M/S.KRISNAPING MINERALS PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, PANVEL CIRCLE, PANVEL

O R D E R Per G Manjunatha, Accountant Member

These two appeals filed by different assessee’s are directed against separate, but identical orders of the CIT(A)-17, Mumbai dated 28.12.2018 and 17.01.2019 pertaining to A.Y. 2012-13. Since, facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed off, by this consolidated order.

The assessee has raised following Grounds of appeal: “On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the addition made by the learned Assessing Officer on account of share capital money received of ` 10,65,00,000/- u/s. 68 of the Income Tax Act 1961, without considering the facts of the case.”

3. The brief facts of the case are that the assessee company, engaged in the business of trading in minerals, filed its return of income for A.Y. 2012-13 on 29.09.2012 declaring total income of ` 1,08,14,510/-. The case was selected for scrutiny and notices u/s. 143(2) and u/s. 142(1) of the Act, were issued. In response to the notice, the AR for the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had received share application money from seven subscribers as listed in para 3 of his order and, accordingly, called upon the assessee to explain and furnish necessary details in respect of share application money and also justification for issue of shares at premium. In response, the assessee has filed details of share application money received from those seven companies along with application for allotment of equity shares, PAN, financial statements and the confirmations from the parties. The assessee has also filed valuation report for justifying issue of shares at premium. The Assessing Officer, in order to ascertain correctness of details filed by the assessee called upon the assessee to produce the persons for verification. Though, the Assessing Officer has given opportunity to the assessee to produce the parties, the assessee could not produce them. The Assessing Officer therefore, came to the conclusion that the assessee could not prove the identity of the parties, genuineness of the transactions and credit worthiness of the parties. Accordingly, after analyzing the financial position of each of the subscribers, the Assessing Officer came to the conclusion that none of the subscribers were in a position to invest in assessee company in shares issued at high premium, which is evident from the fact that although they have shown huge reserves and surplus in the balance sheet, but their net profit is either nil or negligible. The Assessing Officer further observed that although the assessee had issued shares at huge premium, on perusal of the financial statement of the assessee reveals that it is predominantly a trader with nominal profit margin.

The Assessing Officer has also observed that without prejudice to the above finding, in the light of provisions of section 68, the provisions of section 56(2)(viib) of the Income tax Act, which has been inserted by the Finance Act, 2012, is applicable to the assessee’s case. Therefore, he opined that the assessee has failed to prove the credit found in the form of share application money received from various parties to the satisfaction of the Assessing Officer and, accordingly, made additions of ` 10,65,00,000 u/s. 68 r.w.s 56(2)(viib) of the I.T.Act, 1961.

4. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee had filed written submissions, which has been reproduced in para 3 at pages 2 to 8 of the order of the CIT(A). The sum and substance of arguments of the assessee before the CIT(A) is that the assessee has discharged the genuineness of share premium and also credit worthiness of the share holder by filing various details including name, address, PAN of the share holder, their Income Tax acknowledgment along with financial statements for relevant assessment year, CIN master data of the share holder obtained from the Registrar of Companies, share application forms, Board resolution of share holder companies to invest in equity shares of the assessee company, Form No.2 (Return filed in ROC), bank statements of the share holder companies and confirmation from the investors. The assessee has also filed valuation report obtained from independent valuer, where the valuation has been made by following DCF method.

Although, assessee has filed complete details of the share application money received from the above companies, the Assessing Officer without carrying out any further inquiries in order to ascertain the true nature of the transactions, simply made the additions on the basis of financial statements of the assessee to come to the conclusion that none of the share holders have the capacity to explain huge investments made in the assessee company. In this regard, he relied upon plethora of judicial decisions including the decision of Hon’ble Supreme Court in the case of CIT vs. Lovely Exports (P) Ltd. 216 CTR 195.

5. The CIT(A) after considering the submissions of the assessee and also on analyzing the facts brought out by the Assessing Officer in respect of each of the subscriber companies came to the conclusion that the assessee has failed to prove credit found in form of share capital with necessary evidence, more particularly on the aspect of credit worthiness of the subscriber, which is evident from the fact that all companies have declared either nil income or loss for the year under consideration, even though they have carried huge reserves and surplus in their financial statements. The CIT(A) further observed that the Assessing Officer has brought out facts in the light of bank statements that there are hardly any transactions except debit and credit on the date of transfer to the assessee company and, therefore, from the above it is clear that all investor companies appear to be shell companies. Therefore, the CIT(A) opined that the Assessing Officer was right in making additions towards share application money received from seven subscriber companies as unexplained credit within the meaning of section 68 of the Income tax Act, 1961. The CIT(A) further observed that the Assessing Officer has also rightly invoked provisions of section 56(2)(viib) of the I.T.

Act, 1961, because from A.Y. 2012-13 onwards, the provisions have been amended so as to bring any receipt without consideration. Since the assessee has failed to offer any explanation in respect of share premium, the Assessing Officer was right in making additions towards share premium under the provisions of section 56(2)(viib) of the I.T.Act, 1961. The relevant findings of the CIT(A) are as under:

4.2.4 Argument during the appellate proceeding : , i) First of all it has been argued that the information like PAN , copy of Income tax acknowledgment , Master data, copy of share application forms,

Board resolution, Confirmation of account etc., have been submitted before the AO which tantamount to discharging the onus cast upon the appellant company. Question arises, does above submissions are sufficient enough to discharge the onus on part of the appellant company.

As we have held that PAN Numbers are allotted on the basis of applications without actual de facto verification of the identity or ascertainment of the active nature of business activity. PAN Number is allotted as a facility to revenue to keep track of transactions. The PAN Number cannot be blindly and without consideration of surrounding circumstances treated as sufficiently disclosing the identity of the individual. The mere filing of share application is not enough as the said application is not an unimpeachable document and does not on its own prove the genuineness or authenticity of the transaction. It can at best be treated as a corroborative document. Since the share application form is not an unimpeachable document, it cannot on its own be treated as sufficient for cross- verification of the transaction. We have already held that that mere production of PAN Number or assessment particulars does not establish the identity of a person. The identification of a person includes the place of work, the staff and the fact that it was actually carrying on business and further recognition of the said NEmpany/individual in the eyes of public. ii) It has further been argued that submissions of details showing identity, bank details and details related to ROC are sufficient compliance for ingredients of section 68 of the Act.

Prima facie onus is always on the assessee to prove the cash credit entry found in the books of account of the assessee. In land mark cases like Kale Khan Mohammad Hanif v CIT[1963] 50 ITR 1 (SO. Roshan Di Hatti v CIT [1977] 107 ITR 107 (SC) it has been held that the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee, is on him. Where the nature and source thereof cannot be explained satisfactorily, it is open to the revenue to hold that it is the income of the assessee and no further burden is on the revenue to show that the income is from any particular source.

In case of Shankar Ghosh v. ITO [J19851 13 IIP 440 (Cal.) the assessee failed to prove the capacity of the person from whom he had allegedly taken loan. Further, assessee could not explain the need for loan and the manner in which the loan amount was spent. The creditor had issued two letters demandinq repayment but did nothing on non-compliance therewith. Such letters did not, therefore, carry any conviction about the explanation of the assessee. The burden not having been discharged by assessee, loan amount was rightly held as assessee's own undisclosed income. Case of Sikri & Co. (P.) Ltd. v. CIT [1977] 106 ITR 682 (Cal.)- In case of cash credit the assessee has to prove the genuineness of cash credits. In this case summons issued by ITO to creditors were not served as creditors were not traceable and the assessee gave no further information- regarding whereabouts of creditors. No other evidence was produced by the assessee to show creditworthiness of creditors. The creditors were also shown to have denied advancing any loan to assessee before J their respective ITOs. Held that cash credit was rightly assessed as income from undisclosed sources.

