ITO 12(1)(4), MUMBAI vs. CONSULTSHAH FINANCIAL SERVICES P.LTD, MUMBAI

This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-20, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).

The grounds of appeal

On the facts and in the circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that the Income Tax proceedings are governed by preponderance of probability as held by Hon’ble Supreme Court in the case of Sumati Dayal v. CIT [214 ITR 801]. 3. Briefly stated, the facts are that during the course of assessment proceedings, the Assessing Officer (AO) on perusal of the details filed noticed that the assessee had raised paid up share capital from Rs.1,00,000/- to Rs.2,82,000/-. During the year, the assessee had issued 18,200 equity shares having face value of Rs.10 on premium and it had received share premium of Rs.7,36,18,000/-. The assessee had issued 4,300 equity shares on 28.02.2011 on premium of Rs.990/- per share. Further, on 25.03.2011 the assessee had issued 13,900 equity shares on premium of Rs.4,990/- per share. In response to a query raised by the AO the assessee filed a requisite details. However, the AO found that since the intrinsic value of equity shares of the assessee came to Rs.16/- only, the nature of credit entry in the form of excess share premium of Rs.7,35,08,800/- was found to be unjustified and unexplained within the meaning of section 68 of the Act. The working the excess share premium of Rs.7,35,08,000/- as computed by the AO is as under:

In appeal, the Ld. CIT(A) observed that (i) the share capital and premium of Rs.7,35,08,800/- has come from different shareholders; these shareholders are existing shareholders and had confirmed that they had contributed to the share capital of the assessee-company, (ii) in respect of their creditworthiness, the assessee has filed copy of PAN Card, bank statement, balance sheet, profit and loss account, share application form etc. of shareholders, (iii) the investing shareholders had recorded the investments in the assessee-company in their books accounts during the relevant financial year, (iv) the shareholders had demonstrated these balances in their balance sheets in the shape of M/s Consultshah Financial Services (v) regarding the genuineness of transaction, the assessee has produced 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 not genuine, (vi) whether the assessee-company charged a higher premium or not should not have been the subject matter of the inquiry; instead the issue here was whether the amount invested by the share applicants was from legitimate sources, (vii) in the present case, while completing the assessment, the AO 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 the share applicants; these details called for by the AO were duly filed by the share applicants before the AO, but the assessee failed to produce the share applicants before the AO. In view of the above observations, the Ld. CIT(A) relying specifically on the decision in CIT v. Lovely Exports (P) Ltd. 216 CTR 295, Oasis Hospitalities P. Ltd. (2011) 333 ITR 119 (Delhi), CIT v. Creative World Telefilms Ltd. (In of 2009 decided on October 12, 2009) [2011] 333 ITR 100, CIT v. V.P. Mohanakala [2017] 291 ITR 278, CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), concluded that when requisite documents such as PAN, bank accounts, balance sheet etc. were available with the AO to establish that no cash transactions M/s Consultshah Financial Services were involved in the bank accounts of the investing company, then without further probe to prove contrary, the addition u/s 68 cannot be made in the hands of the assessee. Regarding the applicability of section 56(2)(viib), by the AO, the Ld. CIT(A) observed that the same is applicable from the AY 2013-14 onwards. Therefore, the Ld. CIT(A) deleted the addition of share capital and premium of Rs.7,35,08,800/- made by the AO u/s 68 of the Act.

Before us, the Ld. DR relies on the decision in CIT v. P. Mohanakala (2007) 161 Taxman 169 (SC), Pavankumarm Sanghvi (2018) 90 taxmann.com 386 (Guj) and order of the ITAT, Kolkata ‘C’ Bench, Kolkata in the case of Advance Power Infra Tech Ltd. v. DCIT in for AY 2007-08 and submits that the order passed by the AO be restored.

On the other hand, the Ld. counsels of the assessee file a Paper Book (P/B) containing the copies of documents submitted before the AO and CIT(A). Also reliance is placed by them on the decision in CIT v. Green Infra Ltd. (2017) 78 taxmann.com 340 (Bom.), Pr. CIT v. Chain House International (P.) Ltd. (2018) 98 taxmann.com 47 (MP), CIT v. Gagandeep Infrastructure (P.) Ltd. (2017) 80 taxmann.com 272 (Bom.) and CIT v. Orchid Industries (P.) Ltd. (2017) 88 taxmann.com 502 (Bom.). Referring to the documents in the P/B and the above case laws, the Ld. counsels submit that the order passed by the Ld. CIT(A) be confirmed.

We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We discuss the case laws relied on by the Ld. DR. In the case of P. Mohanakala (supra), the AO rejected the explanation of the assessee that amounts credited in their respective accounts were gifts from NRI and added said amount to income of assessees as income from undisclosed sources, on the ground that the so-called gifts were not real and genuine. On appeal, the Ld. CIT(A) as well as Tribunal did not accept the explanation of the assessee and confirmed finding of the AO. The High Court, however, re-appreciated evidence available on record and substituted its own findings for that of the Tribunal and held that the reasons assigned by the Tribunal and other authorities were in the realm of surmises, conjectures and submissions. The Hon’ble Supreme Court held that, since findings of fact arrived at by authorities below were based on proper appreciation of facts, materials available on record and surrounding circumstances, the High Court committed error in disturbing concurrent findings of facts. In Pavankumaram Sanghvi (supra), it is held that where assessee received loan from two companies, in view of the fact that on the date assessee was given loan, there were credit entries of almost similar amounts and balance after these transactions was a small amount and moreover assessee failed to produce these lenders for verification, impugned amount was rightly brought to tax u/s 68. In Advance Power Infra Tech Ltd. (supra), the Tribunal held that “merely furnishing PAN numbers in routine way, does not explain the M/s Consultshah Financial Services source or the creditworthiness of the party. The basis on which premium has been charged for the shares has not been explained. A perusal of the financial statements do not justify the quantum of share premium charged”. 7.1 In the instant case, the fact remains that the shareholders have confirmed that they had contributed to the share capital of the assessee- company. The assessee had filed copy of PAN, bank statement, balance sheet and profit and loss account, share application form of shareholders. The share application money and share premium had been issued through banking channel. There was no cash transaction. As rightly recorded by the Ld. CIT(A) “what is peculiar in the present case is when the assessment was being completed, the AO 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 detail etc. which would have established 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 filed by the share applicants before the AO but the appellant failed to produce the applicants before the AO.” It is well settled that in order to discharge the onus u/s 68 of the Act, the assessee must prove the following : i. the identity of the creditor, ii. the capacity of the creditor to advance money ; and iii. the genuineness of the transaction.

In the result, the appeal filed by the revenue is dismissed.