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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI DUVVURU RL REDDY & SHRI G. MANJUNATHA
आदेश /O R D E R Per G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Coimbatore-3, dated 23.03.2020 and pertains to assessment year 2016-17.
2 I.T.A. No.626 /CHNY/2020 2. The assessee has raised the following grounds of appeal:- 1. For that the order of the commissioner of Income Tax (Appeals) is contrary to-law, facts and circumstances of the case to the extent prejudicial to the interest of the appellant and at any rate is opposed to the principles of equity, natural justice and fair play. 2. For that the commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing officer is without jurisdiction. 3. For that the commissioner of Income Tax failed to appreciate- that the Assessing officer erred in adding a sum of Rs.6,22,00,000/- being introduction of share capital by the directors of the appellant company during the impugned assessment year as unexplained share capital u/s.68. 4. For that the provisions of Section68 are not invocable in the facts and circumstances of the case. 5. For that the commissioner of Income Tax (Appeals) and the Assessing Officer failed to appreciate that the appellant having proved the identity and creditworthiness of the shareholders and the genuineness of transaction, the addition uls.68 was not warranted in the facts and circumstances of the case. 6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the Assessing Officer erred in making the above addition on mere conjectures, surmises and suspicions. 7. For that the Commissioner of lncome Tax (Appeals) erred in not considering the explanation and submissions furnished by the appellant. 8. For that the appellant objects to the levy of interest u/s 234A, 234B and 234C of the Act.
At the outset, we find that the appeal filed by the assessee is time barred by limitation i.e. 21 days and the assessee has filed necessary petition for condonation of delay along with affidavit explaining reason for delay in filing the
3 I.T.A. No.626 /CHNY/2020 appeal. The ld.AR submitted that the delay in filing the said appeal was neither willful nor deliberate but due to circumstances beyond the control of the assessee due to outbreak of COVID-19 and lockdown imposed by the Government of India. Because of this, the appeal could not be filed within the statutory time allowed under the Income Tax Act, 1961 (hereinafter the ‘Act’). Having heard both sides and considered petition filed by the assessee, we are of the considered view that reasons given by the assessee for not filing the appeal within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of above appeal is condoned and appeal filed by the assessee is admitted for adjudication.
The brief facts of the case are that the assessee company is engaged in the business of asset reconstruction and refinancing, filed its return of income for the assessment year 2016-17, declaring total income of Rs.8,46,737/-. During the year under consideration, the assessee company has increased its authorized share capital from Rs.3 crores to Rs.10 crores. The assessee company had also raised its paid up share capital from Rs.2 crores to Rs.10 crores by issue of shares to directors
4 I.T.A. No.626 /CHNY/2020 and shareholders. The case of the assessee was taken up for scrutiny and during the course of assessment proceedings, the AO called upon the assessee to file necessary evidences including name and address of the subscribers to share capital, their identity and other details. The AO on the basis of information furnished by the assessee, was of the opinion that the assessee has not substantiated capital introduced with necessary evidences and hence, he has made addition of Rs.6,22,00,000/- u/s.68 of the Income Tax Act, 1961 (hereinafter the ‘Act’) as unexplained cash credits.
Being aggrieved by the assessment order, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A), the assessee submitted that it has filed all evidences to prove identity, genuineness of transactions and creditworthiness of subscribers to share capital by filing various details including name and address along with PAN numbers of subscribers, their financial statements to prove creditworthiness and further filed confirmation letters along with their bank statements to prove genuineness of transactions. The ld.CIT(A) after considering relevant submissions of the assessee, has held that although, the assessee has proved identity and creditworthiness of
5 I.T.A. No.626 /CHNY/2020 subscribers to the share capital but, failed to prove genuineness of transactions in order to escape from provisions of section 68 of the Act. Therefore, he opined that so called increase in share capital was not proved beyond doubt and hence, for the detailed reasons stated in his appellate order confirmed additions made by the AO. The relevant findings of the ld.CIT(A) are as under: 6. The above table shows all instances where cash is introduced by the directors/shareholders, which is seen reinvested into TDRs during the same day itself or within the next few days. Some of the TDRs are closed on 3112.2015 and 30.01.2016 respectively. Since these funds were invested in the form of TDRs during 314th of the year, it cannot be considered to be available for working capital requirement during the entire year. Omkara Assets Reconstruction Pvt Ltd has increased its paid up capital from 2 crores to 10 crores during the year. The paid up capital is brought in by the directors/shareholders during the year and the same are credited in the bank account of Omkara Assets Reconstruction Pvt Ltd. Shares have been allocated in lieu of share capital brought in by the directors/shareholders. Pursuant to sec 39 (4) and 42 (9) of the Companies Act, 2013 and Rule 12 and 14 Companies (Prospectus and Allotment of Securities) Rules, 2014, assessee company issued 8 lakhs securities charging the nominal amount per security at Rs 100/-. This could be read as 8 lakhs shares issued at the face value of Rs 100/-. Total amount involved is Rs 8 crores which means total amount paid on application is Rs 8 crores. Assessee has produced Form No . PAS-3 in proof of this. Now the authorized capital and the paid up capital stands at Rs 10 crores. Assessee also produced true copy of the resolution passed at the Extra ordinary General Meeting of the Company held on 15.10.2015. The resolution by the company stats that the consent of the shareholders is accorded to increase the authorized share capital from 3 crores divided into 3 lakhs equity shares of Rs 100/- each to Rs 10 crores divided into 10 lakhs equity shares of Rs 100/- each by creating an additional 7 lakhs equity shares of Rs 100/- each. Assessee has also produced Form No SH-7 pursuant to section 64(1) of the Companies Act, 2013 and pursuant to Rule 15 of the Companies (Share capital & Debentures) Rules 2014. On a perusal of Form No SH-7 it is seen that The Registrar of Companies has disclosed that
6 I.T.A. No.626 /CHNY/2020 the existing authorized share capital is increased from 3 crores to 10 crores. But the paid up capital of the company is still shown as 2 crores. The board’s resolution which says that paid up capital will be increased from 2 crores to 10 crores is not mentioned in this form. The additional 8 crores brought in as paid up capital is not seen disclosed before the Registrar of Companies. Record of private placement offer to be kept by the company, in Form PAS-5 as per Section 42 (7) and Rule 14 (3) of Companies (Prospectus & Allotment of Securities) Rules, 2014 is produced by the assessee. 7. It is not clear why assessee did not disclose enhancement of its paid up capital from 2 crores to 10 crores. Private placement letters per se will not suffice, unless it is disclosed before the Registrar of Companies. As per the disclosure before the Registrar of Companies, there is no stamp duty paid by Omkara Assets Reconstruction Pvt Ltd. The date of incorporation of the company is given as 19.03.2014 i.e. F.Y. 201 3-14. As per Form No PAS-4 which is private placement offer letter dated 20.11.2015 Point No 2 under the heading ‘particulars of the offer’ to the query amount which the company intends to raise by way of securities, it is mentioned as Rs 8 crores. Another question raised is contribution being made by the promoters or directors either as part of the offer or separately in furtherance of such objects is given as 2,88,00,000/-. This means the promoter/director contribution is only Rs 2.88 crores. 8. As per section 68 of the Income Tax Act, 1961, any credit appearing in the books in the form of share application money, share premium, share capital or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless the person in whose name such credit is recorded in the books of such company offers an explanation about the nature and source of such sum so credited and such explanation in the opinion of the assessing officer was found to be satisfactory. The first proviso under sec 68 is reproduced:- “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—
7 I.T.A. No.626 /CHNY/2020 (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:” 9. In the case of the assessee both the nature as well as source of introduction of share application money has to be satisfactorily explained before the assessing officer. As per assessee’s own submission before the Chief General Manager, Department of Non Banking Regulates, World Trade Centre, Mumbai the date of commencement of business is 23.11.2015. According to this letter addressed to the Chief General Manager the policies approved include the acquisition of assets, resolution of assets, investment of own surplus funds and rules of delegation of powers. These have been approved by the Board. As for as introduction of funds as share capital is concerned, they are through normal banking channels. As per Companies Act, 2013, within 60 days of receiving the share application money shares have to be allotted. Assessee’s AR disclosed that been allotted shares, but assessee has not produced any share certificate as proof for the same. The money invested as share capital has not been utilized for the purpose it is meant to be. The share capital is utilized by the company for commencing its business, for purchase of fixed assets, to pay off debts of the company, to incur expenses for running the company etc. Share capital is to be utilized for working capital requirements of the company. Here in this case assessee share capital is lying as a TDR. In effect it is more akin to investment in an FD, only for name sake shares have been allotted. It is not a case of idle funds parked in an ED or surplus funds deposited in FD. It is share capital money brought in by director/shareholders for the purpose of running the company The Board resolution dated 23.11.2015 as well as the details of private placement offer has specifically stated that the purposes and objects of the private placement offer (here in this case share capital introduced) was keeping in view the expansion and growth of the company. 10. Based on the above discussion it is held that the share capital introduced by the directors/shareholders in Omkara Assets Reconstruction Pvt Ltd has not been satisfactorily explained before the assessing officer as well as before the CIT (Appeals). The
8 I.T.A. No.626 /CHNY/2020 addition of Rs 6,22,00,000/- made by the A.O. under sec 68 of the IT Act, 1961, is upheld. 11. Some of the case laws identified by the assessee like High Court of Bombay Pr.CIT Vs Real Value Realtors (Pvt) Ltd (2020) 113 taxmann.com 62 (Bombay) held that, since the substantial part of share application money was received in earlier A.Ys. addition could not be made in the current A.Y.. In the case of Pr.CIT-2, Thane Vs Shri Rajalakshmi Textile Park (Pvt) Ltd (2020) 113 taxmann.com 2 (Bombay), it was held that since all parties who had subscribed to shares appeared before A.O. and submitted confirmation letter of purchase of shares, copy of audited balance sheet and P&L A/c, copy of bank statement along with R/I as well as Form 23AC of Company General Rules and Forms filed with Registrar of Companies, the addition made by the A.O u/s 68 of IT Act is not valid. In Pr.CIT-4 Vs Hitech Residency (Pvt) Ltd (2018) 96 taxmann.com 402 (Delhi) it was held that since the onus of the establishing identity, genuineness and creditworthiness of both the investors as well as lenders have been rendered the addition made u/s 68 was not valid. In the case decided by High Court of Madras in Lalitha Jewellary Mart (P) Ltd Vs DCIT (2018) 99 taxmann.com 408 (Madras) it was held that since the assessee had explained sources of investments as well as disclosed identity of such investors and payments ‘were received through ban channels, amount of share application money could not be treated as assessee’s undisclosed income u/s 68 of the IT Act, 1961. 12. In the case of CIT Cherinai Vs Pranav Foundation Limited (2014) 51 taxmann.com 198 (Madras) decided by the High Court of Madras held that since the money was received from 4 companies and all companies accepted their investments — assessee had categorically established nature and source of said sum. The Hon’ble Supreme Court of India in Pr.CIT Vs Himachal Fibres Ltd (2018) 98 taxmann.com 173 (SC) held that even though assessee was a sick company earlier, it pulled out of woods in the year 2020, the identity share applicants were clearly revealed but A.O. did not conduct any enquiry, the SLP filed against the order of the High Court was dismissed. In the case of CIT Vs Lovely Exports (P) Ltd the Supreme Court in (2008) 216 CTR 195 (SC), the Supreme Court dismissed the SLP filed holding that if share application money is received by assessee company from alleged bogus shareholders, department is free to proceed to reopen their individual assessments, the same cannot be regarded as undisclosed
9 I.T.A. No.626 /CHNY/2020 income u/s 68. Again in the case of ITO Vs V.R.Global Energy (P) Ltd (2020) 113 taxmann.com 31 (SC), SLP was dismissed by the Supreme Court holding that the cash credits towards share capital where only by way of book adjustments and not actual receipts, could not be treated as unexplained cash credits u/s 68. In the case of ITAT Jaipur Bench (2017) 83 taxmann.com 249 (Jaipur- Tribunal) Jadau Jewelers and Manufacturers (P) Ltd Vs ACIT, Central Circle-2 Jaipur, it was held that since the assessee produced the copy of the share of application, copy of PAN and Bank Account to prove identity, genuineness and creditworthiness of the cash credited, share application money could not be added u/s 68. 13. The assessee’s case is distinguishable from above discussed cases. Here in the assessee’s case the share capital introduced was never utilized for the purpose it was meant to be and invested in the form of FD. It is only investment in FD made by the company camouflaged in the guise of share capital introduced. The addition made by the A.O. u/s 68 as unexplained share capital introduced to the tune of 6.22 crores is upheld as it has not been satisfactorily explained.
