M/S. AASTHA VINCOM PVT. LTD.,KOLKATA vs DCIT, CC-XIX, KOLKATA, KOLKATA

Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA

Before: Shri Rajpal Yadav, Vice-(KZ) & Shri Rajesh Kumar

Per Rajesh Kumar, Accountant Member:- The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-21, Kolkata dated 19.11.2014 passed for the assessment year 2008-09.

The assessee has taken seven grounds of appeal and thereafter took three additional grounds. As far as seven grounds of appeal are concerned, they are descriptive and argumentative in nature. In brief, the solitary issue agitated in these grounds relates to confirmation of addition of Rs.7,86,50,000/- by the ld. CIT(Appeals). This addition was made by the ld. Assessing Officer with the aid of section 68 of the Income Tax Act. 1

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The assessee has also raised additional grounds, which have been reproduced as under:- (1) That on the facts and circumstances of the case and in law, since the order passed u/s 263 of the Act dated 07.03.2013 is in itself without jurisdiction and bad in law, all the subsequent proceedings are also without jurisdiction and hence bad in law.

(2) That on the facts and circumstances of the case and in law, the reopening u/s 147 of the Act having being done for escapement of income in relation to Data Processing Charges, the scope of assessment could not have been expanded unless provided in law.

(3) That on the facts and circumstances of the case and in law, the second learned AO failed to carry out the directions issued by the learned PCIT in his order dated 07.03.2013.

In the above additional grounds, the assessee has challenged the jurisdiction of ld. Principal CIT under section 263 of the Act in passing the revisionary order thereby setting aside the assessment order framed by the ld. Assessing Officer under section 143(3) r.w.s. 147 of the Act. Before coming to the core issue, we are briefly discussing the facts and background of the case. The assessee filed its return of income on 25.09.2000 declaring a loss of Rs.3,232/-, which was processed under section 143(1) of the Act. Thereafter the case of the assessee was reopened under section 148 of the Act after recording the reasons under section 148(2) of the Act to the effect that Data Processing Charges as per Profit & Loss Account differs from that as shown in the return of income by the assessee and, therefore, the income of the assessee has escaped assessment within the meaning of section 147 of the Act. To the above extent, a notice under section 148 of the Act was issued on 21.06.2010, which was complied with by the assessee by submitting that the return filed on 25.09.2000 may kindly be treated as filed in response to the notice under section 148 of the Act. During the course of assessment

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proceedings under section 147 of the Act, the ld. Assessing Officer apart from noting the difference in the data processing charges as shown in the Profit & Loss Account and that shown in the return of income which are part of reasons record, the Ld. Assessing Officer also examined the reasons recorded under section 148 of the Act and noted the issue of share capital raised of Rs.40,27,500/- and share premium of Rs.7,46,22,500/- by invoking the Explanation 3 to section 147 of the Act though the said Explanation 3 to section 147 was inserted and brought on the Statute Book by Finance (No. 2) Act, 2009 w.e.f. 1st April, 1989. The ld. Assessing Officer issued notice under section 142(1) of the Act calling upon the assessee to submit various documents such as Bank Statement, details of investments, details of share capital, details of income from other sources, books of accounts and details of loans and advances, which were complied with by the assessee by furnishing the same during the assessment proceedings. Besides the above, it filed Form No. 2 in respect of allotment of shares, copy of which is placed at pages no. 18 to 31 of the paper book. The ld. Assessing Officer also conducted independent inquiries in order to verify the genuineness of these transactions by issuing notice under section 133(6) to five share applicants out of total eight share applicants on a test-check basis and called for furnishing the details of transactions with the assessee in A.Y. 2008-09, i.e. proof of their identities, audited accounts filed for the year, sources of fund invested and Bank Statement etc. The notices issued u/s 133(6) of the Act were duly complied with by the share subscribers by furnishing the details called for copies of which are placed at pages 32 to 102 of the paper book. The ld. Assessing Officer after examining these details and documents in terms of Explanation 3 to section 148 of the Act accepted the share capital subscribed and invested by the investors as well as identity, creditworthiness and also genuineness of the investments. Pertinent to mention that the ld. Assessing Officer called for the details from the assessee in respect of all the eight investors during the course of proceedings under section 147, which were duly furnished and placed on

