ACIT - 16(3), MUMBAI vs. SHREY TECHNOLOGIES PVT. LTD., MUMBAI

The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO on account of share capital introduced by assessee amounting to ₹ 2.50 crores as unexplained under section 68 of the Act. For this Revenue has raised the following ground No. 1: -

Briefly stated facts are that the assessee is engaged in the business of facility management services and earning commission on sales. The AO during the course of reassessment proceedings under section 147 of the Act read with section 143(2) of the Act noted that the assessee has received share capital and share premium to the extent of ₹ 2.50 crores from the following three parties: - Sr. Name of No of Face Total No. the shares value/ amount company premium 1. Blazer 5000 100/900 5000000 Venture Pvt. Ltd. 2. Fairmont 10000 100/900 10000000 Venture Pvt. Ltd 3. Kumaon 10000 100/900 10000000 Engineering Pvt. Ltd. Total 25000000 ITAs No. 6528/Mum/2016

The AO issued notice under section 133(6) to the above three parties and asked for balance sheet, profit and loss account and banking accounts for AY 2009-10 relating to these entities. These parties furnished replies in response to these notices under section 133(6) of the Act. The AO noted that these companies who have subscribed the shares of the assessee company at a premium of ₹ 900/- on the face value of shares of ₹ 100/-, these companies income does not commensurate with the operations of the company. It was noted by the AO that companies are not having regular income from the business operations and are having no fixed assets. It was noted that these companies does not have commensurate share capital to the funds of the assessee company. It was also noted that the said companies are routing money as compared to their financial accounts. Considering these evidences, he noted that the assessee was not able to prove the creditworthiness of the creditors beyond doubt and to the satisfaction of the AO. Hence, he treated this share capital and share premium as unexplained under section 68 of the Act. Aggrieved, against the action of the AO, assessee preferred the appeal before CIT(A).

The CIT(A) deleted the addition by observing in Para 4.3 and 4.4 as under: - “4.3. I have carefully considered the facts of the case and the submissions made by the Ld. AR. I have also gone through the decisions relied on by the Ld. AR. The AO has added the share capital and share premium of Rs. 2,50,00,000/- received from these companies namely, Blazer venture Pvt. Ltd, Fairmount ITAs No. 6528/Mum/2016 Venture Pvt Ltd and Kumaon Engineering Pvt Ltd. The AO has not accepted the credit- worthiness of the above share applicants. The Ld AR. On the other hand, has submitted the names, addresses and PANs of the shareholders, audited profit and loss accounts, balance sheets, returns of income, ledger confirmations, bank statements, MCA data downloaded from Ministry of Company Affairs, Board resolution, form 2(Return of allotment) etc. in support of its contention that addition is not warranted. It is seen from the details that the appellant had issued shares to the Blazer Venture Pvt. Ltd of Rs. 50,00,000, Fairmount Venture Pvt. Ltd of Rs. 1,00,00,000, and Kumaon Engineering Pvt Ltd. Of Rs. 1,00,00,000. These sums are reflected in the bank account of the appellant maintained with State Bank of Hyderabad, (7olaba, Mumbai. It is further seen that these payments are also reflected in the bank statements of Blazer venture Pvt. Ltd, Fairmount Venture Pvt. Ltd, and Kumaon Engineering Pvt Ltd. with Kotak Mahindra Bank Ltd. These applicants have filed their respective returns of income for the subject assessment year. It is seen from the profit and loss accounts and balance-sheets of the above share applicants that these companies are having huge share capital and reserves & ITAs No. 6528/Mum/2016 surplus of Rs. 18,97,26,322/- (BVPL), Rs. 37,56,43,283/- (KEPL) and Rs. 20,17,63,084(FVPL). Against such large shareholders' fund, the share investments were Rs. 50,00,000/-, Rs. 1,00,00,000/- and Rs. 1,00,00,000/- respectively. The identity of the share applicants is supported by their PANs, income-tax returns, bank statements and MCA data downloaded from the website of Ministry of Company Affairs. In fact, these shareholders have independently attended before the AO also. Regarding the capacity of the share applicants, it has already been discussed that they had substantial capital and reserves and their investment in the shares of the appellant company was relatively small. Further, the amounts have been paid through banking channel and bank statements have been submitted in this regard. The genuineness of the transaction is also supported by the ledger confirmation of each of the applicants, bank statements, Board Resolution passed in this regard, actual allotment of shares to the share applicants and return of allotment filed with ROC etc. In view of these facts, the appellant has satisfactorily explained the credit found in its books of account.

Before us, the learned Counsel for the assessee filed paper book consisting of pages 1-90 and additional paper book consisting of pages 91-144 in which he has filed the details of companies. The learned Counsel for the assessee explained that these parties had capacity and creditworthiness and hence, these parties have genuinely invested share capital and share premium with the assessee company. With regard to the capacity and creditworthiness of the investors, the assessee filed audited accounts, financial statements of the year in respect of investee companies. It was explained that in view of the details of financial strength of the investee companies, which is based on its net worth as depicted from audited accounts, which has been placed before AO and before CIT(A). The learned Counsel for the assessee drew our attention to the facts and figure as culled out from audited financial accounts as against findings of AO, the relevant reads as under: