DCIT 12(1)(2), MUMBAI vs. BLUE SQUARE CORPORATE SERVICES P. LTD, MUMBAI

आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:

3. The learned Counsel for the assessee stated the facts that the assessee filed its return of income on 30.09.2009 declaring total income of ₹1,14,92,500/- and this return of income was 3 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 processed under section 143(1) of the Act. Subsequently, on perusal of information received from the office of CCIT (CCA), Mumbai, the AO noticed that the assessee has raised share premium of ₹2.88 crores and for that he issued notice under section 148 of the Act dated 30.03.2014. The assessee in response to this notice stated that the assessee filed its return of income on 30.09.2009 by treating as return filed in response to notice under section 148 of the Act vide letter dated 19.05.2014. The assessee required the AO to provide reasons for reopening of the assessment and AO provided copy of reasons recorded which are reproduced in the assessment order and read as under: - “The assessee company has been incorporated on 03/04/2008. The assessee has filed its first return of income for A.Y.2009-10 on 30/09/2009 declaring total income at Rs. 1,14,92500/-. The return was processed u/s. 143(1) of the Act on 04/03/2011.

On perusal of information available on record and information received form the office of the CCIT(CCA), Mumbai, it is noticed that the assessee has issued 3,20,000 equity shares having fact value of Rs. 10/-on a premium of Rs.90/-. Accordingly, on issue of 3,20,000 equity shares during the year, the assessee has received share premium of 2,88,00,000/-.

4 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 This is the first year of the business operation of the assessee company and therefore the intrinsic value of equity shares issued by the assessee company can only be considered at the face value of Rs. 10/-.

Accordingly, the nature of receipt of the entire share premium of Rs.2,88,00,000/- is unexplained. Therefore, the receipt of share premium to the extent of Rs.2,88,00,000/- in the nature of unexplained cash credit within the meaning of section 68 of the Act.

In view of the above, I have a reason to believe that income chargeable to tax to the extent of Rs.2,88,00,000/- has escaped assessment in the hand of the assessee."

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee company failed to submit details of directors of the companies to which shares were issued even after specifically being asked 6 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 to do so by the AO and thus failed to discharge its onus to establish the 1dentity and creditworthiness of the share applicants and the genuineness of transaction.

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the shares of face value of Rs. 10/- per share, allotted to various companies on premium of Rs. 90/- per share, have been subsequently transferred to the directors of the assessee company at the face value of Rs. 10/- without charging any premium.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,60,00,000/- made by the AO on account of unexplained cash credit u/s 68 of the Act without appreciating the facts of the case elaborately discussed by the AO in the Assessment order u/s 143(3) r.w.s 147 of the Act.”

7. Briefly stated facts are that the AO on perusal of information received from the office of CCIT (CCA), Mumbai, that the assessee has issued equity share of 3.20 lakhs having face value of ₹10 on a premium of ₹90/-. The AO noticed that this is the first year of business operation of the assessee and 7 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 therefore, the strength value of equity share issued by assessee company could only be considered at the face value of ₹10. According to AO, the nature of receipt of entire share premium of ₹2.88 lakhs was unexplained. According to AO, the assessee could not explain the genuineness of transaction and even creditworthiness or source of the entry being amount received in cash. The entire emphasis of the AO is that the entire share premium is received in cash and these entries received was from the bogus companies of Pravin Kumar Jain, who has admitted that he is involved in providing accommodation entries in a statement recorded under section 132(4) of the Act. The AO rejected the contention of the assessee vide Para 4.12 and 4.13 of his order as under: - “4.12 Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders. 4.13 On the question of creditworthiness and genuineness, there is no doubt that the money 8 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 was received through banking channels, but did not reflect actual genuine business activity. The share subscribers did net-have their own profit making apparatus and were not involved in business activity. They merely rotated money, which was coming through the bank accounts, which means deposits by way of cash and issue of cheques. The bank accounts, therefore, did not reflect their creditworthiness or even genuineness of the transaction.”

8. Aggrieved assessee preferred the appeal before CIT(A), who deleted the addition after considering the submissions, case records and facts of the case by observing in Para 4.6 to 4.8 and 4.12 as under: - “4.6 As regards ground no. 2.1 have gone through the assessment order and submissions made in this regard. It is noted that the Assessing Officer doubted the increase in the share capital and share premium of Rs. 3,60,00,000/- and treated the same as unexplained cash credit u/s. 68 of the Income Tax Act, 1961. The appellant has stated in its submissions that the action of the AO to treat these shareholders as non-existent is arbitrary and is based on surmises and conjectures and is contradictory to the facts on record. It is contended that the details of these shareholders clearly shows that all the 9 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 shareholders are active and maintained proper accounts which were duly audited. It is also submitted that the shareholders are having Income Tax Pan Number. It is further observed from the assessment order that the appellant company had filed confirmation, copy of ITR, and copy of bank statements of the share applicants. The appellant in its written submission has quoted and relied on the legal proposition enunciated by decisions of the Hon'ble Courts and ITAT on the issue as reproduced above. 4.7 It is noted that the A.O. has held that the appellant has introduced income from undisclosed sources brought under the garb of share capital and premium of 3,60,00,000/- from different shareholders and hence this amount of issue of the share application money and share premium was assessed as income of the appellant u/s 58 of the Act. In this case the appellant had received share capital and share premium from shareholders which are regularly assessed to tax, these shareholders had submitted the copies of the accounts, copy of PAN, copy of Bank account etc. The A.O. had concluded that based on the test of human probabilities it is clear that the entire transaction is a pre-structured transaction and 10 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 a colorable device used by the assessee company to introduce undisclosed income under the garb of share application money and share capital. The AR has contended that the A.O. bad missed the crucial fact that the share applicants were regularly doing the business and had filed their tax returns on regular basis. The taxes were paid by them on the income so earned. In the light of observations of the Hon'ble Supreme Court in the case of CIT Vs. Lovely Exports (P) Ltd. reported in 216 CIR 295, the onus on the appellant has been duly discharged. The peculiar facts of the case may have caused suspicion in the mind of the A.O. but there is no evidence or other material to hold that the appellant had routed its own money. 4.8 On an analysis of the facts on records, it is seen that the share capital and premium of t 3,60,00,000/- has come from different shareholders. It is noted that these shareholders are existing shareholders and had confirmed that they had contributed to the share capital of the assessee company. The next aspect is their Creditworthiness. The assessee has filed copy of PAN card, bank Statement, balance sheet and P&L account, 11 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 Share Application Form, etc. of shareholders. It emerges out from the record that the investing shareholders had recorded the investments in appellant company. In their books of accounts during the relevant financial year. Thus, the shareholders had demonstrated these balances in their balance sheets in the shape of investment as well as loan and advances. The next issue is about the genuineness of the transaction. The assessee has produced the details of bank account. The share application money and share premium had been issued through banking channel. There is no cash transaction which could compel oneself to assume that the transactions were hot genuine. The AO has made the addition on the issue that the shares were issued to shareholders at high premium and the subscribing shareholders had meagre income during the yea- hence the entire transaction was to be treated as unexplained cash credit U/s 68 of Income Tax Act. The onus cast upon the assessee under Section 68 of the Act is to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295. Whilst, the A.O. acted legitimately in 12 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 enquiring into the matter, the inferences drawn by him were not justified at all in the circumstances of the case. Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry In the first instance. Instead, the issue here was whether the amount invested by the share applicants was from legitimate sources. The objective of Section 68 is to avoid inclusion of amounts which are suspect. Therefore, the emphasis is on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is peculiar in the present case is when the assessment was being completed the A.O. has not made much investigation except issuing of notices u/s 133(6) which were served on the share applicants and these investor shareholders were required to file confirmation, balance sheets and Bank details etc. which would have established that the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants. It has been submitted that these details called for by the AO were duly filled by the share applicants before the AO but the appellant failed to produce the share applicants before the Assessing Officer.”

13 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 Aggrieved, now Revenue is in appeal before Tribunal.

14 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 11. From the above chart, it is clear that the list No. 1 to 4 Shri Sharad Rathi and Mrs. Charu Rathi, they are directors of the company and they have filed documentary evidences in the form of investing in shares. Further, the assessee has filed the bank statement of Mrs. Charu Rathi from where these investments were made at assessee’s paper book page 4 and 5 and complete details of investment made amounting to ₹ 20 lakhs is explained. The ₹ 19 lakhs was invested by cheque no. 75673 on 06.10.2008. Further, a sum of ₹ 1 lakh was transferred vide cheque no. 309636 on 05.04.2008 from the bank account of corporation bank, Goregaon (West) Branch. The relevant evidence is enclosed at assessee’s paper book at pages 4 and 5. Similarly, in the case of Shri Sharad Rathi a sum of ₹19 lakhs was invested from HDFC Bank account vide cheque No.232568 on 08.10.2008. Further, in the case of Yashman Vypar Pvt. Ltd. of ₹2 crores, these were transferred on 10.04.2008 vide cheque no. 536540 of ₹1 crores and another 1 crores was transferred on 15.04.2008 vide cheque No.536541. This amount was transferred from Tamilnad Mercantile Bank Ltd. Calcutta Branch. In the case of Real Gold Trading Co. Ltd a sum of ₹20 lakhs was received on 10.10.2008 vide cheque No.493905 and a sum of ₹35 lakhs was received on 10.10.2008 vide cheque No. 493906 from corporation bank. In the case of Stocknet Investment & Finance Ltd. as sum of ₹20 lakhs was transferred on 17.10.2008 by way of transfer from the bank account of Stocknet International to the assessee. Similarly, in the case of Doldrum Investment & Finance Ltd. the amount of ₹20 lakhs was transferred on 16.10.2008 of ₹10 lakhs and another 10 lakhs again on 16.10.2008. In the case of 15 | P a g e Blue Square Corporate Services P Ltd. CO 273/Mum/2018 Artillengence Bio Innovations Ltd. the amount of ₹25 lakhs was transferred to assessee vide cheque No. 826145 dated 17.10.2008. We have gone through the bank statements above mentioned and noted that all the parties have sufficient cash balance in their respective bank accounts for investing in share premium of the assessee.