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record as stated hereinabove. Besides, the ld. Assessing Officer also examined the issue of preliminary expenses written off during the year amounting to Rs.19,200/- as claimed by the assessee and noted that out of the said sum, an amount of Rs.16,200/- was not eligible for deduction under section 35D of the Act and accordingly Rs.16,200/- was disallowed in the assessment framed under section 147 read with section 143(3) of the Act dated 28.02.2011.

Subsequently ld. Principal CIT-1, Kolkata, uon perusing the assessment records in respect of assessment framed under section 143(3) read with section 147 of the Act dated 28.02.2011, observed that the said order is erroneous as well as prejudicial to the interest of the revenue as the ld. Assessing Officer has failed to make complete and full enquiries into the subscription to the share capital/share premium and accordingly issued a notice under section 263 of the Act dated 01.01.2013 to the assessee calling upon as to why the assessment so framed should not be set aside. Finally the ld. Pr. CIT passed an order under section 263 of the Act dated 07.03.2013 setting aside the assessment order passed under section 143(3) read with section 147 of the Act dated 28.02.2011 and directed the ld. Assessing Officer to reframe the assessment denovo. Thereafter the Assessing Officer framed the assessment under section 143(3) read with section 147/263 vide order dated 31.03.2014 by making an addition of Rs.7,86,50,000/- under section 68 of the Act on the ground that the assessee has failed to discharge its onus in proving the said investment.

Appeal to the ld. CIT(Appeals) did not bring any relief to the assessee. The ld. 1st Appellate Authority has concurred with the finding of the ld. Assessing Officer.

In so far as the additional grounds raised by the assessee are concerned, we are of the considered view that the assessee is not

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challenging the jurisdiction of ld. Pr. CIT u/s 263 of the Act to pass the reassessment order, it is undisputed fact that assessee has not challenged the order before the Tribunal. We are therefore of the considered view that the assessee has not challenged the revisionary order passed under section 263 by the ld. Pr. CIT dated 07.03.2013 before the Tribunal and therefore it has attained finality, nonetheless we have observed that in the original assessment proceedings under section 147 of the Act, the ld. Assessing Officer has carried out the investigations into the share subscription/investments into the share capital and premium to the extent of Rs.7,86,50,000/- by issuing notices under section 133(6) of the Act to five share applicants, which were duly complied with by the share applicants by filing the necessary details as called for by the ld. Assessing Officer and the ld. Assessing Officer has accepted the genuineness of the investments after examining all these details/evidences. Besides the ld. Assessing Officer has called for the details from the company in respect of all the eight investors which were duly filed and furnished by the company. But despite at this stage, the assessee cannot be allowed to raise the issue of validity of jurisdiction of ld. Pr. CIT under section 263 of the Act in revising assessment order as the same has attained finality and the assessee has missed the bus by not filling appeal before the Tribunal challenging the said revisionary order. At this stage we can only examine the validity of addition in the assessment order under section 143(3) read with section 147/148/263 of the Act dated 31.03.2014. Considering these facts and circumstances, we are not admitting the additional grounds and are dismissed at the preliminary stage.

We have duly considered rival contentions and gone through the record carefully. Before we embark upon an inquiry on the facts of the present appeal, in order to find out whether the share capital and share premium money received by the assessee during the year is required to be treated as its unexplained credit and deserves to be added under section 68 of the Income Tax Act, 1961. We deem it appropriate to bear in mind

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certain basic principles/tests propounded in various authoritative pronouncements of the Hon’ble High Courts and Hon’ble Supreme Court. It is also pertinent to observe that both the sides have made reference to a large number of decisions. We do not deem it necessary to recite and recapitulate them because that would make this order repetitive and bulky. We take cognizance of some of them. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned, whether private limited or public limited companies, they raise their share capital, through shares though manner of raising share capital in private limited company on one hand and public limited company on other hand, would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the companies. Share capital is considered to be cost of shares on equivalent amount issued and premium is considered as extra amount charged by the company for issue of that capital. In the case of private limited company, normally shares are subscribed by family members or persons known/close to the promoters. Public limited company, on the other hand, generally raised by public issue inviting general public at large for subscription of these shares. Yet, it is also possible that in the case of public limited company, the share capital is issued in close-circuit. When companies incorporated under the Companies Act raise their capital through shares, various persons would apply for shares and then give share application money. This amount received from such share holder would naturally be credited in the books of accounts of the assessee. Once the alleged share capital is credited to the accounts of the assessee, then role of section 68 would come. It is pertinent to take note of this section. It reads as under: “Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the officer, satisfactory the sum so credited may be charged to income tax as the income of the assessee of that previous year. ”

A perusal of the section would indicate that basically this section contemplates three conditions required to be fulfilled by an assessee. In other words, the assessee is required to give explanation which will exhibit nature of transaction and also explain the source of such credit. The explanation should be to the satisfaction of the AO. In order to give such type of explanation which could satisfy the AO, the assessee should

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fulfill three ingredients viz. (a) identity of the share applicants, (b) genuineness of the transaction, and (c) credit-worthiness of share applicants. As far as construction of section 68 and to understand its meaning is concerned, there is no much difficulty. Difficulty arises when we apply the conditions formulated in this section on the given facts and circumstances. In other words, it has been propounded in various decisions that section 68 contemplates that there should be a credit of amounts in the books of an assessee maintained by the assessee, (b) such amount has to be a sum received during the previous year, (c) the assessee offers no explanation about the nature and source of such credit found in the books, or (d) the explanation offered by the assessee is not, in the opinion of the Assessing Officer, satisfactory. The Hon’ble Delhi High Court in the case of CIT v. Novadaya Castles (P.) Ltd. 367 ITR 306 has considered a large number of decisions including the decision of Hon’ble Supreme Court in the case of CIT Vs. Durga Prasad [1971] 82 ITR 540 (SC). According to the Hon’ble Delhi High Court basically there are two sets of judgments. In one set of case, the assessee produced necessary documents/evidence to show and establish identity of the share-holder and bank account from which payment was made. The fact that payment was received through bank channels, filed necessary affidavit of the shareholders or confirmations of the directors of the shareholder company. But thereafter no further inquiry was made by the AO. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances.

10.

Let us take into consideration observations made by the Hon’ble Delhi High Court in the case of Softline Creations P.Ltd. (supra) while taking note of judgment of Hon’ble Delhi High court in the case of CIT Vs. Fair Finvest Ltd., 357 ITR 146 (Delhi). Hon’ble Delhi High Court made following observations: “……………This court has considered the concurrent order of the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal. Both these authorities primarily went by the fact that the assessee had provided sufficient indication by way of permanent account numbers, to highlight the identity of the share applicants, as well as produced the affidavits of the directors. Furthermore, the bank details

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of the share applicants too had been provided. In the circumstances, it was held that the assessee had established the identity of the share applicants, the genuineness of transactions and their creditworthiness; The Assessing Officer chose to proceed no further but merely added the amounts because of the absence of the directors to physically present themselves before him.

. The Income-tax Appellate Tribunal has relied upon a decision of this court in CIT v. fair Finvest Ltd. [2013] 357 ITR 146 (Delhi), where in somewhat similar circumstances, it was stated as follows (page 152): "This court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income-tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the Registrar of Companies in relation to the share application, affidavits of the directors, Form 2 filed with the Registrar of Companies by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahesh Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr. Mahesh Garg that the income sought to be added fell within the description of section 68.

