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings of the Ld. CIT(A). Ground No. 1 is accordingly dismissed.”
g) As per provisions of section 56(1) of Income Tax Act, 1961 “Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.” In the case of the assessee company, the amount was received from investors were against share application and the same is capital receipt which was adjusted against share capital and share premium. The money so received to assessee company was capital receipt and was not revenue receipt, therefore the same cannot be taxed in the hands of assessee company under section 56(1) of Income Tax Act, 1961 because this section deal with income and not with capital receipts. The investors who subscribed the share capital of assessee company is also showing the amount paid to assessee as their investment in shares of assessee company and necessary documents in this regard was submitted to ld. AO. Therefore the assessee has proved with documentary evidences that the amount was received against share application i.e. capital receipt, therefore the same cannot be treated as income of the assessee. Further for treating the share capital/share premium as income of the assessee company no cogent reason has been given by ld. AO. Further, there is no deeming fiction has been given in section 56(1) of Income Tax Act, 1961 wherein the income can be taxed under deeming provision.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
h) By Finance Act 2012 a new clause (viib) was inserted in 56(2). Memorandum explaining the provisions in Finance Bill 2012 stated as under:- Share premium in excess of the fair market value is to be treated as income. “Section 56(2) provides for the specific category of incomes that shall be chargeable to income tax under the head “income from other sources”. It is proposed to insert a new clause in 56(2). The new clause will apply where, accompany, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income Tax, under the head “income from other sources”. This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent Assessment years. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. This suggests that premium in excess of fair market value was not an income but is to be treated as income due to amended provision. Before the amendment, consideration received as premium was not income. The legislature in its wisdom required the share premium in excess of fair market value to be income from Assessment year 2013- 14 and not the entire premium to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for Assessment year 2013-14 onward. Therefore, amendment in section 56(2)(viib) of Income Tax Act, 1961 effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent assessment years and the provisions of this section cannot be made applicable in previous years. In this regard the ratio has been laid down in following judgments: - a) By Finance Act 1994, section 55(2) was amended to provide that cost of acquisition of a tenancy right will be taken as Nil. The Hon’ble Apex Court in the case of D.P. Sandu Bros. Chembur (P) Ltd (supra), held that amendment took effect from 1st April, 1995 and therefore will not be applicable
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for A.Y. 1987-88. Similar finding has been recorded by Hon’ble Raj, High Court in the case of Gotan Lime Stone Khanij Udhyog. The ratio of law in respect of amendment in 55(2) being held as prospective is applicable for 56(2)(vibe) and hence share premium in excess of fair market value can not be held taxable for A.Y. 2011-12. b) Recently the Hon’ble Apex Court in the case of M.G. Pictures (Madras) Ltd V/s ACIT 373 ITR 39 held that amendment in section 40A(3) w.e.f. from 1.4.1996 is prospective and cannot be applied to previous years of Block period prior to F.Y. 1995-96. c) The figure of 10,000 was changed to 20,000 u/s 40A(3) of Income Tax Act, 1961 and 269SS of Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act 1987 w.e.f. 1.4.1989. The CBDT vide circular No.522 dated 18.08.1988 stated that amendment in section 40A(3) is applicable for A.Y. 1989-90 as it is a substantive provision and since 269SS is a procedural provision, the effective date will be 1.4.89 i.e. previous year relevant to A.Y. 89-90. d) The five Judge Constitution Bench in the case of CIT V Vatika Township (P) Ltd. 367 ITR 466 had an occasion to consider as to whether Proviso added to section 113 of the I.T. Act, is prospective or retrospective. The Hon’ble Apex Court while considering the various decisions held (as per page 469 Of ITR 367). That surcharge levied by assessing Officer for the block assessment pertaining to the period from June 1, 2002 was liable to be deleted. An amendment made to a taxing statute can be said to be intended to remove hardships only of the assessee, not of the department. Imposing a retrospective levy on the assessee would have caused undue hardship and for that reason parliament specifically chose to make the proviso effective from June 1, 2002.
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Where a benefit is conferred by a legislation, the rule against a retrospective construction is different. In a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators objects, then presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provision as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. The Hon’ble Apex Court further noticed that CBDT circular mentioned that proviso is applicable from 1.6.2002. In respect of 56(2)(vii b), CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for assessment year 2013-14 onward. Hence Share premium even if in excess of Fair market value is not taxable u/s 56(1) for the A.Y. 2011-12. i) Section 56 is not a charging section. This section starts with the following sentence. “Income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head.” Income from other sources if it is not chargeable to income tax. Under any of the heads specified in section 14, items A to E. For an income to be taxed u/s 56, it has to satisfy three conditions. (a) It shall be classifiable as income as per the charging section of the Act. (b) It shall not be excluded from the total income (e.g. section10).
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(c) It is not chargeable to tax under any of the specified Heads in section 14, items A to E. The finance Bill 2012 as presented on 16th March 2012 included a new clause (viib) u/s 56(2) of I.T. Act [342 ITR1(st)]. No proposal in the original bill to insert a new clause u/s 2(24). Subsequently Notice of amendments to Finance Bill was given [See 343 ITR 37(st)] and amendments also made in charging section 2(24) in inserting clause (xvi) in 2(24) of I.T. Act w.e.f. 1.4.2013 reads as under: (xvi) Any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of subsection (2) of 56. The amendment made in 2(24) is also applicable w.e.f. 01.04.2013 and it cannot be applied earlier to 01-04-2013. j) The Income for the purpose of the Income Tax Act is defined in section 2(24) of the Income Tax Act 1961. Section 2(24) of the Income Act 1961 gives inclusive definition of income but the income should be look into its normal meaning. The income will not include capital receipts unless it is specified in Income Tax Act. This argument finds supports from the amendment made by Finance Act 2012 w.e.f. 1.4.2013 in section 56(viib) and clause (xvi) of section 2(24) of Income Tax Act, 1961 wherein certain share premiums were made taxable w.e.f. 01.04.2013. If the same were already taxable u/s 56(1)/ 2(24) of Income Tax Act, 1961 then there was no need to make these amendments in the Act. In case there is no charging provision for specific receipt, then it cannot be taxed. The five member Bench of the Apex Court in CIT V Vatika Township P Ltd 367 ITR 466 (PB pg 19/case Laws). “Tax Laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction and any ambiguity must be resolved against imposition of the tax. In Billings V U.S 232 U.S.261 at page 265, 34 S.Ct 421 (1914), the Supreme Court clearly acknowledged this basic and long standing rule of statutory construction.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favour of citizen...” “…If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sprit of the law the case might otherwise appear to be” As observed in Partington V Attomey General LR4HL100. Since for the year under consideration there was no provision in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the same cannot be taxed. The reliance is also placed on following cases: - i) The Hon’ble Bombay High Court in the case of Cadell Wvg. Mills Co.(p) Ltd. V CIT 249 ITR 265 (PB 22- 41/Case Laws) had an occasion to consider the taxability of a sum received in respect of consideration of tenancy Right. Hon’ble High Court held that surrender of tenancy right which was not chargable to tax as capital gain under section 45 could not be taxed as casual and non recurring receipt under section 10(3) r.w. s. 56 under the head “Income from other sources”. ii) The Hon’ble Apex Court in the case of CIT V D.P. Sandu Bros. Chembur (P) Ltd 273 ITR 1 (PB 42- 49/Case Laws) also hold that as per 2(24)(vi) only income which is chargeable u/s 45 is to be included in income and if computation provision u/s 45 fails then charging provisions will fail. Ref. to CIT V B.C. Srinivasa Setty 128 ITR 294. iii) The Hon’ble Rajasthan High Court in the Case of CIT V Gotan Lime Stone Khanij Udyog 269 ITR 399
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(PB 56-65/Case Laws) also held that in case computation provision u/s 48 could not be applied for want of ascertainable cost of acquisition, then capital gain does not arise to be included in total income on account of failure of applicability of computation provision. The Hon’ble High Court referred to decision of Bombay High Court in the case of Cadell Wvg. Mills Co (P) Ltd. (Supra). iv) The Hon’ble Rajasthan High Court in the case of S. Zoraster and Co. V/s CIT 322 ITR 35 (PB 66- 68/Case Laws) had on occasion to consider the taxability of receipt of Rs.20,000 received by vendee on default of the purchaser as per agreement for sell of Prem Prakash Talkies. The Hon’ble High Court after referring to the decision of Apex Court in the case of Travancore Rubber and Tea Co Ltd. V CIT 243 ITR 158 held that such receipt is capital receipt. Such Capital receipt is not taxable in view of judgment of Apex Court in D.P. Sandu Bros. Chembur (P) Ltd (Supra). Hence capital receipt is not taxable unless there is charging provision for a capital receipt and computation provisions are also applicable. v) The Hon’ble Bombay High Court in the case of Vodafone India Services P. Ltd. V/s UOI 368 ITR 1 (PB 76-107/Case Laws) had an occasion to consider the difference between the share premium determined by revenue and the share premium charged as deemed loan and taxing of national interest on deemed loan. The Hon’ble Bombay High Court has referred to the decision of Apex Court in the case of Mathuram Aggarwal V/s State of MP (1999) 8 SCC 667 for the test to interpret a taxing statue which reads as under: “ The intention of the legislature is a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and
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unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not flow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spent and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.” Hon’ble Bombay High Court in this case (Vodafone case) observed that issue of shares at a premium is on capital account and gives rise to no income. 56(1) provides the income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However before section 56 of the Act can be applied there must be income which arises. If the receipt is capital then it is not income. Hence share premium is not an income. i) The CBDT vide circular/instruction No.2 dated 29.01.2015 has stated as under [371 ITR 6(st)]. “In reference to the above cited subject, I am directed to draw your attention to decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd V UOI for the Assessment year 2009-10 (WP No.871 of 2014) wherein the court has held interalia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment.
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It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned writ petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where the issue is involved. This may also be brought to the notice of the ITAT, DRP’s and CIT (Appeals).” In view of above instruction, it is clear that ratio deciding of treating of share premium as capital receipt is binding on revenue authorities. j. In view of the above submissions, it is clear that share premium received is a capital receipt and consideration received cannot be considered as income for the year under consideration by applying the provisions of section 56(1) of Income Tax Act. k. The ld CIT(A) issued show cause notice to assessee to tax the share capital under section 68 of ITax Act as against 56(1) applied by ld AO but he satisfied about the ingredients of section 68 of I.Tax Act and no addition was sustained for AY 2010-11 even u/s 68 of I.Tax Act. The ld AO issued several notices to assessee to explain the share capital. The assessee submitted detailed reply and documents from time to time as under:- S.No Particulars Copy at PB pg No 1 Copy of query letter of AO dated 28.01.2015. 30-32 2 Copy of reply of assessee dated 02.02.2015 33-36 3 Copy of show cause notice of AO dated 06.02.2015. 37-40 4 Copy of reply of assessee dated 13.02.2015 41-44 5 Copies of documents filed before AO along with 46-159 various submission in respect of identity, creditworthiness of shareholder and genuineness of transactions
The assessee has submitted sufficient documents before the ld AO to prove identity, creditworthiness and genuineness of share capital and ld AO satisfied that addition under section 68 cannot be made, so he applied section 56(1) of ITax Act to make the addition.
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The assessee submitted detailed reply before ld CIT(A) vide letter dated 16/08/2016 (copy at PB pg 160-213). Ld CIT(A) when satisfied that the addition u/s 56(1) can’t be made, he tried to sustain the addition by applying the provisions of section 68 of Income Tax Act. He issued a show cause notice vide letter dated 09/03/2017 (Copy at PB pg 214-260). The assessee submitted detailed reply on the show cause notice of ld CIT(A) vide letter dated 24-03-2017 & 28/03/2017 alongwith documents (Copy at Pb pg 261-347). To support that shareholders were genuine and creditworthiness is proved, the assessee has filed all details, in respect of incorporation/existence of investors and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application. l) During the course of assessment proceedings the assessee submitted the following documents to prove their identity of shareholders, creditworthiness of shareholders and genuineness of transaction with them: -
Name of Particulars of Documents submitted Copy at Shareholder PB Page � Share application containing the name/address/PAN Debdaru Vinimay 46 to 47 of party, detail of payment received etc. Pvt. Ltd � Copy of board resolution. 48 � Copy of PAN card of party. 49 � Copy of Ack. of ITR of AY 2010-11. 50 � Copy of audit report and audited balance sheet along 51 to 60 with annexure of 31.03.10. � Copy of bank statement showing the entry of 61 to 62 payment made to assessee. � Declaration of source of funds with party. 63 � Copy of Registration certificate of ROC. 64
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� Share application containing the name/address/PAN Jai Pitreshwar 65 of party, detail of payment received etc. Vyapaar Pvt. Ltd � Copy of board resolution. 66 � Copy of PAN card of party. 67 � Copy of bank statement showing the entry of 68 payment made to assessee. � Copy of Ack. of ITR of AY 2010-11. 69 � Copy of audit report and audited balance sheet along 70 to 78 with annexure of 31.03.10. � Declaration of source of funds with party. 79 � Copy of Registration certificate of ROC. 80 � Share application containing the name/address/PAN Mainak Vincom Pvt. 81 to 84 of party, detail of payment received etc. Ltd � Copy of board resolution. 85 � Copy of PAN card of party. 86 � Copy of Ack. of ITR of AY 2010-11. 87 � Copy of audit report and audited balance sheet along 88 to 97 with annexure of 31.03.10. � Declaration of source of funds with party. 98 to 99 � Copy of Registration certificate of ROC. 100 � Share application containing the name/address/PAN Puspa Dealers Pvt. 101 to 104 of party, detail of payment received etc. Ltd � Copy of board resolution. 105 � Copy of PAN card of party. 106 � Copy of bank statement showing the entry of 107 to 109 payment made to assessee. � Copy of Ack. of ITR of AY 2010-11. 110 � Copy of audit report and audited balance sheet along 111 to 120 with annexure of 31.03.10. � Declaration of source of funds with party. 121 to 122 � Copy of Registration certificate of ROC. 123 � Share application containing the name/address/PAN Snowfall 124 to 125 of party, detail of payment received etc. Commercial Pvt. Ltd � Copy of board resolution. 126 � Copy of PAN card of party. 127 � Copy of Ack. of ITR of AY 2010-11. 128 � Copy of audit report and audited balance sheet along 129 to 138 with annexure of 31.03.10. � Declaration of source of funds with party. 139 � Copy of Registration certificate of ROC. 140
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� Share application containing the name/address/PAN Vignesh Info 141 to 142 of party, detail of payment received etc. Services Pvt. Ltd � Copy of board resolution. 143 � Copy of PAN card of party. 144 � Copy of bank statement showing the entry of 145 payment made to assessee. � Copy of Ack. of ITR of AY 2010-11. 146 � Copy of audit report and audited balance sheet along 147 to 158 with annexure of 31.03.10. � Declaration of source of funds with party. 159
m) All the share capital/share application was received through a/c payee cheques and verifiable from bank statement of assessee as well as bank statement of the party. The onus u/s 68 of the assessee is to prove the identity, capacity and genuineness of the transactions has been discharged which may be seen from the followings:-
i) Identity:- The assessee proved the identity of all the companies by filing the share application received from the parties and the parties are duly in existence and the existence of the parties can be verified from the official website of MCA. The ld. AO also not doubted the identity of the above named companies. Further the notice issued u/s 133(6) of Income Tax Act, 1961 was duly served on all the companies which also prove the identity of the parties.
ii) Creditworthiness All the companies are Income Tax assessee and duly filing the Income Tax return and Balance sheets. There is sufficient source of funds with all the companies to investment share capital/share application in the assessee company. The assessee submitted the copies of bank account/declaration of source of funds with them of investor companies. The bank statement shows the huge transaction of high value in the accounts of the companies. The chart showing the amount invested by the above named companies in assessee company viz a viz own funds with the investor company are as under: -
Name of the Investor company Amount Share capital Share capital invested in and reserve & and reserve & assessee surplus with surplus with company Investor Investor
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companies as companies as on 31.03.2010 on 31.03.2009 Debdaru Vinimay Pvt. Ltd 25,00,000 16,26,16,947 14,20,06,978 Jai Pitreshwar Vyapaar Pvt. Ltd 15,00,000 56,65,000 1,00,000 Mainak Vincom Pvt. Ltd 50,00,000 15,41,21,655 15,41,13,205 Puspa Dealers Pvt. Ltd 50,00,000 13,16,36,604 13,16,22,036 Snowfall Commercial Pvt. Ltd 25,00,000 19,97,89,784 18,37,75,295 Vignesh Info Services Pvt. Ltd 35,00,000 3,03,00,000 6,27,314
From the above chart it is clear that all the Investor companies were having their own share capital and Reserve & surplus which were much more than to the amount invested in the assessee company. From the audited P & L Account of these companies it is apparent that these companies had trading activities of large amount. The above chart shows that the investor companies were having their own independent funds and having their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved.
iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the assessee and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found from the possession of the assessee company or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books
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of account or document was found showing payment of cash to these investor companies against receipt of cheques from these companies against allotment of shares. Therefore the genuineness of the transactions cannot be doubted. n) Onus to prove source of source From the show cause notice given by ld CIT(A) and excel sheet provided to the assessee showing chain of source it is apparent that even there is no cash deposit till 4th stage of channel source (Copy at Pb pg 669 to 698/ AY 2012-13 filed in the case of Motisons Entertainment (India) Pvt Ltd ITA No 485/JP/17). If there is any cash deposited at 4th channel or beyond to that stage then the inquiry should have been made from the concerns in whose bank a/c such funds floated and necessary action should have been taken in the cases of such concern but the assessee cannot be hold responsible for cash deposit in some account at 4th Channel. Under section 68 of Income Tax Act, 1961 the onus of the assessee is to prove the source of credit entry and there is no onus of assessee to prove the source of source or source of all channel sources. The amendment in section 68 of I. Tax was made by inserting the following proviso to section 68 w.e.f. 01/04/2013 which require to prove source of finds in the hands of shareholder company. Though not required by law but still the assessee has proved source of finds in the hands of shareholder company. The amended section even does not require to prove source of funds in the hands of 3rd or 4th stage. Further the amendment in section 68 of I.Tax was made by inserting the following proviso to section 68 w.e.f. 01/04/2013
"Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
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The above proviso was inserted with effect from the 1st day of April, 2013 so it cannot be applied retrospectively. Therefore as per law the assessee has no onus to prove source of source. Hon’ble Mumbai High Court in the case of Commissioner of Income Tax 1 Vs M/s. Gagandeep Infrastructure Pvt.Ltd held as under:-
“(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 201314 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.
But in the case of the assessee the fact remains that the assessee has also proved source of source by submitting the copy of bank
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statement of the share applicant company wherein no cash deposit was made against the share application money.
Therefore, the addition on share application received by the assessee can neither be made u/s 56(1) of Income Tax Act, 1961 nor u/s 68 of Income Tax Act, 1961. The various judgments and arguments regarding addition made u/s 56(1) of Income Tax Act, 1961 has been submitted in forgoing paras. The various judgments regarding addition cannot be made u/s 68 of Income Tax Act, 1961 are as under:-
a) Rajasthan High Court: - (i) CIT-1, Jaipur V/s M/s. ARL Infratech Ltd, (PB pg 130 to 143/Case Laws) wherein Hon’ble Rajasthan High Court has recently confirmed the findings of Hon’ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016 regarding deletion of addition of share capital made by applying the provisions of 68 of Income Tax Act, 1961.
(ii) Commissioner of Income-tax, Jaipur –II Versus Morani Automotives (P.) Ltd. No.- D.B. IT Appeal No. 619 of 2011 Dated.- October 23, 2013 (Rajasthan High Court) (PB pg 144 to 149/Case Laws).
The findings of Hon’ble Rajasthan High Court was as under:-
The points as sought to be raised by the appellant- revenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company.
Ultimately, the question as to whether the source of investment or of credit has been
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satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:-
"13. In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any thing further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises."
In the case of CIT v. Chandra Prakash Rana [2001] 48 DTR 271 (Raj.), this Court noticed similar nature grounds urged on behalf of the revenue and found the same not leading to any substantial question of law. This Court noticed, observed, and held as under:-
"7. Learned counsel for the appellant (Revenue) contended that firstly Tribunal erred in accepting the explanation offered by assessee in relation to source of income. His second submission was that what was offered by assessee was no explanation and hence should not have been accepted and lastly learned counsel made sincere attempt on his part after taking us through factual scenario of the explanation and contended that it can never be taken as satisfactory explanation for deleting the addition made by AO. We
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do not agree to this submission for more than one reason.
In the first place, it is a pure question of fact, what to say question of law, much less substantial question of law. Secondly, this Court cannot again in this appeal undertake the examination of factual issues nor can draw factual inferences on the basis of explanation offered by assessee. Thirdly, once the explanation is accepted by the two appellate Courts i.e. CIT(A) and Tribunal in this case, then in such event, a concurrent finding recorded on such explanation by two appellate Courts is binding on the High Court.
Perusal of impugned finding quoted supra would go to show that Tribunal did examine the explanation offered by assessee in detail and then recorded a finding for its acceptance. Such finding when challenged does not constitute a substantial question of law within the meaning of s. 260A ibid in an appeal arising out of such order.
In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the CIT(A) and Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or that it had been based on no reasoning, or based on absurd reasoning to the extent that no prudent man of average judicial capacity could ever reach to such conclusion, or that it had been found against any provision of law, then a case for formulation of substantial question of law on such finding can be said to have been made out.
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In our view, no such error could be noticed by us in the impugned order because as observed supra, the Tribunal did go into the details of explanation offered by assessee and then accepted the explanation by placing reliance on the documents filed by assessee. As a consequence thereof, the additions made by AO came to be deleted."
In CIT v. Shree Barkha Synthetics Ltd. [2004] 270 ITR 477 (Raj.), in a similar nature matter, this Court observed that the Tribunal having found that the companies from which the share application money had been received by the assessee-company were genuinely existing and the identity of the individual investors were also established and they had confirmed the fact of making investment, the finding that assessee had discharged initial burden and addition under Section 68 could not be sustained, was essentially a finding of fact. This Court said,-
"19. A perusal of the aforesaid finding goes to show that deletion has been made on appreciation ofevidence, which was on record Finding that there was existence of investors and their confirmation has been obtained, were found to be satisfactory. All these conclusions are conclusions of fact based on material on record and, therefore, cannot be said to be perverse so as to give rise to question of law, which may be required to be considered in this appeal under s.260A of the IT Act."
The ratio of the decisions aforesaid directly applies to the present case too. Herein, as noticed, the appellate authorities have returned the findings of fact in favour of the assessee after due appreciation of the evidence on record, on relevant considerations, and on sound reasonings. These findings have neither been shown suffering from any perversity nor appear absurd nor are of such nature that cannot be reached at all. Thus, no case for interference in the findings of the appellate authorities is made out.
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In the result, the appeal fails and is, therefore, dismissed.”
(iii) Barkha Synthetics Ltd. vs. Asstt. CIT (005) 197 CTR (Raj) 432. (PB pg 150 to 156/Case Laws) Substantial question of law—Cash credit vis-a-vis share application money—Tribunal found that 6 out of 7 companies from which the share application money had been received were genuinely existing and no enquiry was conducted in respect of the source of share application money at the time of making the investment in the assessee-company and thus the assessee has discharged its initial burden except in one case—As regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO—Thus, additions were sustained only in respect of investments said to have been made by U, an individual investor and by W Ltd., for the reason that such investments were not proved— Finding of the Tribunal is essentially a finding of fact which is not vitiated in law—No substantial question of law arise for consideration.
(iv) CIT vs. First Point Finance Ltd. (2006) 206 CTR (Raj) 626 : (2006) 286 ITR 477 (Raj HC). (PB pg 157 to 162/Case Laws) Income—Cash credit—Share application money— Tribunal found that the investors are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded—Amount of share capital/share application money could not be treated as unexplained cash credits and no addition could be made under s. 68—No substantial question of law arises.
(v) Commissioner of Income Tax Vs. Bhaval Synthetics (Raj HC) (2013) 84 DTR 0449 (Raj) (PB pg 163 to 165/Case Laws)Held that even in case of doubt about subscribers to increased share capital, amount of share capital could not be regarded as undisclosed income of
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company—Amount referable to share application could not be attributed to assessee and could not be assessed in its hands—Appeal dismissed
(vi) Commissioner of Income Tax Vs. Akj Granites (P) Ltd. (Raj HC) (2008) 301 ITR 0298 (PB pg 166 to 168/Case Laws)held that in respect of share applications received from different places accompanied with share application money, no presumption can be drawn that same belong to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown from assessee’s own money—No substantial question of law arises—Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 followed.
(vii) Commissioner of Income-Tax, Central, Jaipur Versus Supertech Diamond Tools (Pvt) Ltd. (Raj HC) D. B. IT Appeal No. 74 of 2012 Dated: - 12 December 2013. (PB pg 169 to 174/Case Laws)
(viii) Commissioner of Income-tax - I, Jaipur Versus AL Lalpuria Construction (P.) Ltd (Raj HC) D.B. IT Appeal Nos. 256 of 2010 AND 26 & 39 of 2011 Dated: - 25 February 2013. (PB pg 175 to 176/Case Laws)
(ix) Commissioner of Income-tax, Ajmer Versus HS. Builders (P.) Ltd. D.B. INCOME Tax (Raj HC) APPEAL NO. 48 OF 2006 Dated: - 03 March 2012. (PB pg 177 to 185/Case Laws)
(x) CIT Vs Jai Kumar Bakliwal (2014) 101 DTR (Raj) 377 : (2014) 267 CTR (Raj) 396 (PB pg 186 to 192/Case Laws). No liability to prove source of source.
(xi) Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199. (PB pg 193 to 200/Case Laws) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.
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(xii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) (PB pg 201 to 202/Case Laws) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.
b) ITAT Jaipur/Jodhpur
i) Shalimar Buildcon (P) Ltd. vs ITO (2011) 128 ITD 0396 (Jaipur) (PB pg 214 to 238/Case Laws) In this case Hon’ble ITAT Jaipur Bench has relied on its old decision in the case of Hotel Gaudavan ITA No. 1162 and 1137/JP/2008 and addition on account of share capital was deleted.
28.5 On identical issue, the Tribunal, Jaipur Bench in the case of Hotel Gaudavan (P) Ltd. (supra) has held as under :
"6. As regards the issue on merit in the Departmental appeal, we concur with the views of the learned CIT(A) that the AO has not considered the explanation of the assessee. The amount under consideration of Rs. 1.89 crore has been received by the assessee as share application money from M/s Jalkanta Technical & Financial Service (P) Ltd. (JTFSPL) after a proper resolution passed by the board of directors of the aforesaid company through banking channel. M/s JTFSPL is having permanent account and filing its return of income regularly. The AO has nowhere mentioned that money belongs to the assessee company and therefore, provisions of s. 68 cannot be invoked. The learned CIT(A) has rightly relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 which has been confirmed by the Hon’ble Supreme Court of India. The learned CIT(A) has also relied upon the decision of Hon’ble jurisdictional High Court in the case of Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 and also the decision of Tribunal, Jodhpur Bench in the case of Uma Polymers (P) Ltd. vs. Dy. CIT (dt. 27th Feb., 2006) [reported at (2006) 101
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TTJ (Jd)(TM) 124—Ed.] where it has been held that the assessee has to prove the existence of the shareholders which in the present case is not under dispute. Therefore, the assessee has discharged the burden and therefore the AO was not justified in making any addition under s. 68 of the Act. The learned counsel for the assessee has referred to the decision of Hon’ble Supreme Court of India in the case of Divine Leasing & Finance Ltd. dt. 21st Jan., 2008, the copy of which is placed on record where it has been observed by the Supreme Court as under :
‘Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961 ? We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Therefore, we find no infirmity in the order of the learned CIT(A), with the impugned judgment.’
The said decision of Hon’ble Supreme Court of India has been followed by the Tribunal, Delhi Bench in the case of ITO vs. Bhor Mal Dhansi Ram Ltd. in ITA No. 4670/Del/2007, dt. 3rd March, 2006. The copy of the said decision of Tribunal, Delhi Bench is placed on record. The learned counsel for the assessee Shri H.M. Singhvi, chartered accountant has also relied upon the decision of Hon’ble Supreme Court of India on the said issue in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 wherein it has been held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
28.6 The Hon’ble Delhi High Court in the case of CIT vs. Divine Leasing & Finance Ltd. (supra) had an
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occasion to consider the addition on account of share application money. We are reproducing the held portion from the decision of Hon’ble Delhi High Court as mentioned in (2007) 207 CTR (Del) 38 (supra).
"Income—Cash credit—Share application money— Burden of proof can seldom be discharged to the hilt by the assessee—If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations—But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company—If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders registers, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee—Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices—Tribunal has noted that the assessee company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange—Complete details were furnished— Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources."
28.7 The Hon’ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (supra) held that if the share capital money is received by the assessee company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company.
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28.8 The Hon’ble High Court in the case of First Point Finance Ltd. (supra) held that burden of proof on the assessee company lies to the extent of making out a case that investor exists and thereafter it is not for the assessee to further prove where they have brought money from to invest with it.
28.9 The Hon’ble Delhi High Court in the case of CIT vs. United Bio-tech (P) Ltd. 2010 TIOL-533-HC-Del held that in case the identity of the share applicants has been established and it is found that the said applicants are corporate assessees who are assessed to tax with IT Department then there is no case of any substantial question of law. In the instant case, the share applicants are corporate assessees.
28.10 The Hon’ble Delhi High Court in the case of CIT vs. Samir Bio-tech (P) Ltd. (supra) held that if investments have been shown by the share applicants in their audited balance sheet then the addition cannot be made under s. 68 of the Act.
28.11 In view of the legal position as discussed above, the AO was not justified in making the addition of Rs. 1.10 crore without bringing on record any material for the addition. Simply on the basis of information which is not substantiated in the course of assessment proceedings against the assessee, the AO could not have added the amount.
(ii) The Honb’le ITAT, Jaipur Bench, Jaipur in its judgment the case of M/s Jadau Jewellers & Manufacturers Pvt. Ltd., B-1, Trimutri Circle, Govind Marg, Jaipur in ITA No. 686/JP/2014 dated 14.12.2015 (PB pg 239 to 267/Case Laws) gave the following findings:- “.6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director’s report, auditor’s report, copy of balance sheet, copy of P&L account, copy of bank account in all the cases to prove the
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identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT(A) i.e. decision of Hon’ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the case as there was short time available with the Assessing Officer as well as Investigation Wing of Kolkata. The copy of inquiry has not been provided by the Assessing Officer to the assessee. As per findings of the Hon'ble Delhi High Court in the case Nipun Builders and Developers Pvt. Ltd. Vs. CIT (supra), the Investigation Officer at Kolkata had not deputed Inspector to enquire the whereabouts of the company. The case laws referred by the assessee are squarely applicable on the facts and circumstances of the appellant’s case, therefore, we reverse the order of the ld CIT(A) on technical ground as well as on merit also….” (iii) Uma Polymer (P) Ltd. , 101 TTJ 124, Jodhpur (PB pg 282 to 318/Case Laws) Income—Cash credit— Share application money—In respect of share capital money, the assessee-company has to prove only the existence of the person in whose name share application is received—No further burden is cast on the assessee to
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prove whether that person himself has invested the money or some other person has made the investment in his name—Burden to prove that the money did not belong to him but to somebody else is on the Revenue—Distinction between a public company and a private company is not very material for this purpose— AO treated the investments made by ten shareholders in the assessee-company as bogus and made addition under s. 68 —Not justified—In all the cases except that of V, AO had obtained the bank statements of the shareholders which clearly show that the accounts were regularly maintained and the shareholders had made deposits—Further, the shareholders are also assessed to tax—Simply because scrutiny assessments were not made in the case of shareholders, such assessments could not be made in the course of assessment of the assessee—Having regard to the information collected by the AO from the banks, identity of the shareholders was fully established—If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee— U had invested in the share capital through cheque except for a small sum which was returned to her—Her bank account shows several entries, both credit and debit, which have no relation with the amount invested with the assessee-company—Merely because she has not submitted her returns after the asst. yr. 1984-85, it cannot be said that she was not assessed to tax—Though V has not been shown to be assessed to tax, he had made major part of investments towards share capital through cheques and his identity is not doubted— Accordingly, share capital advanced by U and V is also to be accepted as genuine—Therefore, no addition of share capital money could be made in the hands of the assessee-company.
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(iv) The ld. Jaipur Tribunal in the case of DCIT V M/s Kamdhenu Steel and Alloys Ltd. 2014-TIOL-709- ITAT- (PB pg 203 to 213/Case Laws) Case relates to search and issue of shares on premium. Held that the assessee had submitted the particulars of registration of the applicant company, the confirmation from the share applicants, bank account details from which payment through account payee cheques, so the assessee had discharged its initially onus. (v) M/s. ARL Infratech Ltd. vs. The ACIT ITA No. 619/JP/2013 (PB pg 268 to 281/Case Laws) ITAT Jaipur. The findings of Hon’ble ITAT was as under:- Before, we proceed to decide the issue on merits, we would like to discuss the scheme of the Act and precedents on the issue involved in this appeal as under:- ‘’In cases where share application money is found recorded in the books of an assessee which may represent credit in the books and the share applicant is identified, that amount cannot be added in the assessee's hands u/s 68 of the Act. The Hon'ble Rajasthan High Court has repeatedly reiterated the above legal position. These cases are: (i) CIT vs. Shree Barkha Synthetics Ltd. 182 CTR 175 (Raj.) (ii) Barkha Synthetics Ltd. vs. ACIT (2005), 197 CTR 432 (Raj).13 In coming to the above conclusion, the Hon'ble Jurisdictional High Court has considered at length the relevant decisions on the issue like CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 = 251 ITR 263 (SC) which has confirmed the decision of Hon'ble Delhi High Court reported in (1992) 192 ITR 287. The Hon'ble Court has gone to the extent of stating that even if it be assumed that the subscriber to the share capital are not genuine, nevertheless, under no circumstances can the amount of share capital be regarded as undisclosed income of the assessee. In this case, the share subscriber is identified. There can be no dispute regarding the above stated legal position. The following decisions also lay down the same ratio:- (i) CIT vs. Lovely Exports (P) Ltd. (2008) 6 DTR 308 (SC) (ii) CIT vs. Dolphin Conpack Ltd. (2006) 283 ITR 190 (Del.) (iii) CIT vs. Gujarat Heavy Chemicals Ltd. (202) 256 ITR 795(SC)
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(iv) CIT vs. Kwick Travels (1992) 199 ITR (St.) 85 (SC) This issue has been dealt at length by the Third Member in the case of Uma Polymers (P) Ltd. vs. DCIT, (2006) 101 TTJ (Jd.) T.M. 126 = (2006) 284 ITR (AT) 1 Jodhpur.’’ 2.6 Adverting, the facts of the given case, we are of the considered opinion that all the share applicants stand identified. The assessee has provided PANs of the share applicants. The mode of payment has also been made explained. There is no direct or indirect relation between the assessee company and the share applicants. The statements recorded during survey has got no evidentiary value and the law is very much settled on this issue. In any case, even under the provisions of Section 68 of the Act, the assessee cannot be forced to prove the source of the source. The law on this subject is also settled by numerous decisions. The alleged report of the Inspector of the Department who is stated to have visited at the given addresses of the share applicants was never put or confronted to the assessee. The cumulative effects of these reasons is that the impugned addition cannot be added in the hands of the assessee company. Accordingly, we order to delete the entire additions and allow the appeal of the assessee. 3.0 In the result, the appeal of the assessee stands allowed. The department filed appeal before Hon’ble Rajasthan High Court. Hon’ble Rajasthan High Court confirmed the findings of Hon’ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016
(c) Other High Courts
(i) 2014 (8) TMI 605 - MADRAS HIGH COURT The Commissioner of Income Tax Versus Pranav Foundations Ltd. T. C. (A). No. 262 of 2014 Dated - 12 August 2014 (PB pg 343 to 346/Case Laws) Addition u/s 68 – Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved – Held that:- Following the decision in CIT v. Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SUPREME COURT OF
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INDIA] - all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment - the assessee has categorically established the nature and source of the sum and discharged the onus that lies on it in terms of Section 68 of the Act - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted – Decided against Revenue.
(ii) CIT vs. Illac Investment (P) Ltd. (2007) 207 CTR (Del) 687; (PB pg 341 to 342/Case Laws) assessee- company has satisfactorily established the identity of the share subscribers and deleted the addition under s. 68, no substantial question of law arises for consideration.
(iii) CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38; (PB pg 321 to 340/Case Laws) Income—Cash credit—Share application money— Burden of proof can seldom be discharged to the hilt by the assessee—If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations—But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company—If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc. it would constitute acceptable proof or explanation by the assessee—Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices—Tribunal has noted that the assessee-company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation)
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Act, 1956, as also the rules and regulations of Delhi Stock Exchange—Complete details were furnished— Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources—As regards receipt of share capital on issue of rights shares to five companies, these companies were duly incorporated under the Sikkimese Companies Act and were assessed under the Sikkimese Taxation Manual— Their share subscriptions were also received through banking channels and found to be valid by the jurisdictional AO—Therefore, no addition could be made under s. 68
(iv) CIT v/s Value Capital services P Ltd. 307 ITR 334 (Delhi) (PB pg 319-3202/Case Laws) held that there is 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 undisclosed income of the assessee.
(v) CIT v/s STL Extrusion (P) Ltd. 333 ITR 269 (MP) (PB pg 347 to 350/Case Laws) Income—Cash credit— Share application money—Assessee has duly established the identity and source of credits— Additions not sustainable. (vi) CIT v/s Arunanda Textiles (P) Ltd. , 333 ITR 116 (Karnataka) (PB pg 351 to 353/Case Laws) Share application money—Assessee able to identify the shareholders—It is not for the assessee-company to establish but it is for the Department to enquire with the investors about the capacity to invest the amount in the shares.
(vii) Bhav Shakti Steel Mines (P) Ltd. vs. CIT (2009) 18 DTR (Del) 194 Income—Cash credit—Genuineness— CIT(A) not only found that the identity of each of the shareholders stood established, but also examined the
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fact that each of them were income-tax assessees and had disclosed the share application money in their accounts which were duly reflected in their IT returns as well as in their balance sheets—Tribunal was not therefore justified in coming to the conclusion that the CIT(A) had not considered the matter in the right perspective—Order passed by Tribunal remanding the matter for examining the share applicants set aside and that of CIT(A) restored
(d) Other Benches of ITAT (i) ITO V M/s. Reliance Marketing Pvt. Ltd. 2015- TIOL-319-TAT-Del (PB pg 367 to 375/Case Laws) identity of the creditors/share applicants by furnishing their PAN number and copy of acknowledgment of Income-tax Return. The amount on account of share application was received through banking channel, copies of the confirmation alongwith affidavit of the parties were furnished. The assessee also furnished the copy of share application forms, copy of Form no.2 filed with Register of Companies (ROC), showing allotment of shares to the applicants. Therefore, the assessee discharged the onus cast upon it, (ii) INCOME TAX OFFICER vs. MS. SUPERLINE CONSTRUCTION P. LTD. ITAT, BOMBAY TRIBUNAL (A) ITA No. 3644 TO 3648, 3650, 3651Mum/2014 30th November, 2015 (2015) 45 CCH 0281 Mum Trib. (PB pg 376 to 392/Case Laws) Addition—Addition on account of bogus share application money—Assessee was in business of builder and developer—Assessment was completed u/s 143(3) r.w.s. 147—Re-assessment proceedings were initiated on basis of information received from Directorate of Income-tax (Investigation) without recording AO’S own satisfaction and information was accepted in mechanical manner—After reopening of assessment u/s 147, AO made addition of Rs.40 lakhs received by assessee from various corporate entities— Addition was made by AO on account of bogus share application money under provisions of s 68—CIT(A) deleted addition made by AO—Held, in case of CIT vs.
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M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held that If share application money was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company—It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147—That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capital and advances received by established identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences—Assessee company substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO—These facts had not been rebutted on behalf of Revenue—ITAT was not inclined to interfere with findings of CIT(A) who thus rightly deleted entire impugned additions of Rs.40 lakhs made by AO u/s 68 on account of share capital subscription received by assessee-company
Held: It was pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC) that if the share application money is received by the assessee company from alleged bogus shareholders whose name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company. (para 2.3) In this background, it was submitted on behalf of the assessee that the Assessing Officer failed to appreciate that there was no documentary evidence against the assessee-company to support such impugned additions. It was further submitted by the assessee that the Assessing Officer failed to appreciate that the statements of any person recorded u/s 143(3) r.w.s. 147. The assessee-company had fully discharged the burden of proof, onus of proof and explained the source of
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share capital and advances received by established the identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences. The further stand of the assessee had been that the assessee-company substantiated the details with the documentary evidences as extracted from the website of Ministry of Corporate Affairs, Government of India before the Assessing Officer. These facts had not been rebutted on behalf of the Revenue. (para 2.4) In view of the facts and circumstances of the present case as well as considering the decisions as discussed above on the similar issue, ITAT was not inclined to interfere with the findings of the CIT(A) who had rightly deleted the entire impugned additions of Rs.40 lakhs made by the Assessing Officer u/s 68 of the Act on account of share capital subscription received by the assessee-company. (para 2.5) Conclusion: When Assessee-company had substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO, then additions made by AO u/s 68 on account of share capital subscription received by assessee-company was rightly deleted.
(iii) Meera Engineering & Commercial Co. (P) Ltd. vs. Asstt. CIT (1997) 58 TTJ (Jab) 527 (PB pg 393 to 399/Case Laws) Income—Cash credits—Genuineness of share capital of company—All the 51 shareholders filed their affidavits and confirmatory letters and 24 of them filed their replies also to notice under s. 133(6)— Names of parties purchasing the shares with amount subscribed were furnished before AO—All documents clearly show that shareholders do exist— Assessee- company had discharged its onus of explaining the cash credits as required under law—If the company is able to establish that shareholders existed and they have invested money for purchase of shares burden of company to prove the credit is discharged—Identity of shareholders not in dispute—Assessee is not required to
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prove credit-worthiness of shareholders—Addition deleted
(iv) Allen Bradley India Ltd. vs. Dy. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del); Income—Cash credit—Subscription to share capital and loan—In case of limited companies jurisdiction of AO would be limited only to see whether identity of shareholders is established and whether they exist or not—Once identity is established, then, possibly no further enquiries need to be made—Since the shareholders of assessee-company were in existence, they were assessed to tax, complete details were available, share capital money as well as loan were received through account payee cheques and they were cleared through proper banking channels, AO was not justified in disbelieving the capital invested by the shareholder companies— Similarly, AO was not justified in disbelieving the loan taken from DTL as the cheques were cleared through bank channels and confirmation and supporting evidence was filed—CIT(A) was justified in deleting the additions.
(v) 2017 (3) TMI 1047-ITAT AHMEDABAD Income Tax Officer, Ward 8 (1), Ahmedabad Versus Seven Star Aviation Services Pvt. Ltd (PB pg 400 to 404/Case Laws)Addition u/s 68 - share application money and unsecured loan received. Held that: - When the depositors are regular tax payers and the advances made by such depositors as also share application monies paid by such shareholders are duly accepted in their personal assessments, there cannot be any occasion to hold that these amounts are unexplained in the hands of the company. The credit worthiness or identity cannot be an issue in such a situation. (vi) 2016 (10) TMI 920 - ITAT HYDERABAD M/s. Hariom Concast and Steel Pvt. Ltd. Versus Income Tax Officer, Ward-2 (2) , Hyderabd (PB pg 405 to 411/Case Laws) Addition for shares issued on premium. Held that: - Share premium cannot be brought to tax invoking the provisions of Section 68, unless there is a link with either quid pro quo transaction or
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investing by assessee-company in their accounts so as to receive it back as share capital. No such evidence was brought on record.
(e) Supreme Court
i) CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 Income—Cash credit—Share application money—If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company. ii) CIT vs. Steller Investment Ltd. (200) 251 ITR 263 (SC) 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 assessee-company. (iii) CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC)
f) Ratio Laid down in following cases not applicable to the facts of the case of assessee:-
i) Nova Promoters & Finlease Pvt. Ltd (2012) 342 ITR 169 (Delhi High Court): - Summons sent to the companies received back unserved and other summons remained uncomplied with Whereas, in the case of this assessee company, notice u/s 133(6) was sent to investor companies, all of which were served and some of them were complied with.
ii) CIT V/s N. R. Portfolio Pvt. Ltd 206 (2014) DLT (DB) (Del)/ 264 CTR 0258 (del) Assessed u/s 144 of Itax Act. In this case the AO issued several notices and show cause notice which was not served/complied and assessment was framed u/s 144 of Income Tax Act. In our case all the compliances were made and evidences submitted.
iii) N Tariks Properties Pvt. Ltd 227 Taxmann.com 373 (with reference to decision of Delhi high court in 264 CTR 472) AO
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noticed that extracts of bank account had been fabricated and AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company.
iv) CIT v/s Navodaya Castle Pvt. Ltd 367 ITR 306 (Delhi High Court)AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. v) CIT V/s MAF Academy Pvt. Ltd 206 (2014) DLT 277 (DB)(Del)/ 361 ITR 0285 (Del) AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. Further, the summons u/s section 131 of I.tax Act were sent to the shareholders which were received back un- served.
In view of the above submission, the humble assessee prays your honor kindly to dismiss the appeal filed by the department.’’
2.6 We have heard the rival contentions and perused the materials
available on record. It is pertinent to mention that the similar issue has
been dealt with and decided by this Bench of ITAT vide its order dated
30-10-2017 in the case of ACIT, Central Circle-2, Jaipur vs Motisons
Buildtech Pvt. Ltd in ITA No. 481/JP/2017 (Revenue’s appeal) for the
Assessment Year 2009-10. Since the issue raised by the Revenue in the
present appeal is same as decided in the appeal of the Revenue in ITA
No.481/JP/2017for the Assessment Year 2009-10 in the case of ACIT,
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Central Circle-2, Jaipur vs Motisons Buildtech Pvt. Ltd Jaipur (supra)
which shall apply mutatis mutandis in the present appeal of Revenue also.
Thus solitary ground of ITA No.493/JP/2017 for the A.Y. 2010-11 of
Revenue’s appeal is dismissed.
3.1 In the C.O. No. 26/JP/2017 for the Assessment Year 2010-11, the
assessee has raised the following ground:-
‘’1. On the facts and in the circumstances of the case and in law the AO erred in making addition of Rs. 2,00,00,000/- by applying the provision of sec 56(1) of the I.T. Act, 1961 treating the share capital and premium thereon received from various Pvt. Ltd. companies as income of the assessee and the ld. CIT(A) rightly deleted the addition made by the AO.
3.2 It is observd that the cross objection filed by the assessee is
supportive to the order of the ld. CIT(A) which is infructuous. Thus the
C.O. of the assessee is dismissed.
4.1 In ITA No. 494/JP/2017 for the A.Y. 2012-13, the Revenue has
raised the solitary ground as under:-
‘’Whether on the facts and in the circumstances of the case the ld. CIT(A) was right in deleting the addition of Rs.10,30,00,000/- made u/s 56(1) of the Act ignoring the fact that assets of the assessee company don’t commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee.’’
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4.2 Apropos solitary ground of the Revenue, the AO made the addition
of Rs.10,30,00,000- u/s 56(1) of the Act in the hands of the assessee
company by observing as under:-
‘’16. Having dealt with each of the contention of the assessee and having found the same to be untenable it is important to place on record certain aspects which have a bearing on the issue at hand. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were not entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. 17. In the above back ground of the facts and circumstances surrounding this case, it is hereby held that the receipt of share capital and share premium was part of a colourful transaction by way of which a sum of Rs.10,30,00,000/- was introduced into the books of the assessee company in the form of share premium attached to the share capital. As discussion above the premium of Rs.990/- per share was not justified at all on the basis of absolutely no assets commensurate to premium charged, no business activity, no income, no net worth nor any promise for creation of this much assets, business activity, income or net worth in the future. Accordingly, the charging and receipt of share premium/ share capital to the tune of Rs. 10,30,00,000/- is held to be income of the assessee company in the nature of income envisaged u/s 56(1) of the Income Tax Act, 1961. The same is added back to the total income of the assessee.’’
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4.3 In first appeal, the ld. CIT(A) has deleted the addition of
Rs. 10,30,00,000/- made by the AO by observing at pages 57 to 97 of
his order as under:-
‘’3.1.2 I have duly considered assessee's submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon.
Facts of the case are that no scrutiny assessment u/s 143(3) of the Act was done in assessee’s case for AY 2012-13 and the original return filed on 26.09.2012 declaring Rs. 15,31,050/- total income was only processed u/s 143(1) of the Act. Various courts have held that processing of returns u/s 143(1) of the Act is no assessment. It is obvious that if no incriminating material is found during search, then additions, if any, have to be made in the income shown in the return of income (in the case of pending assessments which abate) and to the computed income (in case of assessments were completed). Thus effectively, what was said in the case of Kabul Chawla was that making any addition in the returned income or income earlier assessed was not allowed if no material was found in the search which could lead to an addition on the basis of the said material. Now in this regard, I would like to discuss the issue pertaining to assessment completed u/s 153A r.w.s 143(3) of the Act when no incriminating documents were found from the assessee’s premises. Before coming to the facts of the present case it would be appropriate to mention sec. 153A of the Act, the relevant part of which reads as under: "153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall —
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(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) Assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate. As per the provisions of this section where a search is initiated u/s 132 of the Act, the A.O shall issue a notice requiring the person searched to furnish his return of income in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Once such returns are filed, the AO has to assess or reassess the total income of such six assessment years.(emphasis supplied by me). (The decisive words used in the provisions are to 'assessee or reassess the total income'). The A.O. is thus duty bound to determine the 'total income' of the assessee for such six assessment years and it is obvious that 'total income' refers to the sum total of income in respect of which a person is assessable. The total income therefore will cover not only the income emanating from declared sources or any material placed before the Assessing Officer but from all sources including the undisclosed ones, or based on the unplaced material before the AO. Some related Judgments g) CIT vs. Kabul Chawla (Delhi High Court) : Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not…
h) Gurinder Singh Bawa vs. DCIT (ITAT Mumbai) : In All Cargo Global Logistics 137 ITD 287 (Mum)(SB), the Special Bench held that in a case where the assessment has abated the AO can make additions in the
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assessment, even if no incriminating material has been found. However, in a case where the assessment has not abated, .…
i) Anil Kumar Bhatia vs. ACIT (ITAT Delhi) : S. 153A does not authorize the making of a de novo assessment. While under the 1st Proviso, the AO is empowered to frame assessment for six years, under the 2nd Proviso, only the assessments which are pending on the date of initiation of search abate.
j) Sanjay Aggarwal vs. DCIT (ITAT Delhi) : S. 153A: Addition in a search assessment for a AY which is not pending can be made only if incriminating material is found during search (i) The language of s. 153A has been structured in such a way so as not to permit the making of addition for the assessment… k) Trishul Hi-Tech Industries vs. DCIT (ITAT Kolkata) : It has been held by the ITAT, Kolkata Bench in the case of LMJ International Limited vs. DCIT 119 TTJ (Kol) 214 where nothing incriminating is found in the course of search relating to any assessment years, the assessments for………….
l) It has been held by the ITAT, Kolkata Bench in the case of LMJ International Limited vs. DCIT 119 TTJ (Kol) 214 where nothing incriminating is found in the course of search relating to any assessment years, the assessments for such assessment years cannot be disturbed u/s 153C of the Act. Thus it is clear that the provisions of section 153C of the Act cannot be invoked automatically in respect of any assessment year unless there exists incriminating documents for that previous year. The provision of section 153C of the Act cannot be invoked on routine information or on income already accounted/disclosed in the original return, the assessment of which is complete. In this regard we may gainfully refer to the decision of the Mumbai Special Bench of the ITAT in the case of Al cargo Global Logistics Ltd vs. DCIT. Apart from above, there are several decisions of various judicial authorities where it has been held that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law. Some of these decisions are discussed in the following paragraphs: (i) In the case of CIT vs. Kabul Chawla reported in 281 CTR 45, Delhi it has been held by the Hon'ble Delhi High Court that:
On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
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Once a search takes place under Section 132 of the Act, notice i. underSection 153 A(l) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previousyearrelevant to the AY in which the search takes place. Assessments and reassessments pending on the date of the search ii. shallabate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax". Although Section 153 A does not say that additions should be iv. strictlymadeonthe basis of evidence found in the course of the search,orother post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or madewithout any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material." v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings. Vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO. vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or properly discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
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(ii) In the case of ACIT Vs. PACL India Ltd. New Delhi, the Hon'ble ITAT, F. Bench, Delhi has considered the various decisions of different judicial authorities and in para 10 of the order has held that: "Therefore, the question arises whether AO can make any addition in the reassessment proceedings u/s 153(A) after making inquiries which are not suggested by any d documents or asset seized during the search. It depends on the nature of addition. The facts and circumstances of the assessee clearly show that no incriminating document found relating to the land development expenses debited in the books of accounts. No material was on the record on that basis which income of assessee could be further assessed by Assessing Officer. Therefore, the assessing officer has no jurisdiction to make or to resort to roving and fishing inquiries to find out whether any income has escaped assessment during these reassessment proceedings. Particularly, when there is no incriminating material found and seized during the course of search u/s 132(1) of the Act and nothing is available in record to reassess the income of assessee. In view of the above, this is not a fit case for making the addition in the year under consideration, the same are deleted."
(iii) In the case of M/s Ideal Appliance Company Pvt. Ltd. Vs. DCIT, Central Circle-44, Mumbai, the following legal issues were raised before the Hon'ble ITAT'1" Bench, Mumbai:
"1. The Ld CIT (A) failed to appreciate the fact that no incriminating documents /evidences were found during the course of search of third party, and hence, re-computing the income u/s I53A is bad in law and liable to be quashed.
The Ld CIT (A) failed to appreciate the fact that original assessment was made u/s 143(3) vide order 31st August 2007 after considering all the documents and materials on record and due application ff mind and hence re-computing the income by merely changing head of income for the said year under the grab of section 153A based on same documents and materials, is bad in law and order is liable to be quashed,
The Ld CIT (A) erred in confirming the action of the AO reassessing the income u/s 143(3) r.w.s I53A, without appreciating the fact that only pending assessment abet and not the completed assessments and hence the order u/s 143(3) r.w.s I53A is bad in law and liable to be quashed.
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The Ld CIT (A) erred in not allowing the decision of jurisdictional High Court wherein it was held that no addition can be made u/s I53A if no incriminating material / documents are found during search. Therefore, the order of the CIT (A) is bad in law." (iv) On these issues, it was held by the Hon'ble ITAT that:
"9. From the above settled legal position of the issue that in the absence of any incriminating material found during search, additions made on the assessed income are unsustainable in law, we are of the considered opinion that the additions made in the instant case are not sustainable and accordingly, we delete the same. Considering our decision on the legal issue in favour of the assessee, the other grounds demand no specific adjudication. Thus, on the legal ground the assessee succeeds and rest of the grounds are dismissed as academic.
9.1. Further, regarding the non-abated nature of the assessments relating to the AYs 2007-2008, 2008-2009 and 2009-2010, it is a decided issued that the time limit for the issue of notice u/s 143(2) in the said AYs since expired on 30.9.2008 and they constitute non-abated assessments and therefore, the assessments for those AYs have to be reassessed under the special provisions in the light of the incriminating material seized during the search. The above said ratio was also followed by the Tribunal in the case of Gurinder Singh Bawa vs. CIT (supra) wherein it was held that „……… where the assessment had been completed under summary scheme under section 143(1) and time limit for issue of notice under section 143(2) had expired on the date of search ………..there was no assessment pending ………in such a case there was no question of abatement. Therefore, addition could be made only on the basis of incriminating material found during search."