Case of CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal.)- Mere filing of the income-tax file number of the creditors was not enough to prove the genuineness of the cash credit. The creditor had to be identified. There should be creditworthiness. There should be a genuine transaction.

4.2.6 It has further been argued that negative worth of investor company does not have any bearing on the ingredients of section 68. It has been argued that even if the appellant company has also a negative net worth it can still fetch higher premium. The principles laid down by Hon'ble Bombay High Court in case of Gagandeep Infrastructure has been quoted below.

First of all the huge negative net worth of appellant company raises serious question on the premium which has been claimed ( Rs.90 for each share of face value of Rs.10). Similarly the negative net worth of the investor company raises question on the creditworthiness. On the issue of examination of creditworthiness of investor , the question has been raised that source of source cannot be examined amended provision of section 68.

Source of source can be examined even under unamended provision of section 68 of the Act. If it is a simple case, the detailed submitted like PAN, Bank statement, ITR etc can be accepted on face value. However, if it is associated with something more like accommodation entry, capital generation, entry from shell company, the AO is well within its right to examine source of source. a) Pragati Financial Management (P.) Ltd. v. Commissioner of Income- tax-11 [2017] 82 taxmann.com 12 (Calcutta) :- • "A coordinate bench of the Court in dealing with an almost identically worded over of the Commissioner in the case of Raimandir Estates (P.) Ltd, v. Pr, CIT [2016l 386 ITR 162/240 Taxman 306/70 taxmann.com 124. construed the provisions of section 68 as it was before the amendment being the law which prevailed in the relevant previous year in that proceeding, and held that 'the use of the words 'any sum found credited in the books' in section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine. The ITO may even be justified in trying to ascertain the source of depositor'. Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. The exercise of power under section 263 by the Commissioner was not an act of reactivating stale issues.' [Para 10] • This judgment was carried up in appeal by the assessee before the Supreme Court and the Supreme Court dismissed the special leave petition finding no reason to entertain the same. [Para 11] b) CIT v. Sophia Finance Ltoj. [1994] 205 iTR 98 :-

"11. Further even prior to the amendment, the Special Bench of Delhi High Court in the case of CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 [1993] 70 Taxman 69 held that "the ITO may even be justified in trying to ascertain the source of depositor". The High Court held:

"As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income- tax Officer has the jurisdiction to enquire from the I assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not." The Court further held, "...it is clear that the Income tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money."

12. From the above discussion it is seen that the legislative intent was always to protect against benami transactions done with a view to evade identifying the real contributor of funds. However, such an interpretation, especially in the pre- amendment regime, has not been consistent. Any reliance on the dismissal of SLf by the Supreme Court in the case of CIT v. Lovely Exports (P) Ltd., [2008] 216 CTR 195, which is used as a tool to defend against the 'source of source' inquiry, is wrong. Therein the SC held: "We find no merit in this special leave petition 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 Assessing Officer, then the Department is free to proceed to reopen their

individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment." It is to be noted that the verdict was passed in the pre-amendment regime on 11.01.2008. c) Hon'ble Delhi High Court in case of Nova Promoters & Finlease 342 ITR 169 held :

The decision in the case of C/Tv. Lovely Exports [2008] 216 CTR 195 (SCt was considered in C/Tv. Nova Promoters & Finlease (P.) Ltd. [2012] 342 ITR 169/206 Taxman 207/18 taxmann.com 217 (Delhi) and it was elucidated :—

"The ratio of a decision is to be understood and appreciated in the background of the facts of that case. So understood, it will be seen that where the complete particulars of the share applicants such as their names and addresses, income tax file numbers, their creditworthiness, share application forms and shareholders' register, share transfer register etc. are furnished to the Assessing Officer and the Assessing Officer has not conducted any enquiry into the same or has no material in his possession to show that those particulars are false and cannot be acted upon, then no addition can be made in the hands of the company under sec. 68 and the remedy open to the revenue is to go after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operand! is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre-mediated plan - a smokescreen - conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 to prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary. d) The Hon’ble Delhi High Court in CIT v. Navodaya Castles (P.) Ltd. [2014] 367 ITR 306/50 taxmann.com 110/226 Taxman 190 (Mag) following the principle laid down in Nova Promoters &Finlease (P.) Ltd..(supra) has held that the share capital in case of a closely held company is required to be examined by the AO in terms of section 68 and the failure of the assessee to satisfy the AO, calls for addition u/s 68. It is useful to mention that the SLP filed by the assessee against this judgment has been dismissed by the Hon'ble Supreme Court which has been since reported as Navodaya Castles (P.) Ltd. v. CIT [2015] 230 Taxman 268/56 taxmann.com 18 (SC). e) The Hon'ble Calcutta High Court in CIT v. Active Traders (P) Ltd. [1995] 214 ITR 583/[1993] 69 Taxman 281 (Cal) has held that the Assessing Officer in the assessment of the company has jurisdiction to ask for the information from the shareholders regarding the source of investment made in the company. lt\ set aside the view of the tribunal that there could be no enquiry regarding the source of investment of the shareholders in the shares of the company. Their Lordships observed that : 'If a cash credit is shown by the company in its books of account and if the source cannot be explained properly the ITO may assess the sum as income of the company from undisclosed source.' f) Hon'ble Calcutta HC in case of Maithan international(2015) 375 ITR 123 held :

We are conscious of the doctrine of 'source of source' or 'origin of origin' and also possible difficulty which an assessee may be faced with when asked to establish unimpeachable creditworthiness of the share subscribers. But this aspect has to be decided on factual matrix of each case and strict or stringent test may not be applied to arms length angel investors or normal public issues. Doctrine of 'source of source' or 'origin of origin' cannot be applied universally, without reference to the factual matrix and facts of each case. The said test in case of normal business transactions may be light and not vigorous. The said doctrine is applied when there is evidence to show that assessee may not be aware, could not have knowledge or was unconcerned as to the source of money paid or belonging to the third party. This may be due to the nature and character of the commercial/business transaction relationship between the parties, statutory postulates etc. However, when there is surrounding evidence and material manifesting and revealing involvement of the assessee in the "transaction " and that it was not entirely an arm's length transaction, resort or reliance to the said doctrine may be counter-productive and contrary to equity and justice. The doctrine is not an eldritch or a camouflage to circulate ill gotten and unrecorded money. Without being oblivious to the constraints of the assessee, an objective and fair approach/determination is required. Thus, no assessee should be harassed and harried but any dishonest facade and smokescreens which masquerade as pretence should be exposed and not It has further been argued that irrespective of the characteristics of investor company, it is the Board of Director, who passes resolution with respect to investment in a company and such decisions of Board of Directors cannot be challenged by the AO. There is no denial of the fact that the commercial decisions are to be made by the Board of Director of the company. However, these decisions can certainly be examined if the investments in the guise of share capital application money/premium are being recorded in the books of account from suspicious business entity. The business entities threadbare examined by the AO are characters of the shell company.

4.2.7 It has further been argued that the recent amended provision u/s.56 (2)(viib) and proviso to section 68 cannot have a retrospective application and thereby the share application money/premium , creditworthiness etc., cannot be examined under unamended provision.

(iv) Share capital/ S.Application money/Share Premium/ Credit Worthiness/Source of Source can very well examined even under amended provision.

Pee Aar Securities Ltd. 96 Taxmann. Com 602 (Delhi Tribunal) held :

Before parting with the matter, we may briefly deal with the contention of the assessee that since amendment in Section 68, with respect to addition for unverified share capital subscription, was effective from 1st April 2012, it can only be prospective and it will jnot apply for this assessment year. On a conceptual note, every specific amendment to the law, particularly when it is disadvantageous to the taxpayers and is enacted ex abundanti cautela (as a measure of abundant caution) is generally, fraught with, what tax academicians and policymakers term as, the risk of its 'kill effect'. The risk is that when a specific provision, to make the things clear and beyond any doubt, is enacted with respect to a particular point of time and a particular consequence is envisaged by the provision, interpretation of the law or treaty will invariably be inclined to draw to the inference that no such consequence was envisaged by the legislature or the treaty prior to the amendment coming into force. That is a common and fairly well accepted approach. There is, however, a rider. The rider is that even on the first principles and in a situation in which a binding judicial precedent or judicial analysis of the pre-amendment legal has already come to the same conclusions, as indicated by the specific amendment as a measure of abundant caution, such a "kill effect" is ruled out. That precisely is the situation before us. In such cases, the impact of amendment remains confined to the areas on which either (i) on the areas on which, with the help of pre- amendment provisions, the judicial conclusions are at variance with the conclusions arrived at with the help of amendment; or (ii) such areas have remained intact from the judicial precedent. Viewed thus, merely because there is a specific amendment to section 68 with effect from 1st April 2012, it does not affect the interpretation of Section 68 on | basis of the binding judicial precedents, de horse this amendment, and the first principles.

Even under unamended provision of section 68, an income-tax officer was not precluded from making an inquiry about true nature and source of sum found credited in books even if same was credited as receipt of share application money.

4.2.8 The reliance has also been placed upon the judgment of Hon'ble Supreme Court in case of Lovely Exports (Supra) and other judgments/decision based on lovely exports.

Lot water has been flown in Ganges since the judgment of Hon'ble Supreme Court in case of Lovely Export was delivered. This judgment was given under a peculiars fact of the case which is not at all applicable in Private Company as specified by various High Courts.

Reliance has been placed on the judgement of the Hon'ble Apex Court in case of Lovely Exports Ltd. (2008) 299 ITR 268, to claim that 'source of source' can't be asked to be proved. If the assessee is able to prove identity and genuineness of share investors, then revenue should examine share investor if there is any doubt, is its creditworthiness. Number of High Courts have examined the ratio of Lovely Exports Ltd. (supra) and has held inapplicable in private limited company.

(a) Commissioner of Income-taxv. N.R. Portfolio (P.) Ltd. [2014] 42 taxmann.com 339 (Delhi) :-

In Lovely Exports Ltd. (supra), a Division Bench examined two earlier decisions of this court in CIT v. Steller Investment Ltd. [1991] 192 ITR 287(Delhi) and CIT v. Sophia Finance Ltd. [1994] 205 ITR 98(Delhi) (FB). The decision in Steller Investment's case (supra) was affirmed by the Supreme court but, by observing that the conclusion was on the facts and no interference was called for. Lovely Exports Ltd. (supra) was a case of public limited company where shares were subscribed by public and it was accordingly observed:—

"This reasoning must apply a fortiori to large scale subscriptions to the shares of a public Company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the Company/assessee or to creditors of the assessee. This is why this has adopted a very strict approach to the burden being laid almost entirely on assessee which receives a gift." b) Nova Promoters & Finlease (P.) Ltd. (2012) 342 ITR 169 (Delhi) :-

The decision in the case of Lovely Exports Ltd. (supra) was considered in Nova Promoters and Finlease (P) Ltd. (2012) 342 ITR 169 (Delhi) and it was elucidated:—

after the share applicants in accordance with law. We are afraid that we cannot apply the ratio to a case, such as the present one, where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The ratio is inapplicable to a case, again such as the present one, where the involvement of the assessee in such modus operand! is clearly indicated by valid material made available to the Assessing Officer as a result of investigations carried out by the revenue authorities into the activities of such "entry providers". The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a pre- meditated plan - a smokescreen -conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio. In our understanding, the ratio is attracted to a case where it is a simple question of whether the assessee has discharged the burden placed upon him under sec. 68 fo prove and establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. In such a case, the Assessing Officer cannot sit back with folded hands till the assessee exhausts all the evidence or material in his possession and then come forward to merely reject the same, without carrying out any verification or enquiry into the material placed before him. The case before us does not fall under this category and it would be a travesty of truth and justice to express a view to the contrary."

(C) In Mimec (India) (P.) Ltd. v. Dy. CIT [2013] 353 ITR 284/ also, the assessee relied on the ratio in the case of Lovely Exports (P.) Ltd. (supra) for contending that if share application money was received even from bogus shareholders, the Department could not regard it as undisclosed income of the assessee company. Repelling such contention, the Hon'ble High Court observed that : 'The judgment in Lovely Exports (P.) Ltd. (supra) was rendered in the particular facts and circumstances of that case. The judgment may not lay down any proposition of law that operates as a binding precedent on this Court....'.

The appellant company has submitted virtually all the case laws associated with section 68 in a form of commentary. I. am afraid, such approach does not help the cause of the appellant. Many of the cases have been discussed in above paragraph. In rest of the case, the facts and circumstances are clearly distinguishable and judgments cannot be held as a cardinal .principle for invocation of section 68.under the facts and circumstances of the appellants case.

In view of the above discussed facts, analyzed case laws and references of the AO's examination in the assessment order, I have no reasons to deviate from the finding of the AO. The appellant company has failed to prove all the three ingredients of section 68, particularly, the negative worth of the investor company, the transfer of fund to the appellant company immediately after receipt of certain credit in the bank account, total characteristics of investor as a shell company etc,, are clear evidence to show that the appellant company has laundered its own money in the guise of share money/premium. Thus, the addition made by the AO is confirmed and therefore ground of appeal filed on this issue is dismissed”

6. Aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. The learned AR for the assessee submitted that the ld. CIT(A) was erred in confirming the additions made by the Assessing Officer towards share application money received from seven subscribers amounting to ` 10,65,00,000/- u/s. 68 of the I.T.Act, 1961 without appreciating fact that the Assessing Officer never disputed identity of the subscribers and genuineness of the transactions. The AR further submitted that although the Assessing Officer has accepted identity of the subscribers, he disputed credit worthiness of the subscribers on the basis of financial statements without carrying out further enquiries either by issue of notice u/s. 133(6) or summons u/s 131 to ascertain true nature of transactions between the parties. On the other hand, the assessee has discharged its initial onus by filing enormous documents, including confirmation from the parties where they have categorically stated that investments in assessee company is genuine transaction and has been routed through banking channels. The assessee has also filed complete details about identity of the subscribers including their PAN, address etc.