Having regard to the entirety of facts and circumstances, the court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra) ”

11.

We also deem it appropriate to take note of some of observations of the Hon’ble Delhi High Court from the decision of Fair Finvest Ltd. (supra). The Hon’ble Court has noticed proposition laid down by the Hon’ble Delhi High Court in the case of CIT Vs. Victor Electrodes Ltd., 329 ITR 271 (Delhi) regarding non-production of share applicants before the AO. The following observations are worth to note:

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“...In this connection the observation of the jurisdictional High Court in case of Dwarkadhish Investment (Supra) are quite relevant where the court has observed that it is the revenue which has all the power and wherewithal to trace any person. Further in the case of CIT vs. Victor Electrodes Ltd. 329 ITR 271 it has been held that there is no legal obligation on the assessee to produce some Director or other representative of the Director or other representative of the applicant companies before the A.O. Therefore failure on part of the assessee to produce the Directors of the share applicant companies could not by itself have justified the additions made by the AO particularly when the seven share applicant companies through their present Directors have now again filed fresh affidavits confirming the application and allotment of shares with respect to the total amount of Rs. 45 Lacs. It is observed that no attempt was made by the AO to summon the Directors of the share applicant companies. Moreover, it is settled law that the asses see need not prove the "source of source". Accordingly it was incumbent upon the department to have enforced attendance of Shri Mahesh Garg or the erstwhile Directors of the share applicant companies and confronted them with the evidences & affidavits relied upon by the appellant and thereupon given opportunity to the assessee to cross examine these applicants”.

12.

In the light of above, let us consider the facts and circumstances of

this appeal. The undisputed facts, which are borne out of records, are that

the assessee has raised share capital as stated hereinabove from eight

investors, which was examined by the ld. Assessing Officer in the

assessment proceedings under section 147 of the Act by invoking the

Explanation 3 to section 147 of the Act by calling for the following details

from the assessee:-

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(i) Copy of Bank Statement;

(ii) Details of investment;

(iii) Details of fresh share capital;

(iv) Details from income from other sources;

(v) Copy of books of accounts;

(vi) Details of loans and advances.

The assessee in response to the questionnaire from the ld. Assessing

Officer filed/furnished the copies of Bank Statement, details of share

applicants along with their PAN and complete addresses, number of

shares subscribed and the amount of share capital received by it. Copies

of which are placed at pages no. 18 to 31 of the paper book and relevant

part are extracted below for the sake of ready reference:-

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13.

It is also an undisputed fact that the ld. Assessing Officer carried out an independent investigation into the share capital by issuing notices under section 133(6) to the five share applicants on sample basis in the proceedings u/s 147 of the Act, who have been invested money in the capital of the assessee-company by calling for the following details:- (i) Details of the transactions with the assessee company in A.Y. 2008-09; (ii) Proof of identity; (iii) Audited Accounts and ITR for the year; (iv) Source of Funds; (v) Copy of Bank Statement.

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14.

We note that all the five share applicants filed the details comprising Bank Statements, source of funds, audited accounts and copies of ITR, etc., which are filed at pages no. 32 to 102 of the paper book. The sample copy of the notice issued under section 133(6) of the Act and reply received from one share applicant is extracted below for the sake of ready reference:-

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15.

Similar details/information was filed by the other investors to whom the notices under section 133(6) of the Act were issued. We note that these investor have responded to the notices issued under section 133(6) of the Act by furnishing the details of payments duly evidenced by the bank statement, copies of ITRs, balance-sheets and Profit & Loss A/cs, and source of investments, etc. and the ld. Assessing Officer, after examining these details furnished by the assessee accepted these investments and no addition was made in the assessment u/s 143(3) r.w.s. 147 of the Act. The ld. Pr. CIT in the revisionary order passed under section 263 of the Act dated 07.03.2013 issued the following directions to the ld. Assessing Officer to carry out the investigation after conducting independent inquiry in paragraph 19 of the order, which is extracted as below:- 19. In view of the above, the order passed by the A.O. is erroneous and prejudicial to the interest of revenue and hence, the order passed by the A.O. is set-aside with the direction that he/she should pass the assessment order after conducting independent detailed and complete enquiries into the subscription to the share capital and premium to the extent of Rs. 7,86,50,000/- introduced in this case. The A.O. should trace the source of share capital by enquiring into the various layers through which the money has been introduced in this company as share capital and also examine the directors of subscriber companies by issuing summons u/s 131 of the I.T. Act. The A.O. should send information to the A.Os. having jurisdiction over the subscriber company to the share capital regarding its investment into share capital & premium paid. The A.O. should conduct independent enquiries to verify the documents filed before him in respect of proof of subscription to share capital. The A.O. should not confine himself to conducting enquiries into the subscribers to the share capital only on selective basis. The A.O. should also call upon the assessee to identify the persons who are shown as directors of the assessee company and examine them on oath to verify their credential as directors. The A.O. should pass speaking order after providing reasonable opportunity to the assessee and verifying the source of share capital including the share premium of all the subscribers and rotation of money through various hands so as to ascertain the true nature of transaction which will bring to the fore, the reality of the transactions.

Hence the order passed by the A.O. u/s 143(3) r/w 147 for the AY 2008-09 is set aside to be framed de-novo as per directions contained in the above parts of this order”.

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16.

It is pertinent to observe that the ld. Assessing Officer was required to conduct the enquiry as contemplated in the above finding. We have made an analysis of the assessment order dated 31.03.2014. This impugned order is running into four pages and the first one & half page, the ld. Assessing Officer has given background of the litigation. In pages no. 3 & 4, he has made reference to the judgments of the Hon’ble High Courts as well as Hon’ble Supreme Court namely CIT, Meerut –vs.- Nav Bharat Duplex Limited 35 taxman 289 (Allahabad). Some of the judgments we have already taken cognizance in our observation. The factual finding which was required to investigate is contained only in paragraphs no. 3 to 5, which read as under:- “3. Investigation was carried out by calling for information U/S.133(6) of the IT Act, which specifically asked for, besides other details, the following information : (A) Copies of Trade license of the subscriber companies. (B) Certified copy of the resolution adopted by the subscriber companies for subscribing to the share capital of the assessee company. (C) I.D proof, PAN and DIN of the directors. None of the subscribers furnished the above details. This gives a clear indication about the back also seen from the profit and loss account and Balance they did not have any business activities and their net rupees only. It appears from the information collected; companies existed on papers only with a sole purpose a other companies, like the assessee company. 4. Further, summons u/s 131 of the I.T Act were issued to the directors of the assessee company at their .given addresses, but most of the summons were returned unserved by the India Post. However, one person namely Shri Rakesh Kumar Choubey appeared in compliance to the summons. The statement of Shri Choubey was recorded u/s.131 of the I.T. Act on 24.03.2014. The salient points that emerged from his statement are : A) Shri Rakesh Kumar Choubey has no PAN and is not assessed to Income Tax. B} Shri Choubey has no idea of Company, Director or Share Capital. C) Shri Choubey is not aware of the subscriber companies or its subscription in the Share Capital of the assessee company. D) During the relevant financial year i.e. F.Y: 2007-08 ShriChoubey worked as a Peon in M/s. Khaitan and Associates. Therefore, it is evident from the statement of Shri Choubey that the assessee company has used the name of Shri Choubey for the purpose of their directors.

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It is a normal practice for such paper companies to use the name of lowly paid employees likes peons, drivers etc. as directors. 5. The results of investigations discussed above clearly bring forth the fictitious identity of the subscriber companies and also established the fact that introduction of the share capital in the assessee company is not genuine. Just the manner of payment of the share application moneys by the subscriber companies by the account payee cheques is not sacrosanct for a cash credit to become genuine and definitely this cannot make a bogus transaction as a genuine one. Reliance may be placed on the judicial decisions like CIT Vs. Precison Finance Pvt. Ltd, -208 ITR 465 (Cal), Nizam Wool Agency Vs. CIT, 193 ITR 318 (Ail)”.

17.

On perusal of the complete order, it nowhere reveals when ld. Assessing Officer has started the investigation? When he has issued notice under section 142(1) or 133(6) to the subscriber of the shares as well as summons under section 131 of the Act to the Directors of the assessee-company? There is no analytical finding at the end of the ld. Assessing Officer. He simply made a narrative observation on this issue, which is almost a cut and paste type of finding. It is pertinent to note that specific directions given by the ld. CIT in the order under section 263 are that the ld. Assessing Officer would issue summons under section 131 of the Income Tax Act to the Directors of subscriber companies. He has not issued any summons. He simply called information under section 133(6) of the Act. Such information are already on the record and collected in the first round itself. He was directed to transmit the information to the ld. Assessing Officer having jurisdiction over the subscriber companies. He has not complied with. A perusal of the finding extracted supra, nowhere disclosed the line of action required to be followed, has been followed by the ld. Assessing Officer. Thus if we were called upon the weigh the original assessment order, vis-a-vis the present one, both are non-speaking, material was collected in the original proceeding as is available on record. We have referred in this order. But the only difference is the Assessing Officer did not make addition there without conducting any inquiry. The ld. Assessing Officer put the assessee undertake liability. It struck to our mind whether it should be reinvestigated but how many proceedings are to be taken against the

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assessee. None of the authority is analysing the details in an analytical manner.

18.

It is furnished that in the set aside assessment proceedings, the ld. Assessing Officer issued notices under section 131 of the Act to the present and erstwhile Directors of the assessee-company, who did not comply with the summons except Shri Rakesh Kumar Choubey, whose statement was recorded. The ld. Assessing Officer noted that Shri Rakesh Kumar Choubey is not having any PAN and not assessed to income-tax. The Ld. Assessing Officer also noted that Shri Choubey is not having any knowledge about its either Directors or share capital of the assessee- company and he was working as a peon in M/s. Khaitan and Associates during F.Y. 2007-08 and thus he came to the conclusion that Shri Rakesh Kumar Choubey was used by the assessee-company just for formalities sake to comply with various statutory requirements, which is a common practice and held that the share capital raised by the assessee is bogus thereby adding the same to the income of the assessee under section 68 of the Act. Further the assessee has filed the proofs of identities creditworthiness of the investors and genuineness of the transactions before the ld. Assessing Officer. We also note from the record before us that Mr. Rakesh Kumar Choubey retracted his statement as recorded under section 131 on 26.03.2014 vide Affidavit which was attested on 27.03.2014 by Notary Public. We also note that from the evidences before us that Mr. Rakesh Kumar Choubey was holding a PAN bearing No. AFHPC3909G and assessed to tax and has regularly been filing his return of income under the charge of ITO, Ward-37(1), Kolkata. Therefore, it is clear from the above that the statement as called by the ld. Assessing Officer under section 131 is not correct and cannot be allowed as basis for making addition. To the above extent, we note that the allegation of the Assessing Officer for making addition was not correct. Further the ld. Assessing Officer observed that the assessee-company being a newly incorporated company has issued and raised share capital of Rs.7 crores

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by issuing shares at a premium of 19 times the face value and also that none of the subscribers furnished the details as requisitioned in the notices under section 133(6) of the Act. Besides ld. Assessing Officer noted that upon perusal of the Profit & Loss Account and Balance-sheet of the share subscriber companies, it is clear that they did not have any business activity and their net worth was meagre. The ld. CIT(Appeals) confirmed the order of ld. Assessing Officer for three reasons namely (i) the share applicants did not respond to the notices issued under section 133(6) of the Act though the notices were duly served on them; (ii) Summons issued to Shri Pradip Kejriwal, present Director of the Company remained un-served and (iii) that on the basis of statement recorded of Shri Rakesh Kumar Choubey, erstwhile Director, it appears that he was a dummy Director and therefore, an opportunity of cross examination could not be allowed since Shri Rakesh Kumar Choubey himself was the Director of the assessee-Company at the relevant point of time.