(v) The relevant issues as arising out of the decision in the case of Kabul Chawla as under:
1) When there is no condition in section 153A of the Act that additions cannot be made without relevance to or without nexus to seized material, then is it for the Courts to read that condition into the provisions of section 153A of the Act? The answer is NO for the reason that the application of section 148 of the Act has been ousted by the non-obstante clause with which section 153A starts. Therefore, even if no incriminating material is found during search, if any undisclosed income has to be assessed for the relevant 6 years, it has to be in the proceedings under section 153A of the Act. a) Now there are two situations - either the assessment was complete before the search or pending at that time. If the assessment was complete, and if
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
any income which had escaped assessment in the regular assessment is found during proceedings u/s 153A, what is the AO supposed to do? He has no power to act u/s 147/148 because of the non-obstante clause. He is now precluded from invoking provisions of section 148 because of the conclusion drawn in Kabul Chawla. b) The situation is even more serious if a pending assessment or reassessment abates. What if a show-cause notice had been issued on an undisclosed income prior to search? According to Kabul Chawla if no incriminating material is found during search, then NO ACTION can be taken in such cases also. No interpretation of a provision of an Act can be such that it leads to results which were never intended. By drawing a conclusion that the presence of incriminating material, and addition thereon is necessary for making an addition which is not based on material found during search, Kabul Chawla has done exactly that, and so it has to be held that the conclusion so drawn is per incuriam. In this regard I draw solace from the decision of the Allahabad High Court in the case of CIT v. Raj Kumar Arora [2014] 367 ITR 517(All.) and the decision of the Delhi High Court in the case of Filatex India Ltd. v. CIT[2014] 49 taxmann.com 465(Delhi) both of which precede the decision in the case of Kabul Chawla. 2) There is another situation which has not been anticipated in Kabul Chawla. In that case the Hon’ble High Court proceeded on the grounds that processing of a case u/s 143(1) was also assessment. It accordingly held that even if the returns have been processed u/s 143(1) it will be treated as if the assessments are complete. Now after the decision of the Hon’ble Supreme Court in the case of Deputy Commissioner of Income-Tax v. Zuari Estate Development & Investment Co. Ltd. [2015] 373 ITR 661 (SC) and Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500(SC) it is clear that processing of a case u/s 143(1) is not an assessment, which fact has been admitted by the Delhi High Court in the case of Indu Lata Rangwala v. Deputy Commissioner of Income-Tax, WP(C) 1393/2002 in their decision dated 18.05.2016. 3) Hence, there now occurs a third category – of cases which have neither been completed nor are pending on the date of search. Kabul Chawla is silent on this situation, perhaps because it was not envisaged at that time. In view of these facts and legal position that the premise developed in Kabul Chawla, that additions can be made in the completed or abated assessments only if there is incriminating material in a proceeding u/s 153A, cannot and will not apply to such a situation.
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4) Now we come to the question of whether it is necessary to have incriminating material in all the 6 years for an addition to me made on issues not covered by search. Though there is an attempt to interpret Kabul Chawla in a way that incriminating material is required in all the 6 years, this interpretation is incorrect because:
a) this proposition has not been specifically spelt o this proposition has not been specifically spelt o this proposition has not been specifically spelt out in the Kabul Chawla case; this proposition has not been specifically spelt o ut in the Kabul Chawla case; ut in the Kabul Chawla case; ut in the Kabul Chawla case; b) b) the Delhi High Court in the case of CIT v. Chetan Das Lachman Das [2012] 211 the Delhi High Court in the case of CIT v. Chetan Das Lachman Das [2012] 211 b) b) the Delhi High Court in the case of the Delhi High Court in the case of CIT v. Chetan Das Lachman Das [2012] 211 CIT v. Chetan Das Lachman Das [2012] 211 Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) has specifically raised and Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) has specifically raised and has specifically raised and then has specifically raised and then then then answered the question in favour of the revenue. answered the question in favour of the revenue. It has stated that additions on answered the question in favour of the revenue. answered the question in favour of the revenue. It has stated that additions on It has stated that additions on It has stated that additions on non non-search issues can be made even if there is incriminating material in even non non search issues can be made even if there is incriminating material in even search issues can be made even if there is incriminating material in even search issues can be made even if there is incriminating material in even one year. This case is extremely important for the Revenue. one year. This case is extremely important for the Revenue. one year. This case is extremely important for the Revenue. one year. This case is extremely important for the Revenue. Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia Similar sentiments have been expressed in the case of Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia CIT v. Anil Kumar Bhatia [2 [2013] 352 ITR 493 (Del) [2 [2 013] 352 ITR 493 (Del) 013] 352 ITR 493 (Del) where only one unsigned document dated 10.02.2003 013] 352 ITR 493 (Del) where only one unsigned document dated 10.02.2003 where only one unsigned document dated 10.02.2003 where only one unsigned document dated 10.02.2003 showing a loan of Rs. 1,50,000/- was found during search conducted on showing a loan of Rs. 1,50,000/ was found during search conducted on showing a loan of Rs. 1,50,000/ showing a loan of Rs. 1,50,000/ was found during search conducted on was found during search conducted on 13.12.2005. The Hon’ble High Court held that this material was enough to justify 13.12.2005. The Hon’ble High Court held that this material was enough to justify 13.12.2005. The Hon’ble High Court held that this material was enough to justify 13.12.2005. The Hon’ble High Court held that this material was enough to justify additions in all the 6 years. additions in all the 6 years. additions in all the 6 years. additions in all the 6 years. c) Recently, the Kerala High Court in Sunny Jacob Jewellers and Wedding Centre v. Sunny Jacob Jewellers and Wedding Centre v. Sunny Jacob Jewellers and Wedding Centre v. Sunny Jacob Jewellers and Wedding Centre v. Deputy Commissioner of Income Deputy Commissioner of Income-Tax [2014] 362 ITR 664 (Ker) Deputy Commissioner of Income Deputy Commissioner of Income Tax [2014] 362 ITR 664 (Ker) Tax [2014] 362 ITR 664 (Ker) has also very Tax [2014] 362 ITR 664 (Ker) categorically stated that incriminating material found during search is not necessary in all the 6 years for additions to be made on other issues. While giving these decisions, the Hon'ble ITAT, Mumbai as well as the Hon'ble ITAT, Delhi Bench has referred to the decision of the Hon'ble Mumbai High Court in the case of All Cargo Global Logistics Limited Vs. DCIT, Central Circle- 44, Mumbai and the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kabul Chawla in ITA No. 707/2014 dated 22.8.2015. Here it is pertinent to mention that the Department has not accepted the decisions of Hon'ble Mumbai High Court in the case of M/s All Cargo Global Logistics as well as Continental Warehousing (Nhava Sheva) Ltd., and SLP has been filed before the Hon'ble Supreme Court. The Hon'ble Supreme Court has granted leave vide order dated 12.10.2015 as reported in 64 taxmann.com 34 (S.C.). Similarly, in the case of Kabul Chawla SLP has also been filed.
Now after the decision of the Hon’ble Supreme Court in the case of Deputy Commissioner of Income-Tax v. Zuari Estate Development & Investment Co. Ltd. [2015] 373 ITR 661 (SC) and Assistant Commissioner
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of Income-Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500(SC) it is clear that processing of a case u/s 143(1) is not an assessment, which fact has been admitted by the Delhi High Court in the case of Indu Lata Rangwala v. Deputy Commissioner of Income- Tax, WP(C) 1393/2002 in their decision dated 18.05.2016. Hence, there now occurs a third category – of cases which have neither been completed nor are pending on the date of search. Kabul Chawla is silent on this situation, perhaps because it was not envisaged at that time. It is my contention that the premise developed in Kabul Chawla, that additions can be made in the completed or abated assessments only if there is incriminating material in a proceeding u/s 153A, cannot and will not apply to such a situation. Now we come to the question of whether it is necessary to have incriminating material in all the 6 years for an addition to me made on issues not covered by search. Though there is an attempt to interpret Kabul Chawla in a way that incriminating material is required in all the 6 years, this interpretation is incorrect because: a) this proposition has not been specifically spelt out in the Kabul Chawla case; b) the Delhi High Court in the case of CIT v. Chetan Das Lachman Das [2012] 211 Taxman 61 (Del.)/[2012] 254 CTR 392 (Del.) has specifically raised and then answered the question in favour of the revenue. It has stated that additions on non-search issues can be made even if there is incriminating material in even one year. This case is extremely important for us. Similar sentiments have been expressed in the case of CIT v. Anil Kumar Bhatia [2013] 352 ITR 493 (Del) where only one unsigned document dated 10.02.2003 showing a loan of Rs. 1,50,000/- was found during search conducted on 13.12.2005. The Hon’ble High Court held that this material was enough to justify additions in all the 6 years.
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c) Recently, the Kerala High Court in Sunny Jacob Jewellers and Wedding Centre v. Deputy Commissioner of Income-Tax [2014] 362 ITR 664 (Ker) has also very categorically stated that incriminating material found during search is not necessary in all the 6 years for additions to be made on other issues. Therefore, in view of above discussion with regard to the provisions of Sec 153A of the Act, it is seen that from 01.06.2003 onwards the number of years from which assessments could be framed after search were reduced from 10 to six. Section 153A of the Act has mandated that there have to be 6 separate assessments instead of a block assessment. It also started with a non-obstante clause which stated that the operation of sections 139, 147,148,149,151,and 153 was ousted. In other words when an assessment was being completed u/s 153A, the sections mentioned above could not be invoked. The section did not, repeats, and did not mention that for making an assessment u/s 153A of the Act, it was necessary to have some incriminating material found during search. In the case of Kabul Chawla, it was stated that assessments had to be completed u/s 153A of the Act the moment a search has taken place. This is a common ground in all judicial pronouncements, and nobody has any objection to the said conclusion. It was also stated in the above case that, though not prescribed in the Act, but additions had to be made on the basis of incriminating material found during search. The additions could not be arbitrary. This conclusion, and others arrived at in para 37 of the judgment started the present controversy. It is obvious that if no incriminating material is found during search, then additions, if any, have to be made in the income shown in the return of income (in the case of pending assessments which abate) and to the computed income (in case of assessments were completed). Thus effectively, what was said in the case of Kabul Chawla was that making any addition in the returned income or income earlier assessed was not allowed if no material was found in the search which could lead to an addition on the basis of the said material.
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Therefore, facts of case laws relied upon by the assessee are quite distinguishable with that of the present case. In view of these facts, assessee’s contention is not correct that AO was not justified in reassessing the completed assessment. Assessee’s appeal fails in Gr No 1. 3.2 Ground No. 2 : “Regarding addition of Rs. 10,30,00,000/- made by applying the provisions of section 56(1) of Income Tax Act, 1961 treating the share capital and premium thereon received from various companies as income of the assessee.” Ground No. 3: “On the facts and in the circumstances of the case and in law the ld. AO erred in holding that the receipt of share capital and premium during the year from various companies is not justifiable and part of a well planned exercise of introducing unaccounted money in the form of share capital and share premium more so when the assessee was no capable to earn such huge undisclosed income.”
3.2.1 Submission made: Relevant extracts of which AR of the assessee are reproduced here as under:
“…………………………………………………………………………………………..…… ………………….. 1) During the year under consideration the assessee allotted 1,03,000 equity shares of Rs. 10 each to various companies at a premium of Rs. 990/- per share detail of which is as under: -
S. Name No. of Amount Rate Amount Rate of Issue Total N. Shares adjusted per adjusted premium price Consideration alloted/ against share against share per share of the Received applied share premium share during the capital year
1 Bakliwal Vyapaar 12,300 1,23,000 10 1,21,77,000 990 1000 1,23,00,000 Pvt. Ltd.
2 Jasmine 6,500 65,000 10 64,35,000 99 1000 65,00,000 Commodities Pvt. 0 Ltd
3 Buniyad Vanijya Pvt 5,000 50,000 10 49,50,000 990 1000 50,00,000 Ltd
4 Puja Barter Pvt. Ltd. 6,000 60,000 10 59,40,000 990 1000 60,00,000
5 Dhanlabh 2,500 25,000 10 24,75,000 990 1000 25,00,000 Tradelinks Pvt. Ltd
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6 Devang Commercial 5,000 50,000 10 49,50,000 990 1000 50,00,000 Pvt. Ltd
7 Extent Vinimay Pvt. 2,500 25,000 10 24,75,000 990 1000 25,00,000 Ltd
8 Neha Deal Trade 2,000 20,000 10 19,80,000 990 1000 20,00,000 Pvt Ltd
9 Spring SalesPvt Ltd 6,700 67,000 10 66,33,000 990 1000 67,00,000
10 Manali Tradecom 5,000 50,000 10 49,50,000 990 1000 50,00,000 Pvt Ltd.
11 Target Vincom Pvt 5,000 50,000 10 49,50,000 990 1000 50,00,000 Ltd
12 Bernstain 1,500 15,000 10 14,85,000 990 1000 15,00,000 Marketing Pvt Ltd
13 Kesarinandan 500 5,000 10 4,95,000 990 1000 5,00,000 Vanijya Pvt Ltd
14 Deep Commosale 5,000 50,000 10 49,50,000 990 1000 50,00,000 Pvt Ltd
15 Apollo Vintrade Pvt 2,500 25,000 10 24,75,000 990 1000 25,00,000 Ltd
16 Innova Commercial 2,500 25,000 10 24,75,000 990 1000 25,00,000 Pvt Ltd
17 Prayash Dealtrade 4,000 40,000 10 39,60,000 990 1000 40,00,000 Pvt Ltd
18 Justify Vanijya Pvt 5,000 50,000 10 49,50,000 990 1000 50,00,000 Ltd
19 Solty Financial 5,000 50,000 10 49,50,000 990 1000 50,00,000 Consultants Pvt Ltd
20 Achiever 5,000 50,000 10 49,50,000 990 1000 50,00,000 Commotrade Pvt Ltd
21 Sishmahal 2,000 20,000 10 19,80,000 990 1000 20,00,000 Commotrade Pvt. Ltd
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ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
22 Advantage 2,500 25,000 10 24,75,000 990 1000 25,00,000 Dealtrade Pvt. Ltd
23 Origin VinimayPvt 4,000 40,000 10 39,60,000 990 1000 40,00,000 Ltd
24 Rukmani 5,000 50,000 10 49,50,000 990 1000 50,00,000 International Pvt Ltd
Total 1,03,000 10,30,000 10,19,70,000 10,30,00,000
2) During the course of assessment proceedings the assessee submitted the following documents to prove their identity of shareholders, creditworthiness of shareholders and genuineness of transaction with them: - Name of Shareholder Particulars of Documents submitted Copy at PB Page � Bakliwal Vyapaar Pvt. Ltd. Share application containing the name/address/PAN of party, 47 to 49 detail of payment received etc. � Copy of board resolution. 50 � Copy of PAN card of party. 51 � Copy of bank statement showing the entry of payment made to assessee. 52 to 53 � Copy of Ack. of ITR of AY 2012-13. � Declaration of source of funds with party. 54 � Copy of Registration certificate of ROC. 55 56 � Jasmine Commodities Pvt. Ltd Share application containing the name/address/PAN of party, 57 to 60 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 61 � Copy of bank statement showing the entry of payment made to 62 assessee. 63 to 64 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 65 annexure of 31.03.12. 66 to 78 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 79 80 � Buniyad Vanijya Pvt Ltd Share application containing the name/address/PAN of party, 81 to 84 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 85 � Copy of bank statement showing the entry of payment made to 86 assessee. 87 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 88 annexure of 31.03.12. 89 to 101 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 102 to 103 104
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
� Puja Barter Pvt. Ltd. Share application containing the name/address/PAN of party, 105 to 106 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 107 � Copy of bank statement showing the entry of payment made to 108 assessee. 109 to 110 � Copy of Registration certificate of ROC. 111 � Dhanlabh Tradelinks Pvt. Ltd Share application containing the name/address/PAN of party, 112 to 113 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 114 � Copy of bank statement showing the entry of payment made to 115 assessee. 116 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 117 annexure of 31.03.12. 118 to 130 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 131 132 � Devang Commercial Pvt. Ltd Share application containing the name/address/PAN of party, 133 to 136 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 137 � Copy of bank statement showing the entry of payment made to 138 assessee. 139 to 140 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 141 annexure of 31.03.12. 142 to 154 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 155 to 156 157 � Extent Vinimay Pvt. Ltd Share application containing the name/address/PAN of party, 158 to 159 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 160 � Copy of bank statement showing the entry of payment made to 161 assessee. 162 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 163 annexure of 31.03.12. 164 to 175 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 176 177 � Neha Deal Trade Pvt. Ltd Share application containing the name/address/PAN of party, 178 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 179 � Copy of bank statement showing the entry of payment made to 180 assessee. 181 to 182 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 183 annexure of 31.03.12. 184 to 191 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 192 193
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� Spring Sales Pvt. Ltd Share application containing the name/address/PAN of party, 194 to 197 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 198 � Copy of bank statement showing the entry of payment made to 199 assessee. 200 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 201 annexure of 31.03.12. 202 to 214 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 215 to 216 217 � Manali Tradecom Pvt Ltd. Share application containing the name/address/PAN of party, 218 to 221 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 222 � Copy of bank statement showing the entry of payment made to 223 assessee. 224 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 225 annexure of 31.03.12. 226 to 238 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 239 to 240 241 � Target Vincom Pvt Ltd Share application containing the name/address/PAN of party, 242 to 245 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 246 � Copy of bank statement showing the entry of payment made to 247 assessee. 248 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 249 annexure of 31.03.12. 250 to 262 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 263 to 264 265 � Bernstain Marketing Pvt Ltd Share application containing the name/address/PAN of party, 266 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 267 � Copy of bank statement showing the entry of payment made to 268 assessee. 269 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 270 annexure of 31.03.12. 271 to 282
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� Kesarinandan Vanijya Pvt Ltd Share application containing the name/address/PAN of party, 283 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 284 � Copy of bank statement showing the entry of payment made to 285 assessee. 286 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 287 annexure of 31.03.12. 288 to 297 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 298 299 � Deep Commosale Pvt Ltd Copy of board resolution. 300 � Copy of PAN card of party. 301 � Copy of bank statement showing the entry of payment made to 302 to 303 assessee. � Copy of Ack. of ITR of AY 2012-13. 304 � Copy of audit report and audited balance sheet along with 305 to 317 annexure of 31.03.12. � Declaration of source of funds with party. 318 � Copy of Registration certificate of ROC. 319 � Apollo Vintrade Pvt Ltd Share application containing the name/address/PAN of party, 320 to 321 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 322 � Copy of bank statement showing the entry of payment made to 323 assessee. 324 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 325 annexure of 31.03.12. 326 to 338 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 339 340 � Innova Commercial Pvt Ltd Share application containing the name/address/PAN of party, 341 to 342 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 343 � Copy of bank statement showing the entry of payment made to 344 assessee. 345 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 346 annexure of 31.03.12. 347 to 359 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 360 361
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
� Prayash Dealtrade Pvt Ltd Share application containing the name/address/PAN of party, 362 to 363 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 364 � Copy of bank statement showing the entry of payment made to 365 assessee. 366 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 367 annexure of 31.03.12. 368 to 380 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 381 382 � Justify Vanijya Pvt Ltd Share application containing the name/address/PAN of party, 383 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 384 � Copy of bank statement showing the entry of payment made to 385 assessee. 386 to 389 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 390 annexure of 31.03.12. 391 to 405 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 406 407 � Solty Financial Consultants Pvt Share application containing the name/address/PAN of party, 408 detail of payment received etc. Ltd � Copy of board resolution. � Copy of PAN card of party. 409 � Copy of bank statement showing the entry of payment made to 410 assessee. 411 to 414 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 415 annexure of 31.03.12. 416 to 429 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 430 431 � Achiever Commotrade Pvt Ltd Share application containing the name/address/PAN of party, 432 to 435 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 436 � Copy of bank statement showing the entry of payment made to 437 assessee. 438 to 439 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 440 annexure of 31.03.12. 441 to 453 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 454 to 455 456
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
� Sishmahal Commotrade Pvt. Ltd Share application containing the name/address/PAN of party, 457 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 458 � Copy of bank statement showing the entry of payment made to 459 assessee. 460 to 461 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 462 annexure of 31.03.12. 463 to 469 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 470 471 � Advantage Dealtrade Pvt. Ltd Share application containing the name/address/PAN of party, 472 to 473 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 474 � Copy of bank statement showing the entry of payment made to 475 assessee. 476 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 477 annexure of 31.03.12. 478 to 490 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 491 492 � Origin Vinimay Pvt Ltd Share application containing the name/address/PAN of party, 493 to 494 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 495 � Copy of bank statement showing the entry of payment made to 496 assessee. 497 � Copy of Ack. of ITR of AY 2012-13. � Copy of audit report and audited balance sheet along with 498 annexure of 31.03.12. 499 to 511 � Declaration of source of funds with party. � Copy of Registration certificate of ROC. 512 513 � Rukmani International Pvt Ltd Share application containing the name/address/PAN of party, 514 detail of payment received etc. � Copy of board resolution. � Copy of PAN card of party. 515 � Copy of bank statement showing the entry of payment made to 516 assessee. 517 � Copy of Ack. of ITR of AY 2012-13. � Declaration of source of funds with party. 518 � Copy of Registration certificate of ROC. 519 520 3. All the share capital/share application was received through a/c payee cheques and verifiable from bank statement of assessee as well as bank statement of the party. The onus u/s 68 of the assessee is to prove the identity, capacity and genuineness of the transactions has been discharged which may be seen from the followings:- i) Identity:- The assessee proved the identity of all the companies by filing the share application received from the parties and the parties are duly in existence and
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ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
the existence of the parties can be verified from the official website of MCA. The ld. AO also not doubted the identity of the above named companies. Further the notice issued u/s 133(6) of Income Tax Act, 1961 was duly served on all the companies which also prove the identity of the parties. ii) Creditworthiness All the companies are Income Tax assessee and duly filing the Income Tax return and Balance sheets. There is sufficient source of funds with all the companies to investment share capital/share application in the assessee company. The assessee submitted the copies of bank account/declaration of source of funds with them of investor companies. The bank statement shows the huge transaction of high value in the accounts of the companies. The chart showing the amount invested by the above named companies in assessee company viz a viz own funds with the investor company (To the extent of information available with assessee) are as under: -
Name of the Investor company Amount invested Share capital and Share capital and in assessee reserve & surplus reserve & surplus company with Investor with Investor companies as on companies as on 31.03.2012 31.03.2011 Bakliwal Vyapaar Pvt. Ltd. 1,23,00,000 Jasmine Commodities Pvt. Ltd 65,00,000 8,23,03,270 8,22,88,527 Buniyad Vanijya Pvt Ltd 50,00,000 17,91,08,448 17,91,02,827 Puja Barter Pvt. Ltd. 60,00,000 Dhanlabh Tradelinks Pvt. Ltd 25,00,000 16,42,60,142 16,42,53,102 Devang Commercial Pvt. Ltd 50,00,000 9,75,61,443 9,75,54,249 Extent Vinimay Pvt. Ltd 25,00,000 17,70,65,476 17,70,59,555 Neha Deal Trade Pvt Ltd 20,00,000 7,86,41,769 NA Spring SalesPvt Ltd 67,00,000 9,36,15,218 9,36,06,840 Manali Tradecom Pvt Ltd. 50,00,000 12,66,53,575 12,70,01,823 Target Vincom Pvt Ltd 50,00,000 12,68,85,160 12,72,03,634 Bernstain Marketing Pvt Ltd 15,00,000 45,99,366 NA Kesarinandan Vanijya Pvt Ltd 5,00,000 1,37,50,000 NA Deep Commosale Pvt Ltd 50,00,000 18,37,03,758 18,47,07,445 Apollo Vintrade Pvt Ltd 25,00,000 13,41,91,072 13,41,04,727 Innova Commercial Pvt Ltd 25,00,000 16,33,53,003 16,37,04,726 Prayash Dealtrade Pvt Ltd 40,00,000 13,49,75,685 13,50,51,859 Justify Vanijya Pvt Ltd 50,00,000 17,75,81,367 17,41,00,509 Solty Financial Consultants Pvt Ltd 50,00,000 15,61,61,518 15,31,00,671 Achiever Commotrade Pvt Ltd 50,00,000 11,41,11,730 11,41,04,552 Sishmahal Commotrade Pvt. Ltd 20,00,000 4,94,84,231 3,55,26,957 Advantage Dealtrade Pvt. Ltd 25,00,000 11,46,36,221 11,46,15,253 Origin Vinimay Pvt. Ltd 40,00,000 9,68,62,423 9,68,55,538 Rukmani International Pvt. Ltd 50,00,000 Total 10,30,00,000 From the above chart it is clear that all the Investor companies were having their own share capital and Reserve & surplus which was much more than to the amount invested in the assessee company. The above chart shows that the investor companies were having their own independent funds and having their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved. iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the Motisons Group and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found from the possession of the assessee group or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books of account or document was found showing payment of cash to these investor companies against receipt of cheques from these companies against allotment of shares. Therefore the genuineness of the transactions cannot be doubted.
The ld. AO also not doubted the identity of the shareholders and he only doubted the creditworthiness and genuineness of the transactions for the following reasons as given in para 11 (a to c) and para 12 of the assessment order: -
i) The assessee company was incorporated on 27.11.1989 and during the year the assessee company received the huge share premium.
ii) As per the audited P&L account and balance sheet the assessee company did not have any business commensurate of share premium.
iii) Perusal of the balance sheet of the assessee company revealed that there were no physical assets/assets are not in commensurate to value of share with the company wither in the form of fixed assets, plant & machinery etc.
In the above background the receipt of share capital Rs. 10,30,000/- and premium to the tune of Rs. 10,19,70,000/- during the year under consideration was not only abnormal but also appeared to be a part of a well planned exercise of tax evasion as discussed earlier.
Regarding these findings/observations of ld. AO we may submit as under: -
v) Admittedly during the year under consideration the assessee company received huge share premium but the same does not automatically make the share
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
premium as non genuine and taxable in the hands of the assessee. The investment by the investee companies was made after being convinced with the future business planning of the assessee company. The assessee company in NBFC and due to increase in demand of loans in market from NBFC the assessee company was expecting good business & revenue in near future and the investor companies were convinced to be partner of assessee company, therefore they invested the funds in the assessee company. Thus the investment made by the investee companies in shares of the assessee company on the basis of future business business plans of the assessee company and outcome there from. vi) Admittedly when the share premium was received, the business activities of the assessee company was not commensurate to shares premium but as stated earlier the investment was made by the investee companies in shares of the assessee company on the basis of future business expansion plans of the assessee company and outcome there from. Further the assessee company is one of the group company of Motisons Group. The Motisons Group is very prestigious and well know group of the northern part of India, therefore the investor company invested the funds in the assessee company on the goodwill of the Motisons Group after knowing their future plans and future earnings. Therefore the share capital/share premium invested by investor companies was not on the basis of current affairs of the assessee company but the same was result of future business expansion plans coupled with goodwill of Motisons Group. vii) Admittedly when the share were issued the book value of the assets of the assessee company was not in commensurate to the value of the shares but while making the investments the current market value of the assets (Including Goodwill) and future potentiality & profitability of the project/assets are also taken into consideration and then the investments are made. There are lots of companies which issue the shares in market through IPO and the shares of such companies are subscribed on the basis of their declaration regarding their future business planning for which the funds raised in IPO. Thus the existing fixed assets of the company always not to be the criteria for deciding the investment in shares by investor companies. viii) Regarding observation of ld. AO that share capital and premium appeared to be a part of a well planned exercise of tax evasion as discussed earlier this is to submit that taxing event arose when the income is earned and the tax evasion is arose when the undisclosed income is generated. In the forgoing paras the ld. AO himself doubted the share premium on the ground that the assessee company did not have any business commensurate of share premium. When the assessee company is not having any such business than question of having any income either disclosed or undisclosed does not arise and when there is no such income than how the tax can be evaded thereon. Therefore in view of finding given in these paras by the ld. AO it had to be proved first by the department that the assessee was having some income on which it has not paid the tax and the same brought in books of accounts in the form of share capital & premium thereon. But in the instant case the department could not prove any kind of undisclosed source of income of the assessee as a
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
result of search over assessee group as well as during the course of assessment proceedings. As a result of so called long inquiries/analysis the department could not evidentiary proved that the assessee company managed its funds with investor companies to brought the same in books of accounts in the form of share capital & premium thereon more so when the investor companies having their own sufficient funds to invest in the assessee company much prior to investment made in the assessee company and other investments made by such investor companies are much more than to the investment made in assessee company. Reliance is placed on the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax Vs Smt. P. K. Noorjahan 237 ITR 570 (SC) and CIT Vs Bharat Engineering and Construction Co. (1972) 83 ITR 187 (SC) 5. The ld. AO by doubting the creditworthiness and genuineness of the share capital/share premium in above paras issued a show cause notice dated 06.02.2015 (copy at PB Page 35 to 39) to the assessee for treating the share capital/premium as income of the assessee on the following grounds: - a) Share premium/Share capital paid by investor companies is not justified on any account and it is clear that entire money has been introduced in the assessee company in the garb of share premium. The purpose and justification of charging the share premium in excess of the justifiable amount, which in this case cannot be more than Rs.10/- per share, is absent from the above exercise of issue and subscription of shares at a premium of Rs.990 per share.
b) The detailed enquiries revealed that most of the companies are Kolkata based. Directors of these companies are the employees of Moti Sons Group or the family members of Chhabra family. Detailed analysis showed the following facts:
(i) All the Directors were residents of Jaipur
(ii) Internet search showed that Directors of these Kolkata based Companies are related to MotiSons Group companies through employment or otherwise
(iii) ITDMS and ITD search on PAN of these directors corroborated the given addresses to a large extent
(iv) Residential address of Rajeev Jain was the same as that of MotiSons Shares Pvt. Ltd., mentioned on the visiting Card of Haridwar office as branch Head.
(v) All these directors appointed between 12th and 17th October 2011 which was more than a coincidence (the previously existing Directors resigned in February 2012)
(vi) The email ID given on MCA website for all the companies is common and the same is for Motisons Group Companies. The Compliance officer Ms. Neha Jain, Company Secretary is common between these and Motisons group Companies, indicating absolute Control of Motisons Group upon these Kolkata based companies.
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(vii) Registered address of all the companies is the same, which has been changed on 01.03.2012.
(viii) Two of the said companies information on MCA website were examined in detail. M/s. Alliance Tradecom & M/s. Evershine suppliers Pvt. Ltd were incorporated on 25.11.2008 and 05.01.2009 respectively. The inflow of capital upon incorporation was through share sold at a very high premium and thereafter the said Capital was claimed to be invested in Unquoted shares worth Rs.11.06 Crores and Rs.10.39 Crores respectively.
(ix) All above factors indicate systematic and deliberate creation of a colorable device to introduce share capital into Motisons Group Companies.
In response to show cause notice the assessee filed its reply vide letter dated 13.02.2015 (Copy at PB Page 40 to 43). The submission of the assessee on the observations of ld. AO as mentioned above in para 5 above is as under: -
a) The share premium was decided by the company and investors mutually and share applicant companies have agreed to pay this share premium. There was no bar to issue shares on premium under Companies Act and Income Tax Act for the period under relevant. Further the ld. AO held that the “------it is clear that entire money has been introduced in the assessee company in the garb of share premium----” but the ld. AO did not clear that what was the source of such money with the assessee which it introduced in the garb of share premium. The show cause notice as well as assessment order is completely silent on this issue. Without having some money it cannot be introduce in books of accounts and for having the money there should be some unexplained source of income. In the case of assessee the department as a result of search as well as during assessment proceedings or as a result of investigation could not prove the source of income of the assessee wherefrom this much of money was earned, therefore the finding of ld. AO on this issue is totally incorrect and does not maintainable in the eye of law.
The allegation of ld. AO is patently wrong, without any basis and merely on surmises and conjectures. Hon’ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good “proof into no proof” Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof. Hon’ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof. b) Regarding the inquiries which are being discuss in the show cause notice this is to submit that whatever inquired being discuss by ld. AO was not in knowledge of the assessee that what sort of inquiries has been made by the department
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
and what are the outcomes of such inquiries. Therefore the assessee requested from the ld. AO to provide the details of inquiries conduced in this regard along with supporting documents but the same not provided to the assessee. However on the issue raised by the ld. AO on the basis of so called inquiries we submit as under: - v) The above finding of the ld AO is not relevant at all in deciding the issue of creditworthiness of the investor company and genuineness of the transactions. Even, if it is presumed that the investor companies are under the control of the directors of the assessee, then also the transaction cannot be treated as not genuine as the main issue is availability of funds in the hands of the investor company and if that is explainable then no question is arise for treating the share capital as not genuine. (ii) The low creditability of directors of allottee company, their relationship with Motisons Group etc. have no relevance for examining the genuineness of share capital and creditworthiness of the investor company as in the case of assessee it is well proved by documentary evidence that the amount against share application money was received through genuine source of funds with investor companies and the amount was adjusted against allotment of shares. The source of funds with the investor companies which they invested in assessee company was also well explained genuinely. If department have some doubt regarding genuineness of funds with investor companies the necessary investigation of such funds should had been made in the case of investor companies and the necessary action should had been taken in their case. It is relevant to mention here that apart from the investment made in the assessee company the other assets/investment of such investor companies was much more which were also managed by those companies at their own. It is also relevant to notice here that why only the investment made by those investment companies in the assessee company is being treated as non genuine and other investment/assets of those company is being treated as genuine. This shows that the assessment order was passed by ld. AO with settled mindset that the amount is to be added as income of the assessee. (iii) Further whatever inquiries/analysis discuss by ld. AO in his show cause notice have no relevance in the case of the assessee because from such discussion only it can be proved (not conclusively) that the employees of assessee group was managing affairs of some of the companies who made the investment in some years in the assessee/companies of assessee group but such inquiries nowhere proves that the funds with such companies was not from their own independent sources and the same was introduced by the assessee company. In the instant case for adding the share capital/premium as income of the assessee the department has to prove that the amount so received was revenue receipt of the assessee and in the instant case the department could not prove the same as a result of search proceedings over the assessee group or during the course of assessment proceedings or as a result of investigation/analysis. Without proving the source of income or without proving that amount so received is income of the assessee the same cannot be treated as income of the assessee merely on presumption, assumption and suspicious. (iv) The assessee group or employees of the assessee group does not have any concern from the investee companies.
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c) The ld. AO opined that the analysis/inquiries indicate the systematic and deliberate creation of a colorable device to introduce ‘Share capital’ in Motisons group companies. The investment in share capital of assessee company by above named companies was independent decision/judgment of those companies. The assessee has filed copy of the board resolution of the investor company. The income tax department carried out intensive search over Motisons Group and during the course of search no documents/evidence was found to show that the companies who made investment in shares of assessee company in the year under consideration were funded or undisclosed cash was given by Motisons Group. If these investor companies have their own independent funds, the same can be invested anywhere. It is admitted facts that during the year under consideration as well as in previous years the assessee company is not having such business activities where from this much of undisclosed income could be earned than question of having any undisclosed income does not arise and when there is no undisclosed income than how the same can be managed to brought in books of accounts in form of share capital. In this case the department could not prove any kind of undisclosed source of income of the assessee as a result of search over assessee group as well as during the course of assessment proceedings or as a result of inquiries. As a result of so called long inquiries the department could not evidentiary proved that the assessee company managed its funds with investor companies to brought the same in books of accounts in the form of share capital more so when the investor companies having their own sufficient funds to invest in the assessee company much prior to investment made in the assessee company. Thus, from the above submission and record it is well proved that the amount so received by the assessee company from above named companies was received against share capital and the investment was made by them by their own disclosed source, therefore no addition in any way can be made in the hands of the assessee. 7. After considering the reply of the assessee on show cause notice issued by ld. AO he pointed certain issues in the reply of the assessee which have been discuss on page 18 to 25 (Para 15 to 17) of assessment. The finding of ld. AO and submission of assessee on such findings is as under: - (a) Finding of AO: - Identity, Credit worthiness and genuineness of the transactions have been proved by filing certain documents. The assessee company has attempted to limit the scope within which revenue authorities can operate only with a self serving interest to make it appear that the transactions entered into get justified. The three aspects certainly are some of those angles, but to say that the revenue cannot go beyond, is not apparently vested with self serving interest but also with ignorance of law.
Certainly, simply because some form of identification on paper has been provided does not mean that the transaction stands explained from the viewpoint of the credit worthiness and genuineness.