The assessee has also filed income tax acknowledgment of the subscribers along with financial statement and bank statements. The Assessing Officer never disputed the fact that the assessee has filed necessary documents in order to prove identity of the subscribers and genuineness of the transactions. Once, the assessee discharges initial burden placed upon him, then the onus shifts to the shoulder of the assessing officer to prove otherwise. In this case, the Assessing Officer neither carried out any further enquiries, nor called upon the assessee to explain the credit with further evidences. The Assessing Officer came to the conclusion that the transaction between the parties are not genuine merely on the basis of financial statements of the assessee, more particularly on basis of income declared for the year under consideration without appreciating the correct legal position of law that in order to bring any credit within the ambit of section 68 of the Act, the Assessing Officer should prove that the credit is, in fact, the income of the assessee from undisclosed sources. In this case, nothing has been pointed out by the Assessing Officer. The learned AR further referring to various judicial precedents including the decision of Hon’ble Bombay High Court in the case of CIT vs. Creative World Telefilms Ltd. (333 ITR 100) submitted that once the assessee has discharged initial onus of proving identity, genuineness of transaction and credit worthiness of the parties, then the Assessing Officer can proceed to re-open the assessment of the creditors, but sum so received from the creditors cannot be regarded as undisclosed income of the assessee. The assessee has further relied on the following judicial precedents: a) Green Infra Ltd vs. ITO 38 taxmann.com 253 (Mum-lTAT) dated 23/8/2013 b) CIT vs. Goa Sponge and Power Ltd Tax Appeal No. 16 of 2012 (Bombay High Court) c) CIT vs. Creative World Telefilms Ltd 333 ITR 100 (Bom-High Court) d) CIT vs. Lovely Exports (P) Ltd 216 CTR 195 (SC) e) CIT vs. Steller Investment Ltd 251ITR 263 (SC) f) SDB Estate Pvt Ltd vs. ITO g) CIT vs. Expo Globe India Ltd 361 ITR(0147 (Del-High Court) h) CIT vs. Victory Spinning Mills Ltd (2014) 90 CCH 55 (Mad -High Court) i) CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del-High Court) j) CIT vs. Nishan Indo Commerce Ltd 101 DTR 0413 (Cal - High Court) k) CIT v. Vacmet Packaging (India) Pvt Ltd (2014) 88 CCH 065 (All-HC) l) CIT vs. Gangeshwari Metal Pvt Ltd (2014) 361 ITR 10 (Del-High Court) m) ACIT vs. Venkateshwar Ispat Pvt Ltd (2010) 319 ITR 393 (Chhatisgarh-High Court) n) CIT vs. Nav Bharat Duplex Ltd (2013) 35 Taxmann.com 289 (All-High Court) o) CIT vs. Samir Bio-Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) p) Mod Creations Pvt Ltd vs. ITO (2011) 354 ITR 282 (Del-High Court) q) CIT vs. Jay Dee Securities & Finance Ltd 32 Taxmann.com 91 (All-High Court) r) Jaya Securities Ltd vs. CIT (2008) 166 Taxman 7 (All-High Court) (SLP filed by dept dismissed)

7. The learned DR, on the other hand, strongly supporting order of the CIT(A) submitted that the Assessing Officer as well as the CIT(A) has brought out clear fact to the effect that although the assessee has filed number of documents to prove identity of the creditors, remaining two aspects of the issue i.e. genuineness of the transaction and creditworthiness of the subscribers are in doubt. The DR further submitted that mere furnishing of documents to prove identity is not enough to come out of the shadow of provisions of section 68 of the I.T.Act, 1961. But, what is relevant is to discharge the onus by filing necessary evidence to prove true identity of the creditors, genuineness of the transactions and creditworthiness of the parties. In this case, although the assessee has filed number of documents to prove the identity, he could not produce creditors in person when called upon by the Assessing Officer, therefore, it is very clear that identity of the parties is in doubt and their creditworthiness is also not proved to the satisfaction of the Assessing Officer. Although, the subscribers have filed their acknowledgment of income tax return, the profit declared for the year under consideration are either nil or negligible when compared to the huge amount of share capital invested in the assessee company. Although, the assessee had filed bank statements of the subscribers, a perusal of bank statements reveal that except debit and credit in respect of movement of funds between the assessee company and the investors, no significant transactions was there to prove that in fact, they are into business activity. Similarly, the assessee has failed to explain charging of huge premium with necessary business activities and valuation. Although, valuation report has been filed to support issue of shares at premium, on a perusal of valuation report, it is found that valuation of shares has been arrived at on the basis of DCF method on estimated earning of subsequent years without any support from the existing business of the assessee and also financial strength to support such valuation.

Therefore, the Assessing Officer as well as the CIT(A) have clearly rejected the arguments of the assessee to come to the conclusion that credit found in the form of share capital has not been explained to the satisfaction of the Assessing Officer and, accordingly, made addition u/s. 68 of the Act. In this regard, he relied on the decision of Hon’ble Supreme Court in the case of DCIT vs. NRA Iron & Steel Pvt. Ltd (2019) 412 ITR 161(SC).

Therefore, he opined that mere furnishing of certain documents is not sufficient enough to prove identity of creditors, genuineness of transactions and creditworthiness of the parties. The AO has examined each of the seven subscribers and narrated facts in the light of financial statements filed by the assessee to come to the conclusion that the subscriber companies are in fact paper companies without any credible business activity. The AO has also questioned share premium charged by the assessee in light of business activity and financial strength. According to the AO, although the assessee has filed valuation report in support of share price, such report has been prepared on the basis of future earnings of the assessee without any support from existing business activity and asset base.

9. The AO has made additions towards share capital u/s. 68 of the I.T.Act, 1961, on the ground that the assessee has failed to offer any explanation with regard to credit found in the nature of share capital. The provisions of section 68 deals with a case where any sum found credited in the books of account of the assessee in any previous year, for which the assessee offers no explanation about the nature and source thereof, or the explanations offered by the assessee in the opinion of the AO is not satisfactory, then sum so credited may be charged to income tax as income of the assessee of that previous year. A plain reading of section 68 makes it clear that to fix any credit within the ambit of said provision, the AO has to examine three ingredients i.e. identity, genuineness of transactions and creditworthiness of the parties. If the assessee proves all three, then the onus shifts to the AO to prove otherwise. In this case, on perusal of facts brought out by the AO and the learned CIT(A) it is abundantly clear that there is no dispute of whatsoever with regard to the identity of the parties. The assessee has filed complete details of the subscribers including their names, address and PAN. The assessee has also filed IT acknowledgment copies for the relevant financial year.

Once the assessee has filed documents to prove the identity, then it is for the AO to ascertain whether the parties are, in fact, genuine or not in the light of the evidences filed by the assessee for which the AO has to carry out necessary inquiries in order to ascertain the transaction between the parties. In this case, the AO has filed to do so his duty, which is evident from the fact that he has not issued notice u/s. 133(6) or summons u/s. 131 of the I.T. Act, 1961. Although, the AO has called upon the assessee to produce parties in person, the fact of the matter is that once the assessee has discharged its onus, then the AO has to do his part of the job before he reaches a conclusion with regard to the identity of the parties.

10. Coming to the other aspect of provisions of section 68 of the Act. The AO has doubted genuineness of transaction and creditworthiness of the parties.

