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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2012-13. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-3, Thane [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
2. The ground of appeal filed by the assessee reads as under:
On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in adding the share capital money of Rs.5,04,50,900/- u/s 68 of the Income Tax Act, 1961, without considering the facts of the case.
Briefly stated, the facts of the case are that the assessee-company filed its return of income for the assessment year (AY) 2012-13 on 30.09.2012 declaring total income of Rs.1,540/-. It derives income from commission and service charges. During the course of assessment proceedings, the Assessing Officer (AO) observed that during the year under consideration, the assessee had received share capital/share premium of Rs.5,04,50,000/-, the details are as under:
Name of the share holder No. of Face value Premium Total shares amount amount allotted Anuneeta Corporation Services Pvt. 45,000 10 -- 4,50,000 Ltd. Shop no. 16, 1st floor, Evershine Mall, Mindscape Link Road, Malad (W), Mumbai-64 Kingston Infotech Pvt. Ltd. 5, 1000 10 9990 1,00,00,000 Weston Street, Lal Bazaar, Kolkata. 61, Kali Krishna Tagore Street, Kolkata-7 Skyking Infrastructure Pvt. Ltd. 4, 500 10 9990 50,00,000 Ratan Sarkar, Garden Street, Burra Bazaar, Kolkata-7 Goodlife Dealers Pvt. Ltd. Lalchand 500 10 9990 50,00,000 Building, 1st floor, 7/1A, Grant Lane, Kolkata-12 Highview Sales Pvt. Ltd. Lalchand 1000 10 9990 1,00,00,000 Building, 1st floor, 7/1A, Grant Lane, Kolkata-12 Panache Dealtrade Pvt. Ltd. 8, Naya 1000 10 9990 1,00,00,000 Patty Road, Kolkata-55 M/s Line-one Trading Prakruti Commosales Pvt. Ltd. 74, 1000 10 9990 1,00,00,000 Jamunalal Bajaj street, Kolkata-7 Total 50,000 5,09,940 5,04,50,000 The AO further observed that the assessee had entered into an agreement dated 20.03.2012 with M/s Kingston Infotech Pvt. Ltd., M/s Panache Dealtrade Pvt. Ltd., M/s Prakruti Commosales Pvt. Ltd., M/s Skryking Infrastructure Pvt. Ltd., M/s Goodlife Dealers Pvt. Ltd., M/s Highview Sales Pvt. Ltd. and M/s Anuneeta Corporate Services Pvt. Ltd. on a non-judicial stamp paper of Rs.100/-. The contents of the agreement dated 20.03.2012 entered by the assessee with Kingston Infotech Pvt. Ltd., as extracted by the AO in the assessment order are as under: “6.1.1 The assesses has entered into an agreement dated 20.03.2012 with KINGSTON INFOTECH PVT LTD which has been prepared on a non-judicial stamp paper Rs.100/-. The contents of the agreement are as under: M/s LINE-ONE TRADING PRIVATE LIMITED a company registered under the Companies Act, 1956 and having its registered office at 601, HitakshiHight, Indralok, Face-6, Bhayander (East), Thane - 401105 (Which expression unless otherwise excluded or repugnant to the context would include its successors, administrators and assigns hereinafter referred to LTPL. AND M/S KINGSTON INFOTECH PRIVATE LIMITED a Company registered under the companies Act, 1956 and having its registered office at 61, Kali Krishna Tagore Street, Kolkata 700007 (Which expression unless otherwise excluded or repugnant to the context would include its successors, administrators and assigns) hereinafter referred to KIPL.
M/s Line-one Trading Whereas M/S KINGSTON INFOTECH PRIVATE LIMITED has proposed to sell their investment of 1500 Equity Shares of GLORIOUS DEALMARK PRIVATE UNITED of Rs.15,00,000/- (Rupees Fifteen Lacs Only) and 8500 Equity Shares of GRADE VINTRADE PVT. LTD. of Rs.85,00,000/- (Rupees Eighty Five Lacs Only) aggregating to Rs.1,00,00,000/- (Rupees One Crore Only) to M/s LINE-ONE PRIVATE LIMITED to which M/s LINE-ONE TRADING PRIVATE LIMITED has agreed. And whereas in consideration of the above investment M/s LINE-ONE TRADING PRIVATE LIMITED has proposed to allot M/S KINGSTON INFOTECH PRIVATE LIMITED 1000 (One Thousand fully paid up Equity Shares of Rs.10/- each at a premium of Rs.9990/- to which M/S KINGSTON INFOTECHPRIVATE LIMITED has agreed. NOW THIS INDENTURE WITNESS THAT 1. M/s LINE-ONE TRADING PRIVATE LIMITED purchases from M/S KINGSTON INFOTECH PRIVATE LIMITED 1500 Equity Shares of GLORIOUS DEALMARK PRIVATE LIMITED of Rs.15,00,000/- (Rupees Fifteen Lacs Only) and 8500 Equity Shores of GRADE VINTRADE PRIVATE LIMITED of Rs.85,00,000/- (Rupees Eighty Five Lacs Only) aggregating to Rs.1,00,00,000/- (Rupees One Crore Only) to M/s LINE-ONE TRADING PRIVATE LIMITED to which M/s LINE-ONE TRADING PRIVATE LIMITED has agreed.
That in consideration of the above M/s LINE-ONE TRADING PRIVATE LIMITED shall forthwith to allot to M/s KINGSTON INFOTECH PRIVATE LIMITED 1,000 (One Thousand) fully paid-up Equity Shares of Rs.10/-each in the name of M/s KINGSTON INFOTECH PRIVATE LIMITED at a Premium of Rs.9990/-each.” From such agreement, the AO derived a finding that without involvement of any monies/funds, the shares at premium have been mutually transferred through barter system. The AO noted the worth of M/s Line-one Trading the assessee-company from the following data culled out from its financials:
Parameters AY 2012-13 (In Rs.) AY 2011-12 (In Rs.) Share capital 6,00,000 1,00,000 Reserve & Surplus 4,99,50,347 (720) Other Current liability 18,000 1,000 Short term provisions 478 -- Fixed Assets -- -- Other non-current assets 18,000 8,000 Current Investments 5,04,50,000 -- Cash & Cash equivalents 1,00,825 92,280 Revenue from operations -- -- Other income 16,290 3,600 Profit before tax 1,545 (720) Returned income 1,540 (720) Thus the AO found that right from the incorporation on 20.07.2010 i.e. for FY 2010-11 relevant to the AY 2011-12, and also for AY 2012-13, the net worth is negligible. On a face value of share at Rs.10, the share premium has been issued at a premium of Rs.9,990/-. Further, the share premium has been exchanged through a barter system as mentioned above.
Further the AO observed that the worth of the assessee-company is not commensurate with the share premium issued to the above entities.
M/s Line-one Trading The AO, further noted that the net income is meagre in all the cases and is not commensurate with the companies who could have afforded to make such huge investments in shares of an unknown and unlisted company by payment of such a high premium in exchange of its own shares termed under barter system. In response to a query raised by the AO, the assessee filed copies of income tax return of income of the investors for AY 2012-13 along with audit report, balance sheet, profit and loss account. However, no bank statements were provided to the AO of these entities. Further, the assessee explained to the AO that “the company did not have any bank account during FY 2011-12 and due to shortage of funds, the company could not do trading by investing its own funds. However, the company has earned commission/service charges for trade done in cash during the FY 2011-12.” Taking note of the fact that the assessee-company was not having any bank account during the relevant period, the AO observed that the basis of valuation of its share of face value of Rs.10 issued to the above investors at an abnormal price of Rs.9,990/-, was without any basis and valuation. As per the AO, the seven companies lacked a credit standing which would have enabled them to pay large amounts towards share premium of Rs.9,990/- on a face value of Rs.10 per share and that neither the past performance nor the financial standing of the assessee itself would justify the payment done such a large premium. The AO thus observed that none of the companies was having a financial standing or creditworthiness which would justify making of such a large investment M/s Line-one Trading Rs.5,04,50,000/- at a premium of Rs.9,990/-. The AO thus concluded that it was unexplained cash credit and brought the amount of Rs.5,04,50,000/- to tax u/s 68 of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). In the appellate order dated 01.02.2017, the Ld. CIT(A) confirmed the addition of Rs.5,04,50,000/- made by the AO by observing as under: “Section 68 of the IT Act provides that if any amount is found credited in the books of accounts of the assessee, the assessee is directed to prove the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. All these three conditions are required to be proved cumulatively and not alternatively. The onus lies upon the appellant and not on the Assessing Officer. It is the appellant who is claiming the receipt of Rs.5,04,50,000/- by way of share application money. Therefore, the share applicants were the witnesses of the appellant. The AO asked the appellant to prove the genuineness of share application money which the appellant failed to prove either by submitting their confirmation letter, copy of bank statement, share application form, copy of Form No. 2B submitted to ROC, copy of the allotment letters of the shares and by not producing the share applicants in person before the AO to affirm that they have given share application money”.
Before us, the Ld. counsel of the assessee files an application submitting that the additional evidence filed before the Tribunal be admitted as they go to the root of the matter and if the same are not admitted in deciding the issue, it would amount to miscarriage of justice. In this regard reliance is placed by him on the decision in the case of CIT M/s Line-one Trading v. Text Hundred India (P) Ltd. (2011) 197 Taxman 128 (Del.) and CIT v. Kum. Satya Setia (1983) 15 Taxman 345 (MP). The additional evidence filed by the assessee comprises of (i) Form-2 filed with ROC, (ii) name of shareholders and CIN Master Data from ROC , (iii) confirmation of shareholders, share application form, agreement between the shareholders, board resolution, share certificate of investment receipt, ITR acknowledgement and annual report of (a) M/s Kingston Infotech Pvt. Ltd., (b) M/s Skyking Infrastructure Pvt. Ltd., (c) M/s Goodlife Dealers Pvt. Ltd., (d) M/s Highview Sales Pvt. Ltd., (e) M/s Panache Dealtrade Pvt. Ltd., (f) M/s Prakruti Commosales Pvt. Ltd. and (g) M/s Anuneeta Corporate Services Pvt. Ltd. 5.1 The Ld. counsel further submits that no addition can be made u/s 68 based on the facts of the case in hand in as much as there is no money that has come in ; it is only that the subscribers have given their respective investments that they are holding and in turn, the assessee has issued their equity share capital to them. In this regard, reliance is placed by him on the decision in V.R. Global Energy (P.) Ltd. 305 CTR (Mad) 228 and Kerala Transport Co. 51 ITD 405.
On the other hand, the Ld. DR submits that the Ld. CIT(A) has rightly confirmed the addition of Rs.5,04,50,000/- made by the AO u/s 68 of the Act. Further, the Ld. DR relies on the decision of the Hon’ble Bombay High Court dated 10.04.2017 in the case of Sanjay Bimal Chand Jain v. Pr. CIT (ITA No. 18/2017) and files a copy of it.