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Submission of assessee: -
i) The assessee submitted ample documents in supported to share application money received to prove the identity, creditworthiness and genuineness of transactions and from examination of those documents its proves that the investing companies were having sufficient funds to make investment in share capital of the assessee company. There was no cash deposit in bank a/c of the investor company for subscribing the share capital of the assessee company. The ld. AO rejected these evidences on surmises and conjectures. Hon’ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good “proof into no proof” Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof. Hon’ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof.
ii) From examination of financial statements of investor companies your honor will find that the investor companies had huge share capital and reserves. Apart from the investment made in the assessee company they have huge other investments/advances. As per declaration of source of funds submitted by them they realized money from their old investments/advances and made the same money was utilized for making the investment in the assessee company. These companies are assessee of Income Tax department and in case of any doubt, necessary action could be taken in the hands of these companies and if these companies failed to explain the source of investment, necessary addition can be made in the hands of these companies by applying the provisions of section 69 of Income Tax Act. However the ld. AO made the addition in the hands of the assessee company under the complete disregard of provisions of Income Tax Act and merely on surmises and conjectures. The Hon’ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR 0195/ 6 DTR 308 (SC) held that if the share capital money is received by the assessee company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company
(iii) As alleged by ld. AO the assessee is not attempted to limit the scope within which revenue authorities can operate and the assessee also accept that the revenue authorities can examine the transactions from all possible angles. In the law in the case of credit entry (such as loan, share capital etc.) the identity, genuineness and creditworthiness of the credit entries has to be examine and in the instant case the assessee has proved all these three ingredients and the ld. AO did not find any infirmity in such details. If the ld. AO is having doubt regarding the detail and submission filed by the assessee than he could surely go beyond for further inquiries but the inquiries should have been with the angel
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to unearth the truth of the transactions and in the instant case the inquiries should have been made with the angel to find out the following: - � The huge amount received in the form of share capital/share premium. Whether the money so received is actually capital receipt in the hands of the assessee? � Whether money received in the hands of the assessee company was from genuine source or the same was own funds of the assessee? � If the money which flow in the hands of the assesses was managed affairs of the assessee than what was the source of inflow of such money?
iv) The ld. AO has not carried out any short of inquiries in this regard in the case of the assessee. No inquiries from the shareholders, their bankers have been made to prove the contention of the assessee to be wrong. There is no evidence that the money received is a/c of the assessee’s own undisclosed income. The assessee filed sufficient documents to prove that the amount so received was capital receipt and the same was received against share capital/share premium. The source of the funds from investor companies was also proved and there is no positive material to show that the investor companies was not having sufficient source to invest the money in the assessee company. If the ld. AO is having doubt regarding genuineness of the source of funds with the investor companies he could have make the inquired in the case of such companies and if something found adverse than the necessary additions could have been made in the hands of such investor company only and in the inquiry if something positive reveals that the source of funds with such investor companies was funded by the assessee company than only the addition could be made in the hands of the assessee company. It is admitted facts that during the year under consideration the assessee company was not having such source of income from which this much of income could be earned and the ld. AO is completely silent on this issue that where from this much of money was earned by the assessee company. v) The finding of ld. AO that simply because some form of identification on paper has been provided does not mean that the transaction stands explained from the viewpoint of the credit worthiness and genuineness this is to submit that by filing the sufficient documents the assessee discharge its onus cast on it by the law and now onus in on the department to disprove the submission and documents of the assessee by positive evidence. The department has not discharged its onus and no inquired were carried out and no evidence is in possession with the department to disprove the claim of the assessee. One the one hand the ld. AO is claiming that the revenue authorities can examine the transaction from all possible angles and on the other hands the transactions are being doubted and added merely on surmises and conjectures. It is further submitted that if the documents submitted by the assessee was not felt sufficient to accept the transaction than the ld. AO could ask from assessee to submit the further details/documents which is felt necessary for deciding the matter in justice & fair manner but the same was not done by ld. AO. b) Finding of AO: - Regarding no bar of issuing of shares at premium, the assessee company has attempted to take an advantage out of the absence of a specific provision which bars the acceptance of share premium which does not match the net worth of the issuing company. In this regard, it needs to be pointed out that
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mere absence of a specific provision does not by itself mean that a particular colorable device or a sham transaction, acquires legal sanctity, there are numerous provisions related to Gift, sale consideration on sale of assets which came into being at a later stage, but the illegal and tax contravening transactions were still taken up and taxed by revenue authority of course, after the specific inclusion of governing statutes, the matter requires to be dealt within the framework of the specific provision. But, till such time it cannot be said about a transaction, which is patently beyond the realms of acceptability and which also are embedded within here tax implications, that they need to be left alone only because there was no specific bar.
Section 56 of the IT Act has already been existence since long and subsection (1) of section 56 adequately covered transactions like the one being dealt with at present. Only because, sub-section (1) was a broad manifestation of the intent of revenue, sub section (2) which was more specific in content was introduced to take case of the misinterpretation & confusion which was being derived out of sub section (4). It must be appreciated that introduction of sub section (2) of section 56 of the Act was only a specific expression of the manner in which a specific transaction requires to be dealt with the intent of legislature and the content thereof already existed within the same act and within the same section and in the preceding sub-section No new idea which was conceptually district from section 56(1) of the Act was brought into being. Hence, the assessee company cannot be allowed to escape the provision of law, simply because it contained a broader & wider manifestation of its true intent which was enunciated only after the transaction took place. The contention of the assessee is a pervert argument & deserves to be rejected.
Submission of assessee: -
i) Share premium is capital receipt: If shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves.
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vi) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum observed that 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 section 78 of 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 is a capital receipts and is not income for its ordinary sense. In the case before Mumbai bench has to consider a case where premium of Rs.190 per share was charged. The Tribunal observed as under:
“No doubt a non-est company or a Zero balance sheet company asking for Rs.190 per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head “income from other sources” by inserting clause.(vii b) to section 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its, wisdom has made. The provision applicable w.e.f. 1.4.2013 i.e. on and from A.Y. 2013-14.”
vii) The ld. AO taxed the share capital/share premium by holding that mere absence of a specific provision does not by itself mean that a particular colorable device or a sham transaction, acquires legal sanctity and a transaction, which is patently beyond the realms of acceptability and which also are embedded within here tax implications, that they need to be left alone only because there was no specific bar this is to submit that for bringing a transaction into a Income Tax territory first it is to prove by the revenue authorities that the transaction is colorable device or a sham transaction. In the case of the assessee the investor companies are confirming that they have gave the amount to the assessee company as share premium and the assessee company is entering such amount in its books of accounts as a share premium. There is no evidence on record to prove that the transaction is sham transactions or not real transaction. The onus is on department to prove that the transaction is sham or not real. The allegation should be based on the evidences. The ld. AO is duty bound to prove a transaction not real and not acceptable with evidences which is absent in the instant case. Admittedly there are numerous deeming provisions related to Gift, sale consideration on sale of assets under which the deemed income are taxed but the deeming fiction can only strictly applied on the transactions for which it was made applicable. The same cannot be extended further for other transactions until and unless such transaction is covered in the definition of Income or deemed income as per Income Tax Law. If some specific transaction is not income or deemed income in the Income tax law than the same cannot be presumed as income by the revenue authorities at their own without having any positive material to presume that the same is actually income of the assessee.
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These type of transaction can only be dealt within the framework of the specific provision after the specific inclusion of governing statutes. In the Income Tax Act the charging of certain amounts share premium deemed to be income of the recipient companies w.e.f. 1.4.2013 i.e. on and from A.Y. 2013-14 and the same cannot be made applicable retrospectively. iv) Admittedly the Section 56 of the IT Act has already been existence since long and but sub-section (1) of section 56 only covers the taxing the revenue transactions which not covered under other head of income but the same are included in the definition of income. The section 56(1) does not cover the taxing the deeming capital receipts and such receipts can only taxed under sub section 56 (2) of Income Tax Act, 1961 if consisting specific expression of the manner in which a specific transaction requires to be dealt with the intent of legislature. In the Income Tax Act the charging of certain amounts of share premium deemed to be income of the recipient companies w.e.f. 1.4.2013 i.e. on and from A.Y. 2013- 14, therefore the share premium received prior to that period cannot be taxed as income of the assessee. c) Finding of ld. AO: - It is wholly incorrect to say that the allegation is based on surmises and conjectures. The facts clearly prove that the assessee had entered into sham transactions as part of a well planned exercise of introducing unexplained money in the form of share capital and share premium without any justification of the value having been provided either by the issuing company or the subscribing company. The money so received was then immediately invested in the subscription of share capital at high premium with other companies, who in turn continued the exercise in the same form. The assessee company was thus part of this circular ring whereby unjustified and unsubstantiated share premium was being introduced.
Submission of assessee: - i) The finding of ld. AO is patently wrong, perverse and not backed with any supporting evidence. First of all regarding allegation that the assessee introduced its own unexplained money in the share capital and share premium this is to submit that the department carried out intensive search over the assessee group and during the course of search not a single document/evidence was found to show that the assessee was having some undisclosed income or having some unexplained money. As a result of inquiries carried out by the investigation wing they also could not gathered any positive evidence to show that the assessee was having any undisclosed income or unexplained money. If there is no proof with the department to prove that the assessee was having some unexplained money than how it can be alleged that the assessee has introduced its unexplained money in the form of share capital and share premium. This is completely on the basis of surmises and conjectures. ii) As regard to not providing the justification of the value of shares this is to submit that the shares issued at high rates does not make the transactions itself shame or colourful device to evade the tax. From the record it is well proved that the amount was received from the investor companies against share capital & share premium, therefore the transaction are being genuine. As stated in earlier paras, the Hon’ble ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum observed that issue of shares
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at premium is always a commercial decision which does not require any justification. Further the company is not require to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature is a capital receipts and is not income for its ordinary sense. viii) The allegation of ld. AO is that the money so received was then immediately invested in the subscription of share capital at high premium with other companies, who in turn continued the exercise in the same form and the assessee company was thus part of this circular ring whereby unjustified and unsubstantiated share premium was being introduced. In this regard this is to submit that if someone is investing the money in the assessee company he must be having the inflow of money from some source. What is the source of inflow with the investor company and how it is managing its affairs is not concern of the assessee. In the case of the assessee, it has full filled its legal obligation. The assessee has proved the source of money with the investor companies. Thus in the case of the assessee the source of money is well proved. If the investor companies is not having proper source of funds with them than the action should have been taken in their hands and the same cannot be added as income of the assessee merely by holding that the assessee planned the funds of all the companies. There is no onus to prove source of source. In this regard, the assessee relies on the following decisions:- (i) Hon’ble Rajasthan High Court in the case of Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199 has held that once the existence of the creditors is proved and such persons own the credits, the assessee’s onus stands discharged and the assessee is not required to prove the source from which the creditors could have acquired the money deposited with him. Hon’ble jurisdictional High Court has held that merely because the depositors’ explanation about the sources of money was not acceptable to the AO, it cannot be presumed that the deposit made by the creditors is money belonging to the assessee itself. (ii) CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC) The assessee had given named and addresses of the cash creditors, who were income tax assessees. Revenue apart from issuing summon u/s 131 notices to creditors, did not pursue the matter further- it did not examine creditworthiness of the creditors- assessee could not, under the circumstances do anything further. Held that the additions were rightly deleted. (iii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans. It is further submitted that the investor companies were having sufficient accumulated funds in the form of share capital and reserves & surplus much prior to the investment made in the assessee company and the same are much more than to investment made in the shares of the assessee company. The same funds were being managed by such company at their own and having investment in shares of other companies/loans & advances to various parties. The investment by such companies in the assessee company was of lesser amount in comparison to total investments made by such investor companies and if the other investments made by such companies are being treated as genuine than how the investment made in the assessee company can only be
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non genuine. Further if the allegation of the department that the assessee managed its unexplained funds in such companies than there should be inflow of new capital in such companies only for making the payment to the assessee company which has not been done in the instant case. The investment was made in the assessee company by some of the companies out of funds realized from previous investments/advances and some of the companies out of funds realized from allotment of shares. If the payment was made by some of the companies by realizing the funds already invested by such company how such funds can be treated as unexplained money of the assessee. Finding of ld. AO: - The contention of the assessee company is only based on d) accounting jugglery by way of which the transaction has been recorded in the books of accounts of all such persons including the assessee company, who have participated in this exercise. It needs to be understood that merely because the assessee company adjusted the money received, as share capital/share premium in its books of account, the transaction cannot be showed with the character of a capital receipt. It must be said that the face value of a share is intrinsically capital in nature because it imparts to the subscriber a right of participation and ownership in the issuing company. However, the share premium attached to each such share does not entitle the subscribed of anything else other than what the face value by itself has achieved for him. This participation and ownership in the issuing company remains the same. It is in fact a cost which the subscriber bears for 1) The value or worth of assets & profits which the issuer company already possesses or deriver, or
2) The value or worth of such assets or profits which the issues company may create in the further or may derive, for the proportionate benefit of the subscriber.
In the instant case, both of above are absent. Neither does the issuing company possess any asset worth its name nor does it derive any profit.
Neither does the assessee company hold any promise for the creation of assets or wealth in the future nor is there any foreseeable possibility of any profit being derived in the future.
The question which thus arises is that what is it that the subscriber company paid for in form of the share having face value of Rs. 10. The assessee company has failed to answer this question even when a specific query in this regard had been raised thus the same creates doubts regarding genuineness of share capital and premium thereon credited in books of accounts
Submission of assessee: -
i) The transfer of share application into share capital & share premium is not only based on accounting entries but they are supported by documentary evidence. It is not a case where the certain receipts has been accounted for by the assessee company as per its own sweet will. The investor companies filed the share
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application forms to subscribe the shares of the assesses company and in the share application form the detail of share premium is also mentioned. Thus this is not a case where the claim of the assessee is based on accounting entries. There is no contra material with the department to prove that the adjustment made in books of accounts by the assessee is not correct or not based on documents. ii) The ld. AO himself admitted that the face value of a share is intrinsically capital in nature because it imparts to the subscriber a right of participation and ownership in the issuing company and still while making the addition he made the addition of the share capital as well as share premium. Further if the shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. The book value of the share is increased by the amount credited in share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. The companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. iii) As himself admitted by ld. AO one of the deciding factor for share premium is the value or worth of such assets or profits which the issues company may create in the further or may derive, for the proportionate benefit of the subscriber. In forgoing paras we have described the future planning of the assessee by using the funds received from shareholders which also justified the share premium received from the investor companies. Therefore the ld. AO is wrong in holding that in the instant case neither does the assessee company hold any promise for the creation of assets or wealth in the future nor is there any foreseeable possibility of any profit being derived in the future. From the financials of the assessee company the justification given by the assessee in forgoing para regarding acquisition of assets and future planning for earning of profit can be duly verify. Further as stated in forgoing paras the shares at premium is always a commercial decision between investor and investee companies which does not require any justification.
e) Finding of ld. AO: - The Inquiries which is being discussed in show cause notice admittedly have no relevance in the case of the assessee company as no share capital was issued to those companies. However the inquiries were discussed to justify the modus operandi of introduction of money in the shape of high share premium which is relevant in this case also as the shares were allotted in this case also at the rate higher to the justifiable amount.
Submission of assessee: -
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v) Whatever inquiries are being discussed in the show cause notice as well as in assessment order are not applicable in the case of the assessee for the instant year as in the year under consideration no shares were issued to such companies on which the inquiries were conducted by the department. In this year no any inquiry was made from the investor companies who made investment in the year under consideration.
vi) As regard to presuming the modus operandi based on the inquired carried out in the case of some other companies presuming that the same modus operandi was followed in each and every case, this is to submit that as per law the inquiries conduced in the case of particular person should be restricted from that person only and can made applicable for the transactions carried out from such person. The same cannot be extended to making any presumption & assumption in each and every case where no inquiries were made. It is not correct to presume that all the companies are operating from modus operandi. vii) There is no evidence with the department to prove that the companies to whom shares were issued during the year were being funded by the assessee company. All the companies have their own independent funds to invest at their wisdom. It is further relevant to mention here that whatever funds paid by the investor companies to the assessee company were transferred from their own source of funds which they were possessing from their own source and by no stretch of imagination it can be presumed that those funds were introduced by the assessee company in the investor companies. viii) Further from the show cause inquiries on the basis of which the modus operandi of issue of shares on share premium is being justify by the ld. AO no where it proves that the funds were introduced in such companies by the assessee company. There is no cogent reason to have such presumption either as a result of search over the assessee as well as inquiries carried out by the department. If we believe on the inquiries carried out by the department which is not in knowledge of the assessee, than there may be introduction of some suspicious funds in the intermediate companies where from the flow of funds started from one company/person to other company/person and part of such was received to the assessee company but still a question arose that how its prove that the same was unexplained money of the assessee company. The companies/persons from whom the assessee company received the share application money and the persons/companies from whom the investor companies of the assessee received the funds are separate Income tax assessee and having their own net worth, own source of funds much prior to the investment made in the assessee company and if some suspicious funds had been introduced in accounts of such companies then the explanation of such funds should have been called from concerning person/company and in case of failure to do so the action should have been taken in the case of concerning person. Instead of doing so the department adopted a short cut method of treating such suspicious money as unexplained money of the assessee and
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added the same income of the assessee without carrying necessary inquiries or taking necessary action against such persons by justifying its action on the basis of some irrelevant inquiries. There is no case or evidence with the department to presume that the assessee has introduced its explained money in accounts of such investor companies.
f) Finding of ld. AO: - Admittedly during the course of search over Motisons Group no documents/evidence was found to show that the companies who made investment in shares of the assessee company are run/manage by Motisons Group but from the inquiries and modus operandi its reveals that the allotee companies are merely paper companies and providing accommodation entries. Therefore the indirect evidence/inquiries conducts given clear sign of introduction of large money in the company in the form of share capital/share premium more so when the justification of charging such higher rate not genuinely proved.
Submission of AO: - i) In this para the ld. AO himself admitted that during the course of search over Motisons Group no documents/evidence was found to show that the companies who made investment in shares of the assessee company are run/managed by Motisons Group. Thus if the department is not in possession of any positive material against the assessee or its investor companies than how the inquiries made in the case of other companies can be used against the assessee more so when in the year under consideration no any transactions was made from such companies. Further there is nothing positive in the inquiries to alleged that the assessee has introduced its own unexplained money under the garb of share capital and share premium.
ii) The rate of share was decided after discussion of assessee company and investor company. The shares were issued to the investor companies at premium because of the reasons mentioned in forgoing paras. From the documents submitted to the AO no where it proves that all the companies are simply paper companies and providing only accommodation entries and the investment made by them in the assessee company is not genuine. The finding of the ld. AO is based on the assumption and presumption.
g) Finding of ld. AO: - It is also to be noted here that the notices u/s 133(6) were issued to the Kolkata based companies from where the assessee company received share capital/share premium. Till the stipulated date of compliance none of the company replied to the above said notices. Submission of assessee: - iv) The ld. AO had issued the notices u/s 133(6) of Income Tax Act, 1961 and he alleges that the same were not complied by the investor companies. But this fact was not brought to the notice of the assessee. The assessee has inquired from the investor companies and they reported that they have sent reply by post for all the notices received by them.
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v) Further from the assessment order it is not clear that what short of information’s were required by ld. AO from the investor companies and whether the same was over and above to the information’s/documents already submitted by the assessee. If such called information were that much important than why the same were not brought in the notice of the assessee. This shows that the ld. AO was bent for making the assessment and he issued the notice to the investor companies just to complete the formalities. vi) Simply that the parties not responded the notice, it does not empower to the ld. AO to treat the transactions as non genuine. Reliance is placed on following decisions: - � CIT v/s. Winstral Petrochemicals (P) Ltd. (2010) 41 DTR (Del) 139 Income—Case credit—Share application money—Assessee company was found to have received the money through banking channels—Assessee company also furnished written confirmations from the applicant companies, copies of certificates of incorporation, PAN cards, PAN details and company details etc. of the applicants—Finding of Tribunal that identity of the subscribers stood duly established from the documents produced by the assessee, cannot be said to be perverse—There is no legal bar to more than one company being registered at the same address—Merely because the applicants did not respond to the notices sent to them, AO was not justified in adding the amount of share application money to the income of the assessee. � CIT v/s. Samir Bio-tech (P) Ltd. (2009) 17 DTR (Del) 224 Income—Cash credit—Share application money—Identity of the subscribers not being in doubt, share application money having been paid by account payee cheques, subscribers having shown the amounts in their audited balance sheets and having given complete details with regard to their returns and assessments, no addition could be made under s. 68 only because the subscribers did not initially respond to summons.
h) Finding of ld. AO: - It is clear that what is apparent is not real and the assessee's claim of having received investment is not genuine. As laid down by the Hon'ble Supreme Court in the case of CIT vs Sumati Dayal (1995) 80 TAXMAN 89 (SC), apparent must be considered real until it is shown that there are reasons to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities. Importing the ratio of the Hon'ble Supreme Court of India as propounded in the case of Sumati Dayal (supra), there is no dispute that the amount has been received by the appellant from various companies, some of which are listed companies, and the funds have been received against the issue of shares and that the funds have been received through banking channels. What is disputed is whether the funds received by the assessee is actually genuine investment or the unaccounted income introduced in the garb of investment. This raises the question whether the apparent could be considered as real. In the present case the claim of the assessee having received genuine investment is incorrect.
Submission of assessee: -
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vi) As laid down by the Hon'ble Supreme Court in the case of CIT v/s Sumati Dayal (1995) 80 Taxman 89 (SC), (Also relied by ld. AO) apparent must be considered real until it is shown that there are reasons to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. The evidences have to be judged by applying the test of human probabilities. vii) The ld. AO is also admitting in this para that the amount has been received by the appellant from various companies and the funds have been received against the issue of shares and that the funds have been received through banking channels. The dispute is whether the funds received by the assessee are actually genuine capital application or the unaccounted income introduced in the form of share application. In this regard this is to submit that there is no reason with the department to presume that the amount received from the above mentioned companies is accommodation entries to brought the unaccounted money of the assessee in books of accounts. Further during the course of search the department has not found any undisclosed source of income of assessee for the year under consideration by which this much of income could be earned which also proves that the share capital received by the assessee is genuine. CIT Vs Bharat Engineering and Construction Co. (1972) 83 ITR 187 (SC) In this case tribunal came to the conclusion that unexplained cash credit entries in the first year of business of engineering construction company could not be income of assessee. The High Court after careful examination of the various findings reached by the Tribunal has come to the conclusion that the Tribunal's findings are findings of fact. Hon’ble Apex court confirmed that conclusion. This gives the answer in favor of the assessee that in this case the apparent should be considered as real as the assessee company is not having any source of income from which this much of income could be earned than received of non genuine share capital to brought its unaccounted income in its books of accounts does not arise.
viii) The assessing officer merely disbelieved the explanation/statements given by the assessee and has converted good proof into no proof. Hon’ble Justice Hidayatullah of the Supreme Court in the case of Sreelekha Banerjee Vs CIT [1963] 49 ITR 112 (SC); 120 observed that the Income Tax Department cannot by merely rejecting unreasonably a good explanation, convert good “proof into no proof” Hon’ble Supreme Court in the case of Uma Charan Shaw & Bros Co Vs CIT 37 ITR 271 has held that the surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof. Hon’ble Punjab & Haryana High Court in the case of CIT Vs Anupam Kapoor (2008) 299 ITR 179 (P & H) also held that suspicion, howsoever strong cannot take the place of legal proof. 8. By giving the above findings the ld. made addition of Rs. 10,30,00,000/- in total income of the assessee u/s 56(1) of Income Tax Act, 1961. Regarding the
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applying the provisions of section 56(1) of Income Tax Act, 1961 we may submit as under: -
a) As per provisions of section 56(1) of Income Tax Act, 1961 “Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.”
In the case of the assessee company, the amount was received from investor companies were against share application and the same is capital receipt which was adjusted against share capital and share premium. The money so received to assessee company was capital receipt and was not revenue receipt, therefore the same cannot be taxed in the hands of assessee company under section 56(1) of Income Tax Act, 1961 because this section deal with income and not with capital receipts. The investors who subscribed the share capital of assessee company is also showing the amount paid to assessee as their investment in shares of assessee company and necessary documents in this regard was submitted to ld. AO. Therefore the assessee has proved with documentary evidences that the amount was received against share application i.e. capital receipt, therefore the same cannot be treated as income of the assessee. Further for treating the share capital/share premium as income of the assessee company no cogent reason has been given by ld. AO. b) There is no deeming fiction has been given in section 56(1) of Income Tax Act, 1961 wherein the income can be taxed under deeming provision. Certain deeming income has been charged as Income Tax Act which has been provided in section 56(2) of Income Tax Act, 1961 and as per provision of section 56(2) of Income Tax Act, 1961 the share premium received prior to AY 2013-14 were not taxable in any circumstances if the assessee has proved the identity, creditworthiness and genuineness of the transactions. c) The Income for the purpose of the Income Tax Act has a well understood meaning as defined in section 2(24) of the Income Tax Act 1961. It is true that section 2(24) of the Income Act 1961 contains inclusive definition but it cannot be disputed that income should have been look into its normal meaning. The income will not include capital receipts unless it is specified in Income Tax Act. This argument clarifies after the amendment made by Finance Act 2012 w.e.f. 1.4.2013 in section 56(viib) of Income Tax Act, 1961 wherein certain share premiums were made taxable w.e.f. 01.04.2013. If the same were already taxable u/s 56(1) o Income Tax Act, 1961 and the same was already included in the definition of Income than why this amendment was made. Therefore the ld. AO is wrong in making the addition u/s 56(1) of Income Tax Act, 1961. d) Charge of tax is on income as understood in the I. Tax Act and measure of income as per the computation provision. In case there is no charging provision for specific receipt, then it cannot be taxed. The five member Bench of the Apex Court in CIT V Vatika Township P Ltd 367 ITR 466 observed at page 494.
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“Tax Laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction and any ambiguity must be resolved against imposition of the tax. In Billings V U.S 232 U.S.261 at page 265, 34 S.Ct 421 (1914), the Supreme Court clearly acknowledged this basic and long standing rule of statutory construction.
Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favour of citizen.
“If a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be” As observed in Partington V Attomey General LR4HL100.
Since for the year under consideration there was no provisions in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the same cannot be taxed. The reliance is placed in following cases: -
i) The Hon’ble Bombay High Court in the case of Cadell Wvg. Mills Co.(p) Ltd. V CIT 249 ITR 265 had an occasion to consider the taxability of a sum received in respect of consideration of tenancy Right. It was accepted both by revenue and the assessee that tenancy right is a Capital receipt. Income as defined in section 2(24)(vi) is the income chargeable u/s 45. Hence capital gain chargeable u/s 45 or not will be taxable in case the argument of the revenue is accepted. Legislature has not stopped with the word Capital gain but has mentioned that Capital gain chargeable u/s 45. Before the Bombay High Court, it was argued that in case surrender of tenancy rights is not taxable u/s 45 then it should fall u/s 56 of I.T. Act. If the capital asset has no cost then entire receipt is capital receipt. Before the Hon’ble High Court, the revenue contended that section 14, it is mentioned as capital gain and not capital gain chargeable u/s 45. This contention was not accepted by the High Court. If the computation provision do not apply to a case then such a case will not be covered under charging section. At later stage, a reference will be made to 56 (vii b) inserted by Finance Act 2012 w.e.f. 1.4.2013 as the same will be a computation provision. For the A.Y. 2011- 12, computation provision were not there. In absence of computation provision, entire value of share premium cannot be taxed u/s 56. As for tenancy right, the full consideration cannot be taxed u/s 56, similarly entire share premium is not taxable u/s 56(1). ii) The Hon’ble Apex Court in the case of CIT V D.P. Sandu Bros. Chembur (P) Ltd 273 ITR 1 also hold that as per 2(24)(vi) only income which is chargeable u/s 45 is to be included in income and if computation provision u/s 45 fails then charging provisions will fail. Ref. to CIT V B.C. Srinivasa Setty 128 ITR 294. ix) The Hon’ble Rajasthan High Court in the Case of CIT V Gotan Lime Stone Khanij Udyog 269 ITR 399 also held that in case computation provision u/s 48 could
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not be applied for want of ascertainable cost of acquisition, then capital gain does not arise to be included in total income on account of failure of applicability of computation provision. The Hon’ble High Court referred to decision of Bombay High Court in the case of Cadell Wvg. Mills Co (P) Ltd. (Supra).
x) The Hon’ble Rajasthan High Court in the case of S. Zoraster and Co. V/s CIT 322 ITR 35 had on occasion to consider the taxability of receipt of Rs.20,000 received by vendee on default of the purchaser as per agreement for sell of Prem Prakash Talkies. The Hon’ble High Court after referring to the decision of Apex Court in the case of Travancore Rubber and Tea Co Ltd. V CIT 243 ITR 158 held that such receipt is capital receipt. Such Capital receipt is not taxable in view of judgment of Apex Court in D.P. Sandu Bros. Chembur (P) Ltd (Supra). Hence capital receipt is not taxable unless there is charging provision for a capital receipt and computation provisions are also applicable. e) The Hon’ble Bombay High Court in the case of Vodafone India Services P. Ltd. V UOI 368 ITR 1 had an occasion to consider the difference between the share premium determined by revenue and the share premium charged as deemed loan and taxing of national interest on deemed loan. The Hon’ble Bombay High Court has referred to the decision of Apex Court in the case of Mathuram Aggarwal V/s State of MP (1999) 8 SCC 667 for the test to interpret a taxing statue which reads as under:
“The intention of the legislature is a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not flow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spent and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.”
Hon’ble Bombay High Court in this case (Vodafone case) observed that issue of shares at a premium is on capital account and gives rise to no income. 56(1) provides the income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However before section 56 of the Act can be applied there must be income which arises. If the receipt is capital then it is not income. Hence share premium is not an income.
f) The CBDT vide circular/instruction No.2 dated 29.01.2015 has stated as under [371 ITR 6(st)].
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In reference to the above cited subject, I am directed to draw your attention to decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd V UOI for the Assessment year 2009-10 (WP No.871 of 2014) wherein the court has held inter alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment.
It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned writ petition. In view of the acceptance of the above judgment, it is directed that the ratio decided of the judgment must be adhered to by the field officers in all cases where the issue is involved. This may also be brought to the notice of the ITAT, DRP’s and CIT (Appeals).
In view of above instruction, it is clear that ratio deciding of treating of share premium as capital receipt is binding on revenue authorities.
g) By finance Act 2012 a new clause (viib) was inserted in 56(2). Memorandum explaining the provisions in Finance Bill 2012 stated as under:-
Share premium in excess of the fair market value is to be treated as income.
“Section 56(2) provides for the specific category of incomes that shall be chargeable to income tax under the head “income from other sources”. It is proposed to insert a new clause in 56(2). The new clause will apply where, accompany, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income Tax, under the head “income from other sources”. This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent Assessment years. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. This suggests that premium in excess of fair market value was not an income but is to be treated as income due to amended provision. Before the amendment, consideration received as premium was not income. The legislature in its wisdom required the share premium in excess of fair market value to be income from Assessment year 2013-14 and not the entire premium to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for Assessment year 2013-14 onward. h) Section 56 is not a charging section. This section starts with the following sentence.
“Income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head.” Income from other
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sources if it is not chargeable to income tax. Under any of the heads specified in section 14, items A to E.
For an income to be taxed u/s 56, it has to satisfy three conditions.
(a) It shall be classifiable as income as per the charging section of the Act.
(b) It shall not be excluded from the total income (e.g. section10).
(c) It is not chargeable to tax under any of the specified Heads in section 14, items A to E.
The finance Bill 2012 as presented on 16th March 2012 included a new clause (viib) u/s 56(2) of I.T. Act [342 ITR1(st)]. No proposal in the original bill to insert a new clause u/s 2(24). Subsequently Notice of amendments to Finance Bill was given [See 343 ITR 37(st)] and amendments also included the in section of clause (xvi) in 2(24) of I.T. Act and such clause is as under: (xvi) Any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of subsection (2) of 56.
The amendment introduced in 2(24) signifies that section 56 is not a charging section. Unless the income which is to be taxed u/s 56(2)(vii b) is included in the definition of income, then it can be taxed and be part of total income. Nature of income as mentioned in section 28(iiia), (iiib), (iiic),(iiid) and (iiie) are also included in definition of income. i) This amendment if section 56(2)(viib) of Income Tax Act, 1961 effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent assessment years and the provisions of this section cannot be made apply in previous years. In this regard the ratio has been laid down in following judgments: - a) By Finance Act 1994, section 55(2) was amended to provide that cost of acquisition of a tenancy right will be taken as Nil. The Hon’ble Apex Court in the case of D.P. Sandu Bros. Chembur (P) Ltd (supra), held that amendment took effect from 1st April, 1995 and therefore will not be applicable for A.Y. 1987-88. Similar finding has been recorded by Hon’ble Raj, High Court in the case of Gotan Lime Stone Khanij Udhyog.
The ratio of law in respect of amendment in 55(2) being held as prospective is applicable for 56(2)(vibe) and hence share premium in excess of fair market value cannot be held taxable for A.Y. 2011-12. b) Recently the Hon’ble Apex Court in the case of M.G. Pictures (Madras) Ltd V/s ACIT 373 ITR 39 held that amendment in section 40A(3) w.e.f. from 1.4.1996 is prospective and cannot be applied to previous years of Block period prior to F.Y. 1995-96. c) The figure of 10,000 was changed to 20,000 u/s 40A(3) of Income Tax Act, 1961 and 269SS of Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act 1987
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w.e.f. 1.4.1989. The CBDT vide circular No.522 dated 18.08.1988 stated that amendment in section 40A(3) is applicable for A.Y. 1989-90 as it is a substantive provision and since 269SS is a procedural provision, the effective date will be 1.4.89 i.e. previous year relevant to A.Y. 89-90. d) The five Judge Constitution Bench in the case of CIT V Vatika Township (P) Ltd. 367 ITR 466 had an occasion to consider as to whether Proviso added to section 113 of the I.T. Act, is prospective or retrospective. The Hon’ble Apex Court while considering the various decisions held (as per page 469 Of ITR 367). That surcharge levied by assessing Officer for the block assessment pertaining to the period from June 1, 2002 was liable to be deleted. An amendment made to a taxing statute can be said to be intended to remove hardships only of the assessee, not of the department. Imposing a retrospective levy on the assessee would have caused undue hardship and for that reason parliament specifically chose to make the proviso effective from June 1, 2002. Where a benefit is conferred by a legislation, the rule against a retrospective construction is different. In a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators objects, then presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provision as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. The Hon’ble Apex Court further noticed that CBDT circular mentioned that proviso is applicable from 1.6.2002. In respect of 56(2)(vii b), CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for assessment year 2013-14 onward. Hence Share premium even if in excess of Fair market value is not taxable u/s 56(1) for the A.Y. 2011-12.
In view of the above submissions, it is clear that share premium received is a capital receipt and consideration received cannot be considered as income for the year under consideration. Without prejudice to our submission in this regard this is to submit in the in the show cause notice the ld. AO mentioned that share premium/share capital should be taxable in the hands of assessee company u/s 56(1) of Income Tax Act, 1961 on a/c of share premium/share capital alleged to be not in accordance with the value of the shares. In this regard without prejudice to our submission on this issue this is to submit that in case the share premium is made taxable as income of the assessee on the ground that the same is not as per fair market value and held as taxable than still the amount received against share capital amounting to Rs. 10,30,000/- cannot be treated as income of the assessee.
In addition of above submission it is further submitted that the assessee submitted sufficient documents to prove identity, creditworthiness and
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genuineness of share capital. To support that shareholders were genuine and creditworthiness is proved, the assessee enclosed necessary details, in respect of incorporation of such companies and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application. Therefore, the addition on share application received to the assessee neither can be made u/s 56(1) of Income Tax Act, 1961 nor can be made u/s 68 of Income Tax Act, 1961. The various judgments and arguments regarding addition made u/s 56(1) of Income Tax Act, 1961 has been submitted in forgoing paras. The reliance regarding addition cannot be made u/s 68 of Income Tax Cat, 1961 is placed on the following decisions: -
i) Shalimar Buildcon (P) Ltd. vs ITO (2011) 128 ITD 0396 (Jaipur) In this case Hon’ble ITAT Jaipur Bench has relied on its old decision in the case of Hotel Gaudavan ITA No. 1162 and 1137/JP/2008 and addition on account of share capital was deleted.
28.5 On identical issue, the Tribunal, Jaipur Bench in the case of Hotel Gaudavan (P) Ltd. (supra) has held as under :
"6. As regards the issue on merit in the Departmental appeal, we concur with the views of the learned CIT(A) that the AO has not considered the explanation of the assessee. The amount under consideration of Rs. 1.89 crore has been received by the assessee as share application money from M/s Jalkanta Technical & Financial Service (P) Ltd. (JTFSPL) after a proper resolution passed by the board of directors of the aforesaid company through banking channel. M/s JTFSPL is having permanent account and filing its return of income regularly. The AO has nowhere mentioned that money belongs to the assessee company and therefore, provisions of s. 68 cannot be invoked. The learned CIT(A) has rightly relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 which has been confirmed by the Hon’ble Supreme Court of India. The learned CIT(A) has also relied upon the decision of Hon’ble jurisdictional High Court in the case of Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 and also the decision of Tribunal, Jodhpur Bench in the case of Uma Polymers (P) Ltd. vs. Dy. CIT (dt. 27th Feb., 2006) [reported at (2006) 101 TTJ (Jd)(TM) 124—Ed.] where it has been held that the assessee has to prove the existence of the shareholders which in the present case is not under dispute. Therefore, the assessee has discharged the burden and therefore the AO was not justified in making any addition under s. 68 of the Act. The learned counsel for the assessee has referred to the decision of Hon’ble Supreme Court of India in the case of Divine Leasing & Finance Ltd. dt. 21st Jan., 2008, the copy of which is placed on record where it has been observed by the Supreme Court as under :
‘Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961 ? We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to
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proceed to reopen their individual assessments in accordance with law. Therefore, we find no infirmity in the order of the learned CIT(A), with the impugned judgment.’
The said decision of Hon’ble Supreme Court of India has been followed by the Tribunal, Delhi Bench in the case of ITO vs. Bhor Mal Dhansi Ram Ltd. in ITA No. 4670/Del/2007, dt. 3rd March, 2006. The copy of the said decision of Tribunal, Delhi Bench is placed on record. The learned counsel for the assessee Shri H.M. Singhvi, chartered accountant has also relied upon the decision of Hon’ble Supreme Court of India on the said issue in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 wherein it has been held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
28.6 The Hon’ble Delhi High Court in the case of CIT vs. Divine Leasing & Finance Ltd. (supra) had an occasion to consider the addition on account of share application money. We are reproducing the held portion from the decision of Hon’ble Delhi High Court as mentioned in (2007) 207 CTR (Del) 38 (supra).
"Income—Cash credit—Share application money—Burden of proof can seldom be discharged to the hilt by the assessee—If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations—But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company—If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders registers, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee—Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices— Tribunal has noted that the assessee company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange—Complete details were furnished—Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources."
28.7 The Hon’ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (supra) held that if the share capital money is received by the assessee company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company.
28.8 The Hon’ble High Court in the case of First Point Finance Ltd. (supra) held that burden of proof on the assessee company lies to the extent of making out a
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case that investor exists and thereafter it is not for the assessee to further prove where they have brought money from to invest with it.
28.9 The Hon’ble Delhi High Court in the case of CIT vs. United Bio-tech (P) Ltd. 2010 TIOL-533-HC-Del held that in case the identity of the share applicants has been established and it is found that the said applicants are corporate assessees who are assessed to tax with IT Department then there is no case of any substantial question of law. In the instant case, the share applicants are corporate assessees.
28.10 The Hon’ble Delhi High Court in the case of CIT vs. Samir Bio-tech (P) Ltd. (supra) held that if investments have been shown by the share applicants in their audited balance sheet then the addition cannot be made under s. 68 of the Act.
28.11 In view of the legal position as discussed above, the AO was not justified in making the addition of Rs. 1.10 crore without bringing on record any material for the addition. Simply on the basis of information which is not substantiated in the course of assessment proceedings against the assessee, the AO could not have added the amount.
(ii) The Hon’ble ITAT, Jaipur Bench, Jaipur in its recent judgment the case of M/s Jadau Jewellers & Manufacturers Pvt. Ltd., B-1, Trimutri Circle, Govind Marg, Jaipur in ITA No. 686/JP/2014 dated 14.12.2015 gave the following findings:- “.6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director’s report, auditor’s report, copy of balance sheet, copy of P&L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT(A) i.e. decision of Hon’ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the case as there was short time available with the Assessing Officer as well as Investigation Wing of Kolkata. The copy of inquiry has not been provided by the Assessing Officer to the assessee. As per findings of the Hon'ble Delhi High Court in the case Nipun Builders and Developers Pvt. Ltd. Vs. CIT (supra), the
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Investigation Officer at Kolkata had not deputed Inspector to enquire the whereabouts of the company. The case laws referred by the assessee are squarely applicable on the facts and circumstances of the appellant’s case, therefore, we reverse the order of the ld CIT(A) on technical ground as well as on merit also….”
(iii) CIT v/s. Shree Barkha Synthetics Ltd. (2003) 182 CTR (Raj) 175 Appeal(High Court)—Substantial question of law—Cash credit vis-a-vis share application money—Tribunal found that 6 out of 7 companies from which the share application money had been received were genuinely existing and no enquiry was conducted in respect of the source of share application money at the time of making the investment in the assessee-company and thus the assessee has discharged its initial burden except in one case—As regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO—Thus, additions were sustained only in respect of investments said to have been made by U, an individual investor and by W Ltd., for the reason that such investments were not proved—Finding of the Tribunal is essentially a finding of fact which is not vitiated in law—No substantial question of law arise for consideration
Gr. No. 4 covered in the submission made for Gr. No. 1 to 3. With iv) regard to quantum addition, in Gr No 2 assessee’s appeal has been partly allowed. Income—Cash credit—Share application money— Tribunal found that the investors are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded—Amount of share capital/share application money could not be treated as unexplained cash credits and no addition could be made under s. 68—No substantial question of law arises.
(v) 2014 (8) TMI 605 - MADRAS HIGH COURT The Commissioner of Income Tax Versus Pranav Foundations Ltd. T. C. (A). No. 262 of 2014 Dated - 12 August 2014 Addition u/s 68 – Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved – Held that:- Following the decision in CIT v. Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment - the assessee has categorically established the nature and source of the sum and discharged the onus that lies on it in terms of Section 68 of the Act - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted – Decided against Revenue.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
(vi) INCOME TAX OFFICER vs. MS. SUPERLINE CONSTRUCTION P. LTD. ITAT, BOMBAY TRIBUNAL (A) ITA No. 3644 TO 3648, 3650, 3651Mum/2014 30th November, 2015 (2015) 45 CCH 0281 MumTrib Addition—Addition on account of bogus share application money—Assessee was in business of builder and developer—Assessment was completed u/s 143(3) r.w.s. 147—Re-assessment proceedings were initiated on basis of information received from Directorate of Income-tax (Investigation) without recording AO’S own satisfaction and information was accepted in mechanical manner—After reopening of assessment u/s 147, AO made addition of Rs.40 lakhs received by assessee from various corporate entities—Addition was made by AO on account of bogus share application money under provisions of s 68— CIT(A) deleted addition made by AO—Held, in case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held that If share application money was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company—It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147—That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capital and advances received by established identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences—Assessee company substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO—These facts had not been rebutted on behalf of Revenue—ITAT was not inclined to interfere with findings of CIT(A) who thus rightly deleted entire impugned additions of Rs.40 lakhs made by AO u/s 68 on account of share capital subscription received by assessee-company
Held: It was pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC) that if the share application money is received by the assessee company from alleged bogus shareholders whose name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company. (para 2.3) In this background, it was submitted on behalf of the assessee that the Assessing Officer failed to appreciate that there was no documentary evidence against the assessee-company to support such impugned additions. It was further submitted by the assessee that the Assessing Officer failed to appreciate that the statements of any person recorded u/s 143(3) r.w.s. 147. The assessee- company had fully discharged the burden of proof, onus of proof and explained the source of share capital and advances received by established the identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences. The further stand of the assessee had been that the assessee-company substantiated the details with the documentary evidences as extracted from the website of Ministry of Corporate Affairs, Government of India before the Assessing Officer. These facts had not been rebutted on behalf of the Revenue.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
(para 2.4) In view of the facts and circumstances of the present case as well as considering the decisions as discussed above on the similar issue, ITAT was not inclined to interfere with the findings of the CIT(A) who had rightly deleted the entire impugned additions of Rs.40 lakhs made by the Assessing Officer u/s 68 of the Act on account of share capital subscription received by the assessee-company. (para 2.5) Conclusion: When Assessee-company had substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO, then additions made by AO u/s 68 on account of share capital subscription received by assessee-company was rightly deleted.
vii) CIT vs. Illac Investment (P) Ltd. (2007) 207 CTR (Del) 687; assessee- company has satisfactorily established the identity of the share subscribers and deleted the addition under s. 68, no substantial question of law arises for consideration.
viii) CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38; Income— Cash credit—Share application money—Burden of proof can seldom be discharged to the hilt by the assessee—If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations—But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company—If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc. it would constitute acceptable proof or explanation by the assessee—Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices— Tribunal has noted that the assessee-company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange—Complete details were furnished—Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company’s own income from undisclosed sources—As regards receipt of share capital on issue of rights shares to five companies, these companies were duly incorporated under the Sikkimese Companies Act and were assessed under the Sikkimese Taxation Manual—Their share subscriptions were also received through banking channels and found to be valid by the jurisdictional AO—Therefore, no addition could be made under s. 68
ix) Bhav Shakti Steel Mines (P) Ltd. vs. CIT (2009) 18 DTR (Del) 194 Income— Cash credit—Genuineness—CIT(A) not only found that the identity of each of the shareholders stood established, but also examined the fact that each of them were income-tax assessees and had disclosed the share application money in their accounts which were duly reflected in their IT returns as well as in their
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
balance sheets—Tribunal was not therefore justified in coming to the conclusion that the CIT(A) had not considered the matter in the right perspective—Order passed by Tribunal remanding the matter for examining the share applicants set aside and that of CIT(A) restored x) Meera Engineering & Commercial Co. (P) Ltd. vs. Asstt. CIT (1997) 58 TTJ (Jab) 527 Income—Cash credits—Genuineness of share capital of company—All the 51 shareholders filed their affidavits and confirmatory letters and 24 of them filed their replies also to notice under s. 133(6)—Names of parties purchasing the shares with amount subscribed were furnished before AO—All documents clearly show that shareholders do exist— Assessee-company had discharged its onus of explaining the cash credits as required under law—If the company is able to establish that shareholders existed and they have invested money for purchase of shares burden of company to prove the credit is discharged— Identity of shareholders not in dispute—Assessee is not required to prove credit- worthiness of shareholders—Addition deleted xi) Allen Bradley India Ltd. vs. Dy. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del); Income—Cash credit—Subscription to share capital and loan—In case of limited companies jurisdiction of AO would be limited only to see whether identity of shareholders is established and whether they exist or not— Once identity is established, then, possibly no further enquiries need to be made—Since the shareholders of assessee-company were in existence, they were assessed to tax, complete details were available, share capital money as well as loan were received through account payee cheques and they were cleared through proper banking channels, AO was not justified in disbelieving the capital invested by the shareholder companies—Similarly, AO was not justified in disbelieving the loan taken from DTL as the cheques were cleared through bank channels and confirmation and supporting evidence was filed— CIT(A) was justified in deleting the additions.
xii) CIT vs STL Extrusion (P) Ltd. 333 ITR 269 (MP) Income—Cash credit—Share application money—Assessee has duly established the identity and source of credits—Assessee having duly furnished the name, age, address, date of filing the application of shares, number of shares of each subscriber there was no justification for the AO for making the impugned addition—Once the existence of the investors/share subscribers is proved, onus shifts on the Revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee itself—Additions not sustainable. xiii) CIT vs Arunanda Textiles (P) Ltd. , 333 ITR 116 (Karnataka) Income— Cash credit—Share application money—Assessee able to identify the shareholders—It is not for the assessee-company to establish but it is for the Department to enquire with the investors about the capacity to invest the amount in the shares
xiv) Uma Polymer (P) Ltd. , 101 TTJ 124, Jodhpur Income—Cash credit—Share application money—In respect of share capital money, the assessee-company has to prove only the existence of the person in whose name share application is received—No further burden is cast on the assessee to prove whether that person himself has invested the money or some other person has made the investment in his name—Burden to prove that the money did not belong to him
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
but to somebody else is on the Revenue—Distinction between a public company and a private company is not very material for this purpose—AO treated the investments made by ten shareholders in the assessee-company as bogus and made addition under s. 68 —Not justified—In all the cases except that of V, AO had obtained the bank statements of the shareholders which clearly show that the accounts were regularly maintained and the shareholders had made deposits—Further, the shareholders are also assessed to tax—Simply because scrutiny assessments were not made in the case of shareholders, such assessments could not be made in the course of assessment of the assessee— Having regard to the information collected by the AO from the banks, identity of the shareholders was fully established—If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee—U had invested in the share capital through cheque except for a small sum which was returned to her—Her bank account shows several entries, both credit and debit, which have no relation with the amount invested with the assessee- company—Merely because she has not submitted her returns after the asst. yr. 1984-85, it cannot be said that she was not assessed to tax—Though V has not been shown to be assessed to tax, he had made major part of investments towards share capital through cheques and his identity is not doubted— Accordingly, share capital advanced by U and V is also to be accepted as genuine—Therefore, no addition of share capital money could be made in the hands of the assessee-company. 11. Without prejudice to above this is to submit that the share application money cannot be treated as income of the assessee. Reliance is placed in following decisions: - i) CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195 Income—Cash credit—Share application money—If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company ii) CIT vs. Steller Investment Ltd. (200) 251 ITR 263 (SC) 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 assessee-company.
iii) Commissioner of Income Tax Vs. Bhaval Synthetics (Raj HC) (2013) 84 DTR 0449 (Raj) Held that even in case of doubt about subscribers to increased share capital, amount of share capital could not be regarded as undisclosed income of company—Amount referable to share application could not be attributed to assessee and could not be assessed in its hands—Appeal dismissed
iv) Commissioner of Income Tax Vs. Akj Granites (P) Ltd. (Raj HC) (2008) 301 ITR 0298 held that in respect of share applications received from different places accompanied with share application money, no presumption can be drawn that same belong to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that share
ITA No. 493/JP/2017
ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
application money for augmenting the investment in business has flown from assessee’s own money—No substantial question of law arises—Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 followed.
In view of the above submission this is to submit that the addition made by ld. AO is unjustified and deserve to be deleted…….”
3.2.2 I have duly considered assessee's submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. I have already given a detailed findings in para 2.1.4.7 wherein total of Rs. 8,71,97,727/= has been sustained in the hands of M/s Motisons Global Pvt Ltd, M/s Motisons Entertainment Pvt Ltd, M/s Motisons Buildtech Pvt Ltd and M/s Shivansh Buildcon Pvt Ltd, details of which are as under:
Name of Appellant Company ITA No AY Addition Made by AO Addition Addition Sustained deleted/ Relief Given Motisons Global Pvt. Ltd 753/14-15 2009-10 2,75,00,000 ------------- 2,75,00,000 Motisons Global Pvt. Ltd 754/14-15 2011-12 6,96,50,000 --------------- 6,96,50,000 Motisons Global Pvt. Ltd 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Motisons Global Pvt. Ltd 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Motisons Entertainment (I) Pvt. Ltd 760/14-15 2009-10 3,40,00,000 --------------- 3,40,00,000 Motisons Entertainment (I) Pvt. Ltd 766/14-15 2011-12 1,95,00,000 ---------------- 1,95,00,000 Motisons Entertainment (I) Pvt. Ltd 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Motisons Buildtech Pvt. Ltd 758/14-15 2009-10 3,03,00,000 --------------- 3,03,00,000 Motisons Buildtech Pvt. Ltd 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Godawari Estates Pvt. Ltd 769/14-15 2010-11 2,00,00,000 -------------- 2,00,00,000 Godawari Estates Pvt. Ltd 768/14-15 2012-13 10,30,00,000 -------------- 10,30,00,000 Bholenath Real Estates Pvt Ltd 770/14-15 2009-10 2,90,00,000 --------------- 2,90,00,000 Rainbow Buildcon Pvt. Ltd 757/14-15 2009-10 2,00,00,000 --------------- 2,00,00,000 Shivansh Buildcon Pvt. Ltd 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Total additions 94,14,07,100 8,71,97,727 85,42,09,373
In view of above facts and circumstances of the case as discussed above addition of Rs. 10,30,00,000/= made on a/c of bogus share capital in the hands of assessee M/s Godawari Estates Pvt Ltd is hereby deleted. Assessee gets relief in Gr No. 2 & 3.
Para 2.1.4.7 reads of ld. CIT(A)’s order as under:-
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
‘’2.1.4.7 In view of the above findings, it is also seen that this cash /DD was deposited at 4th Channel of source/ stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter, it is also seen that the assessee has not controverted the facts narrated by Shri Santosh Choube, Shri Rajesh Kr Singh and Shri Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts as evidences (both documentary & oral) gathered during search and & Post-search operation, addition to the extent of Rs. 8,71,97,727/- is sustained and balance is deleted, details given as under:-
Name of ITA No. A.Y. Addition made Addition Addition Appellant by AO sustained deleted/Relief Company given Motisons 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Global Pvt Ltd Motisons 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Global Pvt Ltd Motisons 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Global Pvt Ltd Motisons 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Global Pvt Ltd Motisons 760/14-15 2009-10 3,40,00,000 - 3,40,00,000 Entertainment (I) Pvt. Ltd Motisons 766/14-15 2011-12 1,95,00,000 - 1,95,00,000 Entertainment (I) Pvt. Ltd Motisons 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Entertainment (I) Pvt. Ltd Motisons 758/14-15 2009-10 3,03,00,000 - 3,03,00,000 Buildtech Pvt. Ltd Motisons 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Buildtech Pvt. Ltd Godawari 769/14-15 2010-11 2,00,00,000 - 2,00,00,000 Estates Pvt. Ltd Godawari 768/14-15 2012-13 10,30,00,000 - 10,30,00,000 Estates Pvt. Ltd Bholenath 770/14-15 2009-10 2,90,00,000 - 2,90,00,000 Real Estates Pvt. Ltd.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Rainbow 757/14-15 2009-10 2,00,00,000 - 2,00,00,000 Buildcon Pvt. Ltd Shivansh 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Buildcon Pvt. Ltd 94,14,07,100 8,71,97,727 85,42,09,373
It is pertinent to mention here that M/s. Mayukh Vinimay Pvt.Ltd received share application of Rs. 10,54,95,000/- in AY 2009-10 which was added as income of M/s.Mayukh Vinimay Pvt. Ltd in A.Y. 2009-10. Thereafter in subsequent years the part of the funds owned by this company was invested in the companies under appeal as under:-
S.N. Name of company Assessment Year Amount (under your appeal) 1. Motisons Global 2012-13 6,93,49,800 Pvt. Ltd 2. Motisons Global 2013-14 2,24,50,000 Pvt. Ltd 3. Motisons 2012-13 1,55,00,000 Entertainment (India)Pvt ltd. TOTAL 10,72,29,800
Further it is also submitted that addition made by the AO tantamount to double addition. It is also mentioned here that as per Ld. ARs request, appellate proceedings in case of M/s. MayukhVinimay Pvt. Ltd have been kept in abeyance till the dispostal of appeal by Hon'ble ITAT.
In view of aforementioned findings, now additions made by the AO are being discussed with respect to grounds of appeal raised by the respective assessee in para below.’’
4.4 During the course of hearing, the ld. DR supported the order of the
AO and submitted that the order of the ld. CIT(A) may be set aside.
4.5 To this effect, the ld.AR of the assessee filed the following written
submission praying therein to dismiss the appeal of the department.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
‘’2.03.1.2 Submission of assessee:- The facts and circumstances of the issue raised in the departmental appeal for the AY 2012-13 under ground No 1 are exactly similar to Ground No 1 for AY 2010-11 in ITA No 493/JP/2017. The assessee has made detailed submission in AY 2010-11 for ITA No 493/JP/2017. In order to avoid repetition, we pray your honor kindly to consider the submission made for ITA No 493/JP/2017 for AY 2010-11 under para 2.01.2 above as also made for AY 2012-13 under Ground No 1 of ITA No 494/JP/2017.
In view of the above submission, the humble assessee prays your honor kindly to dismiss the appeal filed by the department.’’
4.6 We have heard the rival contentions and perused the materials
available on record. It is pertinent to mention that the similar issue has
been dealt with and decided by this Bench of ITAT vide its order dated
30-10-2017 in the case of ACIT, Central Circle-2, Jaipur vs Motisons
Buildtech Pvt. Ltd in ITA No. 481/JP/2017 (Revenue’s appeal) for the
Assessment Year 2009-10. Since the issue raised by the Revenue in the
present appeal is same as decided in the appeal of the Revenue in ITA
No.481/JP/2017for the Assessment Year 2009-10 in the case of ACIT,
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
Central Circle-2, Jaipur vs Motisons Buildtech Pvt. Ltd Jaipur (supra)
which shall apply mutatis mutandis in the present appeal of Revenue also.
Thus solitary ground of ITA No.494/JP/2017 for the A.Y. 2012-13 of
Revenue’s appeal is dismissed.
5.1 In the C.O. No. 27/JP/2017 for the Assessment Year 2012-13, the
assessee has raised the following ground:-
‘’1. On the facts and in the circumstances of the case and in law the AO erred in making addition of Rs. 10,30,00,000/- by applying the provision of sec 56(1) of the I.T. Act, 1961 treating the share capital and premium thereon received from various Pvt. Ltd. companies as income of the assessee and the ld. CIT(A) rightly deleted the addition made by the AO.’’
5.2 It is noted that the cross objection filed by the assessee is
supportive to the order of the ld. CIT(A) which is infructuous. Thus the
C.O. of the assessee is dismissed.
ITA No. 493/JP/2017 ACIT, Central Circle-2, Jaipur vs Godawari Estates Pvt.Ltd. Kolkata
6.0 In the result, the appeals filed by the Revenue and cross objections filed by the assessee are dismissed. Order pronounced in the open Court on 07 -11-2017.
Sd/- Sd/- ¼dqy Hkkjr½ ¼HkkxpUn½ (KUL BHARAT) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member
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