According to the AO, none of the subscribers have enough source of income to explain huge investments made in shares of the assessee company. To come to such a conclusion, the AO has basically analyzed the financial statements of the assessee. We find that the assessee has filed income tax acknowledgment copies of the subscribers along with their financial statements and bank statements for the relevant year. On perusal of bank statements, we find that although the subscribers companies do not have sufficient income for the year under consideration; but when it comes to availability of source there is no doubt of whatsoever with regard to payments made to the assessee company. In fact, the AO has never disputed the aspect of payment through banking channels. We further noted that the amount is paid through proper banking channels. In the bank statements of the subscriber companies there is no cash deposit either before the date of transfer of funds to the assessee or subsequent to the date of transfer. Further, the subscriber companies have enough reserves and surplus in their books of accounts. All these evidence go to prove beyond doubt that the assessee has discharged its onus of proving the genuineness of transactions and creditworthiness of the parties. Once the assessee has discharged its onus, then it is for the AO to ascertain correctness of claim of the assessee by carrying out further inquiries. In this case, the AO has failed to do so.

Therefore, we are of the view that there is no merit in the findings recorded by the AO or the CIT(A) that the assessee has failed to discharge its onus of proving the three ingredients provided u/s. 68 of the I.T. Act, 1961.

11. Coming to the other aspect of the issue, the AO has invoked the provisions of section 56(2)(viib) of the I.T. Act, 1961. We find that the said provision has been inserted by Finance Act, 2012 w.e.f 10.04.2013, where it provides that where a closely held company issues its shares at a price which is more than its fair market value, then amount received in excess of fair market value will be charged to tax in the hands of the company as income from other sources. We, further noted that the provisions of section 56(2)(viib) was inserted by Finance Act,2012 w.e.f.

1.04.2013 is applicable from A.Y. 2013-14 onwards. In fact a similar amendment has been made in section 68 by insertion of a proviso by the Finance At 2012 w.e.f.

01.04.2013 as per which the assessee company (not being a company in which public are substantially interested) and sums 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 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 such explanation in the opinion of the AO aforesaid has been found to be satisfactory. On perusal of amendments brought out by Finance Act 2012, w.e.f. 01.04.2013 to the provisions of section 56(2)(viib) and section 68 of the Act, it is very clear that where the assessee has issued shares at premium and also received share capital and if such company do not offer any explanation about the nature and source, then sum so received may be regarded as income of the assessee from undisclosed sources. In other words, the purpose of insertion of proviso is to examine the source of investment by subscriber to the share capital. This amendment has been examined by the Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680, where the court observed that proviso inserted to section 68 w.e.f. 01.04.2013 is considered to be prospective in nature and is applicable from A.Y. 2013-14 onwards.

From the above, it is very clear that similar amendment has been made to provisions of section 56(2) by insertion of clause (viib) so as to bring share premium within the ambit of section 56(2) of the I.T Act, 1961. Since, the proviso inserted to section 68 is considered to be prospective in nature, obviously sub clause (viib) inserted to section 56(2) is also considered to be prospective and cannot be applied to the assessment year in question. Even otherwise, assuming for a moment that above provisions are applicable for the year under consideration, in order to apply said amended provisions, the AO has to prove that the assessee has not proved capacity of the investors and also not offered any justification for issue of shares at premium. In this case, from the facts on record, it is clear that the assessee has proved identity and genuineness of the transactions by filing necessary evidences.

The assessee has filed valuation report from registered valuer as per which the share price of the company is over and above premium charged by the assessee.

Therefore, we are of the considered view that provisions of section 56(2)(viib) has no application.

CIT vs. Goa Sponge and Power Ltd (13/02/2012) Tax Appeal No. 16 of 2012 (High Court-Bombay) "Once the authorities have got all the details, including the name and addresses of the shareholders, their PAN/GIR number, so also the name of the Bank from which the alleged investors received money as share application, then, it cannot be termed as "bogus". The controversy is covered by the judgements rendered b y the Hon'ble Supreme Court in the case of Lovely Exports Pvt Ltd, vs. CIT, (2008) 216 CTR (SC) 195, as also by this Court in CIT vs. Creative World Tele films Ltd, (2011) 333 ITR 100 (Bom). In such circumstances, we are of the view that the Tribunal's finding that there is no justification in the addition made under Section 68 of the Income Tax Act,, 1961 neither suffers from any perversity nor gives rise to any substantial question of law." CIT vs. Creative World Tele films Ltd (2011) 333 ITR 100 (Born-High Court) "The question sought to be raised in the appeal was also raised before the Tribunal and the Tribunal was pleased to follow the judgment of the apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR (SC) 195. wherein the apex Court observed that if the share application money is received by the assessee-company from alleged bogus shareholders, w hose names are given to the AO, then the Department can always proceed against them and if necessary reopen their individual assessments. In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the AO to make proper investigation and reach the shareholders. The AO did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable In our considered view, the AO ought to have found out their details through PAN cards, bank account details or from their bankers so as to reach the shareholders since all the relevant material details and particulars were given by the assessee to the AO. In the above circumstances, the view taken by the Tribunal cannot be faulted." CIT vs. Lovely Exports (P) Ltd (2008) 216 CTR 195 (SC) "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." CIT vs. Steller Investment Ltd (2001) 251 ITR 263 (SC) (civil appeal) "That the increase in subscribed capital of the respondent company could not be a device of converting black money into white with the help of formation of an investment company, on the round that, even if it be assumed that the subscribers to the increased capital were not genuine, tinder no circumstances could the amount of share capital be regarded as un disclosed income, an appeal was taken by the Department to th e

Supreme Court. The Supreme Court dismissed the appeal holding that the Tribunal had come to a conclusion on facts and no interference was called for." CIT vs. Nav Bharat Duolex Ltd (2013) 35 Taxmann.com289 (All-High Court) "We have considered the arguments of the counsel for the parties. CIT(A) found that five companies subscribing the equity shares amounting to Rs. 25,00.000/- were identified and they had submitted their bank statements, cash extracts and returns filing receipts. As such identity of the share applicant companies and purchase of share had been proved by the assessee. Supreme Court in the cases of CIT v. Steller Investments Ltd. [2001] 251 ITR 263 and Lovely Exports case (supra), has held that the identity of the shareholder alone is required to be proved, in case of the capital contributed by the shareholders. Accordingly CIT(A) and the Tribunal has not committed any illegality in allowing the appeal of the assessee. We do not find any illegality in the judgment of the CIT(A) and the Tribunal." CIT vs. JayDee Securities & Finance Ltd (2013) 32 Taxmann.com91 (All-High Court) "The Tribunal recorded findings that the assessee had produced the return of income filed by the relevant shareholders who had paid share application money. The assessee had also produced the confirmation of share holders indicating the details of addresses, PAN and particulars of cheques through which the amount was paid towards the share application money. The Tribunal thereafter relied upon the judgment of the Supreme Court in CIT V. Lovely Exports (P.) Ltd wherein it was held that if the assessee produces the names, addresses, PAN details of the share holders then the onus on the assessee to prove the source o f share application money stands discharged. If the Assessing Authority was not satisfied with the creditworthiness of the shareholders, it was open to the Assessing Authority to verify the same in the hands of the shareholders concerned, The Tribunal has relied upon an order of the Supreme Court in case o f CIT v. Divine Leasing & Finance Ltd. In view of the decision 'of the Supreme Court, we dismiss the appeals with observations that the department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the Assessing Officer." ACIT vs. Venkateshwarlspat Pvt Ltd (2009) 319 ITR 393 (Chhatisgarh-High Court)

"If the share applications are received by the assessee from alleged bogus shareholders, whose names are given to the Assessing Officer, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as the undisclosed income of the assessee." Mod Creations Pvt Ltd vs. ITO (2013) 354 ITR 282 (Del-High Court) "Held, allowing the appeal, (i) that the assessee had discharged the initial onus placed on it. In the event the Revenue still had a doubt with regard to the genuineness of the transactions in issue or as regards the creditworthiness of the creditors, it would have had to discharge the onus which had shifted on to it. A bald assertion by the Assessing Officer that the credits were a circular route adopted by the assessee to plough back its own undisclosed income into its accounts, could be of n o avail. The Revenue was required to prove this allegation. An allegation by itself which is based on assumption will not pass muster in law. The Revenue would be required to bridge the gap between the suspicions and proof in order to bring home this allegation. The Tribunal without adverting to the principle laid stress on the fact that despite opportunities, the assessee and/or the creditors had not proved the genuineness of the transaction. Based on this it construed the intentions of the assessee as being mala fide. The Tribunal ought to have analysed the material rather than be burdened by the fact that some of the creditors had chosen not to make a personal appearance before the Assessing Officer. If the Assessing Officer had any doubt about the material placed on record, which was largely bank statements of the creditors and their income-tax returns, it could gather the necessary information from the sources to which the information was attributable......If it had any doubts with regard to their creditworthiness, the Revenue could always bring the sum in question to tax in the hands of the creditors or sub- creditors." CIT vs. Al Anam Agro Foods (P.) Ltd (2013) 38 Taxmann.corn 375 (All-High Court) Tribunal, however, held that since identity of share holders stood proved on record, amount of share application money could not be added to income of assessee. According to Tribunal, in such a case amount could be taxed in hands of persons who had invested" CIT vs. Dwarkadhish Investment (P) Ltd (2011) 330 ITR 298 (Del- High Court) "Just because the creditors/share applicants could not be found at the address given, it would not give the Revenue the right to invoke s. 68— Revenue has all the power and wherewithal to trace any person—

Moreover, it is settled law that the assessee need not to prove the 'source of source'— In the instant case, the Tribunal has confirmed the order of the CIT(A) deleting the impugned addition holding that the assessee has been able to prove the identity of the share applicants and the share application money has been received by way of account payee cheques." CIT vs. Namastey Chemicals Pvt Ltd (2013) 33 Taxmann.com271 (Guj-High Court) "In the present case also, the respondent assessee has received share application money from different sub scribers. It was found that large number of subscribers had responded to the letters issued by the Assessing Officer or summons issued by him and submitted their affidavits. In some cases such replies were not received through posts. Rs. 9 lacs represented those assessees who denied having made any investment altogether. The issue thus would fall sq uarely within the ambit of the judgment of the Supreme court in the case nf Lovely Exports (supra). No error of law can be stated to have been committed by the Tribunal. Tax Appeal is therefore dismissed." CIT vs. Peoples General Hospital Ltd (2013) 356 ITR 65 (MP-High Court) " Held , dismissing the appeals , that it the assessee had received subscriptions to the public or rights issue through banking channels and furnished complete details of the shareholders, no addition could be made tinder section 68 of the Income-tax Act, 1961, in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part o f the share capital represented the company's own income from undisclosed sources. It was nobody's case that the non resident Indian company was a bogus or non-existent company or that the amount subscribed by the company by way of share subscription was in fact the money of the assessee. The assessee had established the identity of the investor who had provided the share subscription an d that the transaction was genuine. Though the assessee's contention was that the creditworthiness of the creditor was also established, in this case, the establishment of the identity of the investor alone was to be seen. Thus, the addition was rightly deleted." CIT vs. Shree Rama Multi Tech Ltd (2013) 34 Taxmann.com177 (Guj- HC) "It is noted that Commissioner (Appeals) as well as the Tribunal have duly considered issue and having found complete details of the receipts of share application money, along with the form names and addresses, PAN and other requisite details, they found complete absence of the grounds noted for invoking the provision of section 68. Moreover, both rightly had applied the decision of CIT vs. Lovely Exports (P) Ltd to the case of the assessee. Therefore, no reason was found in absence of any illegality much less any perversity too to interfere with the order of the both these authorities, who had concurrently held the due details having been proved. The assessee company had presented the necessary worth proof bef ore both the authorities and it was not expected by the assesseecompany to further prove the source of the deceased." CIT vs. Nikunj Eximp Enterprises (P.) Ltd (2013) 35 Taxmann.com384 (Bom) "Whether merely because suppliers had not appeared before Assessing Officer or Commissioner (Appeals), it could not be concluded that purchases were not made by assessee - Held, Yes.... Further, there were confirmation letters filed by the suppliers, copies of invoices for purchases as well as copies of bank statement all of which would indicate that the purchases were in fact made. In our view, merely because the suppliers have not appeared before the Assessing Officer or the CIT(A), one cannot conclude that the purchases were not made by the respondent- assessee" CIT vs. Samir Bio- Tech Pvt Ltd (2010) 325 ITR 294 (Del-High Court) "Identities of the subscribers are not in doubt. The transactions have also been undertaken through banking channels inasmuch as the application money for the shares was given through account payee cheques. The creditworthiness has also been established, as indicated by the Tribunal. The subscribers have given their complete details with regard to their tax returns and assessments. In these circumstances, the Department could not draw an adverse inference against the assessee only because the sub scribers did not initially respond to the summons. The subscribers, however, subsequently gave their confirmation letters as would be apparent from the impugned order. The identity of the subscribers stands established and it is also a fact that they have shown the said amounts in their audited balance sheets and have also filed returns before the IT authorities. The decision of the Tribunal deleting the addition cannot befaulted.”

Therefore, after considering relevant facts, the co-ordinate Bench came to the conclusion that decision rendered by Hon’ble Supreme Court in the case of NRA Iron & Steel Pvt. Ltd. (supra) has no application, where the AO has not carried out any inquiries. The relevant findings of the Tribunal re as under:

“8. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the assessee had borrowed loans from the aforesaid loan creditors and had duly repaid the same in subsequent years by account payee cheques, for which evidences are already on record before us. It is also not in dispute that the assessee had paid interest on the aforesaid loans which had been allowed as a deduction by the lower authorities. We are unable to persuade ourselves as to how the interest portion on loan alone could be treated as genuine transactions after treating the principal portion of loan as ingenuine. We also find that the interest paid on such unsecured loans to aforesaid loan creditors have been duly subjected to deduction of tax at source. Notice issued u/s 133(6) of the Act by the ld AO had been duly replied by the concerned loan creditors directly before the ld AO and no deficiencies were noticed by the ld AO thereon. After this, the ld AO did not proceed to make further enquiry on the subject mentioned loan creditors. It is not in dispute that the assessee and the concerned loan creditors had duly filed their respective bank statements to prove the immediate source of credit for advancing loans to the assessee company, confirmation of having given loans to the assessee company, together with their income tax return acknowledgements and other requisite details called for by the ld AO in the notice u/s 133(6) of the Act. In case if the ld AO had any doubt on the veracity of the documents submitted by the loan creditors, the same could have been confronted on the said loan creditors by issuing summons u/s 131 of the Act and examine them on oath or correspondingly verify the same through the Assessing Offficers of the concerned loan creditors through the internal source of the department. The ld AO did not do either of these in the instant case and merely disregarded the evidences submitted on record before him both by the assessee as well as by the loan creditors directly to him. The written submissions filed by the ld DR in this regard is repetition of various contentions already available on record by the lower authorities, apart from placing reliance on certain decisions. We find that both the aforesaid loan additions were confirmed by the ld CITA by placing reliance on the decision taken by his predecessor in Asst Year 2012-13. We find that this tribunal in assessee’s own case for the Asst Year 2012-13 in dated 29.12.2017 in respect of loan transactions of entities controlled by Shri Pravin Kumar Jain and others had elaborately dealt this issue and held as under:- “5. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The AO made addition towards unsecured loans received from Josh Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd on the basis of information received from Investigation Wing which revealed that the assessee is the beneficiary of bogus accommodation entries provided by Shri Praveenkumar Jain through his bogus companies. The AO has made additions u/s 68 of the Income-tax Act, 1961 on the ground that though the assessee has furnished necessary evidences to prove identity of the parties, but failed to establish genuineness of transactions and creditworthiness of parties in the backdrop of clear findings of Investigation Wing that those companies are hawala companies involved in providing M/s Shree Laxmi Developers accommodation entries. The AO has brought out facts in the light of statement of Shri Pravinkumar Jain deposed before the Investigation Wing to make addition. Except this, there is no contrary evidence in the possession of the AO to disprove the loan transactions from Josh

Trading Company Pvt Ltd and Viraj Mercantile Pvt Ltd. On the other hand, the assessee has furished various details including confirmation letters from the parties, their bank statements alongwith their financial statements to prove identity, genuineness of transactions and creditworthiness of the parties. The assessee also furnished evidences to prove that the parties have responded to the notices issued u/s 133(6) by AO by filing various details. The assessee also filed bank statements to prove that the said unsecured loans have been repaid in the subsequent financial years. Therefore, we are of the view that there is no reason for the AO to doubt the genuineness of transactions despite furnishing necessary evidences including their financial statements, bank statements and IT returns.

that there is no reason for the AO to treat loans from above 2 companies as unexplained credits u/s 68 of the Act.

"The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 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 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-42013 was its normal meaning. The Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to 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 the basis that the addition of the proviso to section 68is M/s Shree Laxmi Developers immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso.

In view of the matter the three essential tests while confirming the section 68 laid down by the Court 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 fact 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 a case in this context to the pre- amended section 68 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 shareholder 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." [Para 3]

8. The assessee has also relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Archid Industries Pvt Ltd in dated 5th July, 2017. The Hon'ble Bombay High

Court, after considering relevant facts and also by following judgement in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (supra) held as under:_ 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of share i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P) Ltd (supra) would M/s Shree Laxmi Developers be applicable in the facts and circumstances of the present case."

8.1. We find that the ld DR vehemently placed reliance on the recent decision of Hon’ble Supreme Court in the case of PCIT vs NRA Iron & Steel Pvt Ltd arising out of SLP(Civil) No. 29855 of 2018 dated 5.3.2019 in support of contentions of the revenue on the impugned issue. In this regard, we find that the facts before the Hon’ble Supreme Court are clearly distinguishable on the following grounds:- a) In Para 3.6. of the said judgement of Hon’ble Supreme Court, it was mentioned that the entire share capital had been received by the assessee through normal banking channels by account payee cheques / demand drafts, and produced documents such as income tax return acknowledgements to establish identity and genuineness of the transaction. It was submitted that, there was no cause to take recourse to section 68 of the Act, and that the onus on the Assessee Company stood fully discharged. b) In Para 3.7. of the said judgement of Hon’ble Supreme Court, it was mentioned that the AO had issued summons to the representatives of the investor companies. Despite the summons having been served, nobody appeared on behalf of any of the investor companies. The Department only received submissions through dak, which created a doubt about the identity of the investor companies. c) In Para 3.8. of the said judgement of Hon’ble Supreme Court, it was mentioned that the AO independently got field enquiries conducted with respect to the identity and credit-worthiness of the investor companies, and to examine the genuineness of the transaction. Enquiries were made at Mumbai, Kolkata and Guwahati where these Companies were stated to be situated.

In the aforesaid case before the Hon’ble Supreme Court, the result of the enquiry by the AO revealed the following:- a) Notice were duly served on certain investor companies, but no reply was received from them ; b) Some of the investor companies were found to be closed at their correct address ; c) Notice could not be served on some of the investor companies ; d) Some of the investor companies replied to notice u/s 133(6) of the Act wherein they had confirmed having made investment in share application money in NRA Iron & Steel Pvt Ltd but had limited income as per their income tax returns which in turn resulted in doubting of creditworthiness ; e) Most of the investor companies though confirmed the fact of having made investment in share application money in NRA Iron & Steel Pvt Ltd , but had not filed their bank statements to prove the immediate source of credit available to them for making the said investment. 8.1.1. In the instant case before us, the ld AO did not issue any summons u/s 131 of the Act or make further enquiries to examine the veracity of the evidences filed on record before him by the assessee as well as by the loan creditors in response to notice u/s 133(6) of the Act. Moreover, all the loan creditors had duly furnished their respective bank statements proving the immediate source of credit for them to justify that they had sufficient creditworthiness to advance loan to the assessee company. From the perusal of the balance sheet of all investor companies, all the loan creditors had sufficient own funds in their kitty which prove their creditworthiness to advance loan to the assessee company. As has been stated hereinabove, the most excruciating point of difference in facts vis a vis the facts of the case before the Hon’ble Supreme Court supra that the investor companies had not even furnished their bank statements to prove their immediate source of credit for making investment in share application monies of NRA Iron & Steel Pvt Ltd. From the bank statements furnished by the loan creditors in the case of the assessee herein, we find that there were no cash deposits in the bank accounts of the lenders prior to issuance of loan to the assessee company. In the case before the Hon’ble Supreme Court, the AO in that case had made field enquiries at Mumbai, Kolkata and Guwahati where those investor companies were stated to be situated to examine their identity and credentials and the result of such enquiry had been summarized hereinabove. Whereas in the instant case before us, no such enquiries were conducted by the ld AO to doubt the veracity of the details and evidences filed by the loan creditors in response to notice u/s 133(6) of the Act directly before him. In the instant case before us, all the notices u/s 133(6) of the Act were duly served on all the aforesaid loan creditors and all of them had independently filed their replies directly before the ld AO. The bank statements were also duly furnished by the loan creditors to prove that they had sufficient creditworthiness to advance loan to the assessee company and since all the transactions were routed through regular banking channels by account payee cheques and in view of the fact that there were no cash deposits prior to issuance of loan to the assessee company, the genuineness of transactions also stand clearly established. This goes to prove their identity, creditworthiness and genuineness of transactions of all the loan creditors. In this scenario, it could be safely presumed that the ld AO was apparently satisfied with the replies given thereon by the loan creditors directly before him in response to notice u/s 133(6) of the Act and hence there is no need to make any examination further. 8.2. In view of the aforesaid distinguishing features on facts of the assessee company vis a vis the facts before the Hon’ble Supreme Court, we hold that the reliance placed by the ld DR on the decision of Hon’ble Supreme Court supra does not come to the rescue of the revenue. 8.3. At the cost of repetition, we would like to state that the ld CIT(A) had merely placed reliance on the decision taken by his predecessor in Asst Year 2012-13 in assessee’s own case in similar set of facts. We find that this decision for Asst Year 2012-13 in assessee’s own case has been reversed by this tribunal vide its order dated 29.12.2017 referred to supra. In view of our aforesaid findings in the facts and circumstances of the case and respectfully following the decision of this tribunal in assessee’s own case for Asst Year 2012-13, we hold that the assessee company had duly proved the nature and source of credit in the form of unsecured loan and had duly satisfied the three necessary ingredients of section 68 of the Act viz, the identity of the loan creditors , creditworthiness of loan creditors and genuineness of loan transactions. Hence we direct the ld AO to delete the addition made in the sums of Rs 50 lacs and Rs 25 lacs towards unsecured loan u/s 68 of the Act. Accordingly, the Grounds 1 to 6 raised by the assessee are allowed.”

The assessee has raised following Grounds of appeal:

1. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the addition made by the learned Assessing officer on account of share capital money received of Rs. 12,35,00,000/- u/s 68 of the Income Tax Act 1961, without considering the facts of the case.

2. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the addition made by the learned Assessing officer on account of non-existing liability of Rs. 1,76,72,533/- u/s 41(1) of the Income Tax Act 1961, without considering the facts of the case.

3. On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming the addition made by the learned Assessing officer on account of non-existing liability of Rs. 1,29,16,133/- u/s 41(1) of the Income Tax Act 1961, without considering the facts of the case.

18. The first issue that come up for consideration from Ground No.1 is addition towards share application money of Rs. 12,35,00,000/- u/s. 68 of the I.T. Act, 1961.

Similar issue has been considered by us in the preceding paragraphs while disposing of the appeal in . The issue has been discussed in the light of facts brought out by the Assessing Officer and submissions of the assessee along with certain judicial precedents and held that the assessee has discharged its onus of proving identity, genuineness of transactions and creditworthiness of the parties.

In this case facts are pari-materia with the facts which we have already considered in . The reasons given by us in preceding paragraphs shall apply mutatis mutandis. We, therefore, for the detailed reasons given by us in the preceding paragraphs, direct the AO to delete the addition of Rs. 12,35,00,000/- made u/s. 68 of the I.T.Act, 1961 towards share capital.

“In response the AR of the assessee vide letter dated 27.03.2015 has admitted that out of the creditors of Rs 2,90,22,124/- shown In the letter dated. 23.03.2014, 1,76,72,533/- is yet to be paid. Thus these payments are outstanding for over 5 years and the assessee has not paid them till date. It is merely stated in the letter that there is a dispute. No evidence in support of the dispute is furnished. It has been admitted by the AR vide order sheet entry dated. 27.03.2015 that, he does not have any evidence in support of the dispute relating to the creditors of Rs. 1,76.72,533/-. Thus it is obvious that genuinellability does not exists in this case. Therefore Rs 1,76,72,533/- is treated as income of the assessee. Therefore penal proceedings u/s. 271(1)(c) is seperately initiated. 5.1 Besides this there was a payable of Rs. 1,29,16,133/-- to M/s. B.C. Biyaril Projects Pvt Ltd. The assessee was also asked to give its say on these payabies. In response the AR vide letter dated. 27.03.2015 has admitted that the payment is outstanding since F. Y. 2007-08. The AR has contended that there is a dispute. However no documentary evidence relating to the dispute has been produced. Vide order sheet entry dated. 27.03.2015, the AR of the assessee has expressed his inability to furnish any documentary evidence in support of his claim relating to dispute. In this case payments have not been done for over 7 years. There Is no evidence in support of any litigation. Therefore the liability does not appear to be genuine. Therefore Rs. 1,29,16,133/- is held to be a liability which is not genuine and is treated as income of the assessee. Therefore penal proceedings u/s. 271(1)(c) is seperately initiated.”

20 Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before the CIT(A), assessee made submissions to argue that in order to bring any liability u/s. 41(1) of the Act, the same should be written off in the books of account of the assessee and assessee should derive benefits. Unless there is a remission/cessation of liability, by act of parties, the sum cannot be considered to be deemed remission/cessation of liability, when the assessee has filed necessary details to prove that the same has been paid or written off in subsequent years. The CIT(A), after considering relevant submissions and also by following decision of ITAT Ahmedabad Bench in the case of Dattatray Poultry Breeding Farm (P) Ltd. 95 taxmann.com 130 held that the assessee has failed to file any proof to justify existence of liability. The trading liability of the nature of assessee’s business cannot be held as genuine simply because of the fact that it is recorded in the books of account and now written off. Therefore, he opined that there is no error in the findings of the AO and hence, confirmed the action of the AO u/s. 41(1) of the I.T.

Act, 1961.

Such liability has been paid in subsequent year and also written off in subsequent financial years and offered to tax. Therefore, we are of the considered view that once it has been proved that liability has been continuing in the books of account for the year under consideration, the AO was incorrect in making additions towards liabilities u/s. 41(1) of the Act.

Following conditions must be fulfilled before section 41(1) of the Act could be held as applicable:

(i)In the assessment of an assessee, an allowance or deduction has been made in respect of any loss, expenditure or trading liability incurred by him. (ii) (a)Any amount is obtained in respect of such loss or expenditure, or (b)Any benefit is obtained in respect of such trading liability by way of remission or cessation thereof.

(iii)Such amount or benefit is obtained by the assessee, and (iv)Such amount or benefit is obtained in a subsequent year

Provisions of section 41(1) of the Act has two effects, namely:-

(i)That although ordinarily the amount of remission or cessation, etc., would not be profits and gains, it has to be regarded as such profits and gains, and (ii)Such an amount so forgiven by way of remission or cessation, etc., has to be regarded as profits and gains of business or profession accruing or arising in the previous year wherein it is obtained.

In either of these events happened, the deeming provision enacted in the closing part of section 41(1) of the Act comes into play. Accordingly, the amount obtained by the assessee or value of benefit accruing to him is deemed to be the profits and gains of business or profession and it becomes chargeable to tax as the income of that previous year relevant to the assessment year under consideration. In the present case before us, admittedly in the year under consideration i.e. the assessment year 2010-11 by way of remission or cessation no gain has accrued or arisen to the assessee in the given facts and circumstances of the case. Admittedly, as given in the chart above by the assessee before us, the assessee had already declared the credit to the Profit and Loss Account on account of cessation of liability under cessation of liability u/s 41(1) of the Act on account of sundry creditors and offered to tax. The learned Counsel for the assessee fairly agreed that this fact can be verified by the AO. In view of the above given facts and the fact that assessee’s Counsel fairly agreed for verification of factum of offering of this amount of sundry creditors as income in their respective years, the AO can verify the same. However, in this year no addition can be made u/s 41(1) of the Act and we delete the addition and allow the appeal of the assessee.”

However, it is not clear whether the details with regard to payment of such liabilities /written back in subsequent years were before the AO or not. Therefore, for the limited purpose of verification of the facts with regard to payment of such liabilities and also written off such liabilities in subsequent financial year and offered to tax, we set aside the issue to the file of the AO and direct him to make necessary inquiries and allow relief in terms of our discussion hereinabove.

The appeal is partly allowed for statistical purposes.

Order pronounced in the open court on this day of 17th July 2019.