19.

Having considered the aforesaid facts and observations of the ld. CIT(Appeals) and the extent of verification done by the ld. Assessing Officer in the proceedings under section 147 of the Act, we observe that the ld. Assessing Officer has carried out full investigation into the share capital/share premium in the assessment proceedings under section 147 of the Act by issuing notices u/s 133(6) of the Act, which were duly supplied by the said investors. Besides we note that the assessee has fully furnished all the details before the ld. Assessing Officer to prove the identity, creditworthiness (source of money) of the investors and the genuineness of these transactions. But in the set assessment proceedings, the Assessing Officer has not carried out any investigation and harped on the fact that the assessee has failed to discharge its onus to prove the identity, creditworthiness and genuineness of the transactions by ignoring and overlooking the facts available on record. We note that the ld. Assessing Officer has all the records before him on the basis of which in the first assessment proceedings, the ld. Assessing Officer held the

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investments in share capital/share premium as genuine, whereas in the set aside proceedings, the ld. Assessing Officer has treated the same investments as bogus and non-genuine without carrying out any investigation by merely relying on the fact that summons issued under section 133(6) were served but not responded by the investors and also former and present Directors of the assessee company did not comply with summons issued u/s 131 of the Act except one Shri Rakesh Kumar Choubey. In our view, the action of the ld. Assessing Officer in making addition without complying the direction issued by the ld. Pr. CIT specifically in paragraph 19 of the order as reproduced hereinabove cannot be sustained. The addition was made simply for the reason that ld. Pr. CIT has exercised his jurisdiction under section 263 of the Act setting aside the original assessment. We also note that the ld. Assessing Officer has ignored the facts, documents, confirmations and evidences, which were available on record on the assessment folder. In our opinion, there is no bar in the Act to issue of shares at a premium as it is the prerogative of the Board of Directors to decide the premium amount and the assessee was not required to prove the purpose or justification for charging premium on shares. The ld. Counsel for the assessee to buttress the contentions in favour of the assessee placed reliance is placed on the judgment of the Hon’ble Mumbai Tribunal in the case of ACIT –vs.- Gagandeep Infrastructure Pvt. Limited (2014) 40 CCH 0128. The operating part is extracted as under:- “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 shareholders 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 38

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the fact that the assessee has charged a premium of Rs. 190/- per share. 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 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 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.”

20.

The above decision of the Tribunal has been affirmed by the Hon’ble Bombay High Court by dismissing the appeal of the Revenue reported in (2017) 394 ITR 680 (Bombay.). The case of the assessee also finds support from the another decision of the Hon’ble Madhya Pradesh High Court in the case of CIT –vs.- Chain House International (P) Ltd. reported in 98 taxmann.com 47, wherein the Hon’ble Court has held as under:- "Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates if fixed by any Govt. Authority or unless there is any i restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. ”

21.

Therefore, the issue of share at premium cannot be a ground for making addition. We also note that the allegation of the authorities below that the share applicants did not respond to the notices issued under section 136 of the Act, whereas this is not the allegation that notices were not served upon the share applicants. We note that the information /details/evidences of all these share applicants were available with the

ITA No. 123/KOL/2015 Assessment Year : 2008-2009 M/s. Aastha Vincom Pvt. Limited

ld. Assessing Officer such as PANs, addresses, copies of bank statement, annual audited accounts, etc. Admittedly and undeniable, the initial burden of proof lies on the assessee but once he proves the identity of the share applicants by either furnishing PAN or income tax assessment number and shows the genuineness of transaction by showing money in his books either by account payee or by draft or any other mode, then the onus of proof would shift to the revenue. Just because the creditors/share applicants could not be found at the address given, it would not give the revenue the right to invoke section 68 of the Act. One must not lose sight of the fact that it is the revenue which has all the powers to trace any person and is also settled law that the assessee need not to prove the source of source. The case of the assessee finds support from the decision of the Hon’ble Delhi High Court in the case of CIT –vs.- Orissa Corporation Pvt. Limited (1986) 159 ITR 78 (Del.), wherein it has been held as under:- 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 number was 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 allowed loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any 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. It cannot, therefore, be said that any question of law arose in these cases. The High Court was, therefore, right in refusing to refer the questions sought for”.’

22.

The above decision of the Hon’ble Delhi High Court has been affirmed by the Hon’ble Apex Court in (1986) 159 ITR 78. Therefore, we observe that non-compliance of notice by the share applicants in the second round of assessment proceedings cannot be used to draw adverse inference against the assessee as the Revenue was having all the necessary evidences/documents which were filed by the share applicants

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in the first round of assessment in response to the notices issued under section 133(6) of the Act.

23.

On the issue of share applicants, they are not having any business activity and their net worth was also very meagre. We note that the share application was received through Banking channel out of own funds of investing companies as is clear from the audited annual accounts and that it is not necessary that source of investment is to be out of taxable income. The assessee’s case finds support from the decision of Ami Industries (India) Pvt. Limited (ITA 1231 of 2017) passed by the Hon’ble Bombay High Court, wherein the Hon’ble Court has observed as under:- “It was not necessary that share application money should be invested out of taxable income only”.

24.

On the third issue that summons issued under section 131 fo the Act to the erstwhile and present Directors returned un-served except Mr. Rakesh Kumar Choubey, who was erstwhile Director and appeared to comply with the summons. We note that according to the ld. Assessing Officer, he was not assessed to tax and he was not having any PAN and he was working as a Peon to M/s. Khaitan & Associates. We note that the observations of the ld. Assessing Officer are not correct as Shri Rakesh Kumar Choubey is holding PAN and also assessed to tax and filing his return of income under the charge of ITO, Ward-37(1), Kolkata. We also note from the reasons before us that the statement given under section 131 was retracted just after two days recording. We note that in the first round of assessment, the transactions were examined and verified completely and accepted by the ld. Assessing Officer, then what new facts have come on record prompting the ld. Assessing Officer to take a contrary view. The ld. Assessing Officer has not recorded any finding as to how the share capital/share premium received by the assessee were bogus and unexplained or his own money was converted in the form of share capital/share premium. Thus no adverse material/evidences were brought on record and documents already on record remained

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uncontroverted. Under these facts and circumstances, the ld. Assessing Officer cannot be allowed to disturb the satisfaction recorded by the first ld. Assessing Officer in the first round based upon evidences available on record that too just on the surmises and conjectures.

25.

In view of our above facts, observation and legal position, we are inclined to set aside the order of ld. CIT(Appeals) and direct the ld. Assessing Officer to delete the addition.

26.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on August 26, 2022.

Sd/- Sd/- (Rajpal Yadav) (Rajesh Kumar) Vice-President (KZ) Accountant Member Kolkata, the 26th day of August, 2022 Copies to : (1) M/s. Aastha Vincom Pvt. Limited, 97C, Muktaram babu Street, Kolkata-700007

(2) Deputy Commissioner of Income Tax, Central Circle-XIX, Kolkata, Aayakar Bhawan Poorva, 110, Shanti Pally, E.M. Bypass, Kolkata-700107 (3) Commissioner of Income Tax(Appeals)-21, Kolkata (4) Commissioner of Income Tax -, Kolkata (4) The Departmental Representative (5) Guard File

M/S. AASTHA VINCOM PVT. LTD.,KOLKATA vs. DCIT, CC-XIX, KOLKATA, KOLKATA