The ld.AR for the assessee submitted that the ld.CIT(A) having accepted the fact that the assessee has proved identity and creditworthiness of subscribers of share capital has failed to confirm additions made by the AO on share capital u/s.68 of the Act, by holding that genuineness of transactions was not proved beyond doubt only for simple reason that the assessee has not furnished share certificates issued to subscribers of share capital. The ld.AR further submitted that fact of the matter is that, whatever details asked by the AO was submitted. However, copy of share certificates issued to subscribers was never asked by the AO, therefore, the assessee never had an occasion to
10 I.T.A. No.626 /CHNY/2020 submit those details before the AO. The fact remains that the assessee had issued share certificate to the subscribers which are now placed in paper-book as additional evidence. Therefore, the ld.AR submitted that the issue may be set aside to the file of the AO to verify additional evidences filed by the assessee to prove genuineness of transactions.
The ld.DR on the other hand, fairly agreed that the issue may be set aside to the file of the AO to give one more opportunity of hearing to the assessee to substantiate its case with necessary evidences.
We have heard both parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the ld.CIT(A) has categorically stated that the assessee has filed necessary evidences to prove identity and creditworthiness of subscribers to share capital. In fact, the assessee has placed all records to prove identity and creditworthiness because share capital has been raised from directors and their relatives. As regards, genuineness of transactions although the lower authorities have stated that the assessee has not proved genuineness of transactions beyond
11 I.T.A. No.626 /CHNY/2020 doubt, but fact remains that assessee has placed all possible evidences including bank statements of subscribers to prove genuineness of transactions. Moreover, once having accepted the fact that identity and creditworthiness of subscribers is not in doubtful, there is no reason for the AO as well as the ld.CIT(A) to doubt the genuineness of transactions merely for the reason that share certificates issued to shareholders was not furnished. In fact, the ld.CIT(A) himself has recorded in his appellate order that the assessee has filed all forms required to be filed before the Registrar of Companies for increase in authorized share capital. Once, necessary statutory forms are filed before competent authorities, then issue of share certificates to shareholders is only a formality. Therefore, for that reason doubting genuineness of transactions is not correct. Be that as it may, the assessee has filed paper-book enclosing copies of share certificates issued to shareholders. Further, the assessee claimed that copies of share certificates were not placed before the lower authorities. Therefore, we are of the considered view that the issue needs to go back to file of the AO to verify additional evidences filed by the assessee. Hence, we set aside the appeal to file of the AO and direct him to relook the issue
12 I.T.A. No.626 /CHNY/2020 after considering additional evidences filed by the assessee and consider the issue in accordance with law.
In the result, appeal filed by the assessee is treated as allowed for statistical purpose.
Order pronounced in the court on 14th June, 2021 at Chennai.
Sd/- Sd/- (धु�वु� आर.एल रे�डी) (जी. मंजुनाथ) (Duvvuru RL Reddy) (G. Manjunatha) �याियक सद�य/Judicial Member लेखा सद�य /Accountant Member चे�ई/Chennai, �दनांक/Dated, the 14th June, 2021. RSR आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु� /CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF.