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Facts
A search operation under Section 132(1) was conducted on M/s Surya Nectar and Parabolic Group of cases, including the assessee. The AO issued a notice under Section 153A, but the assessee did not file a return. Consequently, an ex-parte assessment order was passed.
Held
The Tribunal held that the appeals were dismissed, finding no merit. The CIT(A) had observed that an identical issue was considered for earlier assessment years and accordingly dismissed the appeal for those years.
Key Issues
Whether the share capital and premium received by the assessee are to be treated as unexplained credit under Section 68 of the Income Tax Act, especially when the AO believes it to be a bogus transaction based on seized material from a search.
Sections Cited
132(1), 153A, 68, 69C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 31.03.2015 passed for assessment year 2009-10.
The assessee has taken 12 grounds of appeal, however, in brief, its grievance is that ld. CIT (Appeals) has erred in A.Y.2009-10 2 confirming the addition of Rs.1,19,00,000/- and Rs.1,78,500/- which were added by the AO with the aid of Section 68 and 69C of the Income Tax Act on account of receiving bogus share capital alongwith premium and commission expenses in arranging such a bogus share capital.
This appeal was earlier heard on 15.09.2016 and it was dismissed for want of prosecution. Later on, it was revived to its original number by the ITAT vide its order dated 17.03.2023 passed in MA 24/CHD/2017. Shri Tej Mohan Singh, Advocate has appeared on behalf of assessee in the Miscellaneous Application and thereafter in the appeal, however, he has pleaded no instruction because according to him, his client is not in his contact, inspite of best efforts made by him. We have served the notice upon the assessee through the DR. Thereafter, we have enquired whether any demand has been recovered from the assessee or not because tax demand was raised upon the assessee after the assessment order passed on 31.03.2013. The reply of the AO provides that company is live, it is filing its Income Tax Return regularly, A.Y.2009-10 3 but Department is unable to recover any tax in this assessment year.
In the above background, we have heard the appeal ex- parte qua the assessee.
The brief facts of the case are that a search u/s 132(1) of the Act was conducted on M/s Surya Nectar and Parabolic Group of cases on 17.09.2010. Assessee is one of the concerns pertaining to the group and was covered under search operation. Thereafter, AO has issued notice u/s 153A and invited the return of the assessee which was not filed. The AO in a way passed an ex-parte assessment order. The AO has observed that Surya Nectar was involved in arranging accommodation entries in the form of share capital by paying commission. During the course of search, documents inventorized as AS-13, A-5, A-3 etc. were found and seized from the residence of one Shri Sandeep Garg as well as from the premises of the assessee. The AO has reproduced the invoice on page No.3 of the assessment order demonstrating the fact that sale of equity shares held by Emm Bee Fincap Pvt. Ltd., one of the group concerns of Surya Group. A.Y.2009-10 4 Ultimately, AO has demonstrated that assessee has received share capital of Rs.11,90,000/- and share premium of Rs.1,07,10,000/-. The AO, thereafter, made analysis of alleged bogus transaction of share capital and made the addition.
On appeal, ld. CIT (Appeals) has observed that the identical issue was considered in the case of the assessee for assessment year 2005-06 and 2006-07, hence, this appeal is dismissed in terms of assessment year 2005-06 and 2006-07.
With the assistance of ld. DR, we have gone through the record carefully. Before we embark upon an enquiry 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 treated u/s 68 of the Income Tax Act, we deem it appropriate to bear in mind certain basic principles/tests propounded in various authoritative pronouncements of the Hon'ble Courts and Hon'ble Supreme Court. It is pertinent to observe that in so far as companies incorporated under Indian Companies Act are concerned,
ITA No.223/CHD/2016 A.Y.2009-10 5 whether Private Limited or Public Limited, companies have raised their share capital through shares, though manner of share capital in Pvt. Ltd. company on one hand and Public Ltd. company on other hand would be different. The share capital and share premium are basically irreversible receipts or credits in the hands of the company. Share capital is considered to be cost of shares on equivalent amount issued and premium is concerned as extra amount charged by the company for issue of its capital. In the case of a Private Limited Company, normally, issues are subscribed by family members or persons known/close to the promoters. The Public Limited Company, on the other hand, generally raise by issue inviting general public at large for subscription of the shares. Yet it is also possible that in the case of Public Limited Company, the share capital is issued in a close circuit. When companies incorporated under the Companies Act, they would raise share capital through shares and various persons would apply for shares and then give share application money. This amount received from such shareholders would naturally be credited in the books of accounts of the assessee. Once the A.Y.2009-10 6 alleged share application money is credited to the accounts of the assessee, then role of Section 68 would come. A perusal of this Section would indicate that basically this Section contemplates three conditions required to be fulfilled by an assessee, namely ; a) Identity of share applicants b) Genuineness of the transactions, and c) Credit worthiness of share applicants 7.1 As far as construction of Section 68 and to understand its meaning is concerned, there is no much difficulty. The difficulty arises when we apply the conditions formulated in this Section on the given facts and circumstances. The Hon'ble Delhi High Court in the case of CIT Vs Navodaya Castles Pvt. 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 More 82 ITR 540. According to the Hon'ble Delhi High Court, basically there are two sides of judgement. In one side of case, the assessee produced necessary documents/evidence to show and establish identity of shareholder, the bank account from which payment was made. The fact that payment was received through banking channel and assessee filed affidavit or A.Y.2009-10 7 confirmation of the Directors of the shareholder company, but thereafter, no further enquiry was made by the AO. The second side of case is 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 investment in the form of share application money. The AO referred to the bank statement, financial position of the recipient and beneficiary assessee and concerning circumstances.
If we examine the facts of the present case, then it would reveal that ld. AO has made a detailed analysis and thereafter found the alleged share application money received by the assessee alongwith its premium is a bogus one. The assessee has pleaded in Ground No.5 that it is an assessment u/s 153A and addition is to be made qua the seized material found during the course of search. We find that AO while harbouring the belief that assessee has received share capital and a bogus share premium, has made reference to the seized material, namely, Annexure AS-13, A-5 and A-3. It is discernible from page Nos. 2 to 8 of the impugned assessment order. Therefore, after taking into consideration the orders of the Revenue A.Y.2009-10 8 Authorities, we do not find any merit in this appeal. It is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced on 24.06.2025.