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Income Tax Appellate Tribunal, J Bench, Mumbai
Before: Shri Mahavir Singh & Shri Rajesh Kumar
This appeal has been filed by the assessee against the order of the CIT(A)-12, Mumbai dated 28.12.2015 for A.Y. 2012-13.
The assessee has raised the following grounds of appeal: - “1. The learned CIT(A) has erred in law and on facts in passing the appellate order, which is invalid and bad in law.
2. The learned CIT(A) has erred in law and on facts in confirming the addition of `5,00,00,000/- made by the Assessing Officer u/s. 68 of the Act. The learned CIT(A) ought to have deleted the afore-stated addition of `5,00,00,000/- in respect of share capital and share premium.”
At the outset the learned A.R. of the assessee pointed out that the issue involved in the present appeal is identical to the one as decided by the Coordinate Bench in for A.Y. 2012-13 vide order dated 08.02.2018 in the case of sister concern of the assessee. The learned A.R. also submitted that money is raised by the assessee from the M/s. Jasamrit Creations P. Ltd.
same investor, M/s. Janitor Distributors Pvt. Ltd. by way of allotment of 250000 equity shares of face value of `100/- at a premium of `100/- each thereby raising a total amount of `5 crores. The learned A.R. further submitted before the Bench that the assessee has duly proved before the AO all the three ingredients necessary for making addition under section 68 of the Income Tax Act (hereinafter “the Act”), i.e. identify, creditworthiness and genuineness by filing necessary documents. The learned A.R. submitted that genuineness of the transaction has not been doubted and the only issue is of allotment of shares at a high premium without any justification as the sole ground for making addition. The learned A.R. also pointed out that the CIT(A) has discussed the issue in detail and the fact of seeking investment from M/s. Janitor Distributors Pvt. Ltd. in another sister concern, M/s. Jasamrit Construction P. Ltd. in A.Y. 2011-12 was also accepted by the Revenue was duly discussed and the independent enquiry conducted by the AO under section 133(6) was also duly responded and all the necessary documents were placed before the AO. Finally the learned A.R. prayed that following the order of the Coordinate Bench the appeal of the assessee should be allowed.
The learned D.R., on the other hand, filed written submission dated 15.02.2018 submitting that the assessee has not submitted all the necessary documents before the AO and no valuation report of equity preference shares justifying the allotment of shares at a premium was filed. The learned D.R. relied on the decision of the Hon’ble Delhi High Court in the case of Jansampark Advertising & Marketing (P) Ltd. 375 ITR 373 in which it was held that even if the assessee failed to bring evidence on record the first appellate authority and the Tribunal , which are forums for fact finding, n the event of AO failing to discharge his functions properly. The learned D.R. also pointed out that in this case both the companies, investor and investee, did not do any business and therefore the transactions is surrounded with doubts and mischief and therefore the order passed by the authorities below need be upheld.
M/s. Jasamrit Creations P. Ltd.
We heard the rival submissions and perused the material on record including the decisions cited b y the rival parties. In this case we find that the assessee has issued 250,000 10% cumulative remediable preference shares of face value of `100/- each to M/s. Janitor Distributors Pvt. Ltd. at a premium of `100/- each thus raising a sum of `5 crores from M/s. Janitor Distributors Pvt. Ltd. In this case the only issue is that the shares were issued at a very high premium without being any justification or rational for the said share premium. The learned D.R. in the written submission also contended that no valuation report in respect of shares justifying higher premium had been filed before the lower authorities. In our opinion the allotment of shares at a premium is a business decision which has to be taken by the assessee as to on what condition the allotment should be made. Moreover, the assessee belongs to G.R. Agarwal Group, Udaipur and its flagship company was G.R. Infraprojects Ltd. which is engaged in development of infrastructural facilities and is known and famous for quality construction and punctuality. The annual turnover of lasts three years ranged between `800 to `850 crores and even the big market players such as India Business Excellence Fund I and IDFC Investment Advisors Ltd. invested huge amounts by way of shares in G.R. Infraprojects Ltd. in 2011. Moreover, there is no bar on issue of shares on a premium between two parties till A.Y. 2012-13 and it is only w.e.f. A.Y. 2013-14 that section 56(1)(viib) has been brought on the statute book which provides for addition of amount excess of consideration received in such allotment of shares over and above the fair market value of shares and not applicable to the current year. The case of the assessee is fully covered by the decision of the Coordinate Bench in the case of M/s. Jasamrit Constructions Pvt. Ltd. in dated 28.02.2018 wherein identical issue has been decided by the Coordinate Bench in favour of the assessee. The operative part of the order is reproduced for ready reference: -
M/s. Jasamrit Creations P. Ltd.
“9. We heard the rival submissions and perused the material on record including the impugned order and various decisions cited by rival parties. The undisputed facts of the case are that the assessee issued 250,00,000 10% non cumulative e redeemable preference shares of `100/- each at a premium of `100/- each to M/s. Janitor Distributors Pvt. Ltd. on 31.03.2012. The assessee company was not carrying on any business during the year and so was the investor company M/s. Janitor Distributors Pvt. Ltd. The source of investment was out of sale of shares which were held by M/s. Janitor Distributors Pvt. Ltd. The AO also recorded a finding in the assessment order that M/S Janitor Distributors Pvt. Ltd. the investor company was not doing any business but was doing purchase and sales of shares of other companies and the instant investment in the assessee company was made out of sale of shares by the said company. According to the AO the transaction is not genuine and is a sham transaction on the ground that the assessee company was not doing any business and there was no justification in issuing shares on a premium to the investor when the company has no background such as modality of business and growth trajectory etc and thus doubted the entire transaction. The AO even obtained information under Section 133(6) of the Act from the investor M/S Janitor Distributors Pvt. Ltd. but was not satisfied with the same mainly in view of the fact that there was no business in both the companies investor as well investee company and thus the shares could not have been issued at such a high premium. We find from the record that the assessee has produced the following records before the AO in order to prove the genuineness, creditworthiness and reasonableness of the transaction: - (i) duly confirmed copies of account; (ii) Articles and Memorandum of the Janitor Distributors Pvt. Ltd.; (ii) audited annual accounts of Janitor Distributors Pvt. Ltd.; (iv) bank statement for the period 01.04.2011 to 31.03.2012 evidencing the impugned investment; (v) copy of acknowledgment of Return of Income along with computation of Total Income; (vi) Form No.20B being annual return of the assessee company; (vii) Form 2 being Return of Allotment and (viii) Explanation regarding source of funds for subscribing to 10% redeemable preference shares. The AO examined all these documents filed by the assessee during the course of assessment proceedings and by disapproving the same treated the entire the entire capital and premium aggregating to `5 crores as unexplained income under Section 68 of the Act relying on various decisions as has been discussed in the assessment order. The AO while coming to the conclusion of said transaction being non
M/s. Jasamrit Creations P. Ltd. genuine and suspicious observed that the turnover of the assessee was nil and there being no profit to support to justify the issue of preference shares at a premium and in view of that the assessee company could not have been made at huge premium. We find that the assessee company belongs to G.R. Agarwal Group, Udaipur and its flagship company is G.R. Infraprojects Ltd. which is engaged in development of infrastructural facilities/projects and is very famous and known in the market for quality construction and timely construction of infrastructural projects like road, highways and flyovers, etc. The average turnover for the last three years of the said flagship company was around `800 to `850 crores with the net profit ranging between `35 to 50 crores. It is also a fact the private equity funds, namely India Business Excellence Fund I and IDFC Investment Advisors Ltd. invested `80 crores by way of equity capital in G.R. Infraprojects Ltd. in 2011 and the company is in the process of listing of its shares in the market. In view of all these facts we are not in a position to agree with the conclusion of the AO as confirmed by the learned CIT(A) that the shares in the assessee company were issued at a premium which is sham and non genuine as the potential and growth trajectory of the entire group has to be seen and not the individual company. In our pinion the investments in the market are driven by the past track record, market reputation and growth potential of the group and not on the basis of the net worth or turnover of the company. It is also revealed from the record before us that out of the money raised by the assessee a sum of `1,32,52,572/- was utilised for acquiring office at Mumbai from which the assessee company earns regular rental income and `3,35,00,000/- was utilised for acquiring plot No. 45 at PWD Colony, Jodhpur for real estate project and `20,00,000/- was invested in shares of G.R. Infraprojects Ltd. and the balance amount was advanced to group concerns. We find merit in the argument of the learned A.R. that M/s. Janitor Distributors Pvt. Ltd. is not a shell company either by RBI or SEBI and is an active company on the website of the Ministry of Corporate Affairs, Government of India and the company is being assessed to tax and even the scrutiny assessments were made for A.Y. 2007-08 and A.Y. 2012-13 u/s 143(3) of the Act. Copies of relevant assessment orders were placed before the bench. It was also noted that these assessments have attained finality and no proceedings under Section 147 or 263 are pending in respect of the said investor. Further the genuineness of the transaction can be seen from the fact that a similar transaction of investment by M/s. Janitor Distributors Pvt. Ltd. in the group company M/S Lokesh Builders Pvt. Ltd. has been examined by the Income Tax Officer, Ward-1, Udaipur in the assessment proceedings of M/S Lokesh Builders Pvt. Ltd. and accepted while framing assessment under Section 143(3) of the Act vide order dated 27.03.2015 after conducting detailed enquiry dated
M/s. Jasamrit Creations P. Ltd.
25.02.2015 which has been placed before the Bench during the course of hearing. The Department cannot accept one of the two same transactions entered into by group companies, one the assessee and the second of Lokesh Builder Pvt. Ltd. with the same investor under same facts and circumstances as non genuine and sham and treat the other as a valid transaction. In our opinion the investment is a conscious decision which is taken after weighing the pros and cons as to the group to which the company belongs, growth and future perspects and status of the group vis-a-vis other similarly placed companies in a particular arena of the same field of activities. In this case we note that the assessee belong to the very famous G.R. Agarwal group of companies with the flagship company G.R. Infraprojects Ltd. which is engaged in the development of infrastructural facilities like road, highways and flyovers and has a turnover of more than `800 crores to 850 crores over a period of three years with net profit of `30 to 50 crores. The investment in the flagship company to the tune of `80 crores by private equity funds, i.e. India Business Excellence Fund I and IDFC Investment Advisors Ltd. in 2011 realising the gross potential of the company, which is in the process of listing the shares in the market. Seeing the facts in totality we are of the view that the AO has not brought any evidence on record to prove that the transaction to be sham and non genuine and thus we are not in agreement with the conclusion drawn by the CIT(A) on the issue. The case of the assessee is also supported by a series of decisions relied upon by the learned A.R. is discussed as under: - In the case of ACIT vs. Gagandeep Infrastructure Pvt. Ltd. it has been held that the issue of shares at premium is always a commercial decision which does not require any justification. It was further held by the Hon'ble Tribunal that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such premium. The Revenue authorities cannot question charging of such huge premium. In CIT vs. Creative World Telefilms Ltd. [333 ITR 100 (Bom)] the Hon’ble Bombay High Court sustained the deletion of the addition made u/s. 68 of the Act in respect of the share application money by observing that "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 v. Lovely Exports P. Ltd. [2008] 216 CTR 195; [2009] 319ITR (St.) 5, wherein the apex court observed 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 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 M/s. Jasamrit Creations P. Ltd. 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 Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the Assessing Officer 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 Assessing Officer. In the above circumstances, the view taken by the Tribunal cannot be faulted. No substantial question of law is involved in the appeal. In the result, the appeal is dismissed in limine with no order as to costs. In Arceli Reality Limited vs. ITO for A.Y. 2007-08 in Mum/2016 dated 21.04.2017 the tenability or otherwise of addition made u/s. 68 of the Act in respect of share application money received was the subject-matter for consideration. The Hon'ble Tribunal, after taking note of and relying upon the aforesaid rulings in CIT v. Gagandeep Infrastructure P. Ltd. (394 ITR 680) and CIT v. Creative World Telefilms Ltd. (333 ITR 100), was pleased to delete the disputed addition. In the case of Lalitha Jewellery Mart P. Ltd. vs. DCIT (399 ITR 425 (Mad) the Hon'ble Madras High Court held that the assessee cannot upon its investors to disclose all such business transactions they carried on in the immediate past and as to how much they made from their respective business enterprises. The assessee cannot call upon its investors to prove their good business sense in investing in the assessee-company, as such investors cannot gain any controlling stake. In the case of Orchid Industries Pvt. Ltd. vs. DCIT in ITA No. 1867/Mum/2013 dated 07.02.2014 the Coordinate Bench of this Tribunal held that merely because the cheques were deposited in the respective accounts would not lead to the conclusion that these cheques money was the assessee’s own money routed through these parties until and unless it is found in the enquiry and substantiated with the facts and material. .................................In view of the above discussion as well as facts and circumstances of the case, we are of the considered opinion that the addition made by the AO under Section 68 of the Act is not justified and the same is hereby deleted. The above decision of the Coordinate Bench has been upheld by the Hon'ble Jurisdictional High Court in the case of CIT vs. Orchid Pvt. Ltd. in ITA No. 1433 of 2014 dated 05.07.2017. In the case of Principle CIT vs. M/s. Paradise Inland Shipping Pvt. Ltd. In Tax appeal No. 66 of 2016 dated 10.04.2017 the Hon'ble
M/s. Jasamrit Creations P. Ltd.
Jurisdictional High Court observed that once the assessee has produced documentary evidence to establish the existence of such companies, the burden would shift on the Revenue-Appellant herein to establish their case. There no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellant-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Sections 260A of the Income Tax Act would not at be justified.
We find that the decisions relied upon by the learned D.R. to support the decisions of the First Appellate Authority were clearly distinguishable as explained in the ensuing paragraphs. In the case of Sreelekha Banerjee (supra) the issue for verification was of the source of very high denomination notes. The assessee explained that the high denomination notes represented the cash out of the cash withdrawal from the bank which not accepted by the AO on the ground that the assessee did not mention the account for withdrawal of cash and the books of account maintained and produced before him did not reflect the bank account and the AO noticed discrepancies in the statement filed by the assessee. In the case of ITO vs. Zara Trading Pvt. Ltd. and Khushara Real Estate Pvt. Ltd. (supra) the reasonableness of share premium in the light of various para meters like information from Investigation Wing of Income Tax Department about the assessee having taken accommodation entries and non- compliance by the Directors/Investor company in the proceedings and non furnishing of documentary evidences to establish identity of share applicant, etc. whereas in the present case is identification of the source. In the case of Major Metal Ltd. (supra) the addition on account of share capital was confirmed by Hon'ble ITAT as well by the Hon'ble High Court because the share appellant-companies categorically admitted that they had given accommodation entries by accepting cash against cheques issued and charged commission. The Directors of these share appellant companies were also cross-examined by the assessee whereas in the present case the facts are different. In the case of Bisaka Shares Pvt. Ltd. (supra) the Hon'ble Tribunal confirmed the order passed under Section 263 by CIT because the AO did not conduct any enquiry about the genuineness of share application and simply accepted the return filed by the assessee in the assessment completed under Section 143(3) r.w.s. 147 of the Act whereas this not the fact in the present case. In the case of Durga Prasad More (supra) it was held by the Hon'ble Supreme Court that though apparent must be considered real unless it was shown that there were reasons to believe that M/s. Jasamrit Creations P. Ltd. the apparent was not real, in a case where a party relied on self- serving recitals in documents it was for that party to establish the truth of those recitals, and that the taxing authorities were entitled to look into surrounding circumstances to find out reality of the recitals. The documents considered by the Hon'ble Court in this ruling were a deed of conveyance and another deed of settlement in respect of a property situated in Calcutta. In the case of Shankar Industries (supra) the finding recorded by the Hon'ble Court was that the assessee was required to produce proof of identity of the creditor, capacity of the creditor and the genuineness of the transaction. It was only for the reason that except the identity of the creditor nothing was produced by the assessee in support of a cash credit that the ruling of the Hon'ble Court went against it. But in this case all the evidences were produced by the assessee before the AO. In the case Kant & Co. (supra) the ratio laid down was that in case of a cash credit entry, it is necessary for the assessee to prove not only the identity of the creditors but also the capacity of the creditors and the genuineness of the transaction about which there can be no dispute. The facts of the present case are different. In the case of Prakash Textile Agency (supra) the assessee could establish only the existence and identity of the creditor and, hence, the decision of the Hon'ble Court went against it but in this case assessee could prove al the evidences. In Oriental Wire Industries P. Ltd. (supra) the proposition laid down was that in case of a credit appearing in the books, it is for the assessee to prove the source of the loan, capacity of the creditor and the fact that the loan was in fact given by the person concerned whereas the facts of the present case are different. In United Commercial & Industries Co. (supra) it is held that it is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors and the genuineness of the transaction. In the present case assessee has proved all these facts. In the case of M.A. Unneeri Kutti (supra) only the identity of the creditor was established. In other words, the creditworthiness and the genuineness of the transactions were not proved where as in the present case identify, genuineness and creditworthiness were proved. In Precision Finance Pvt. Ltd. (supra) it is held that it is for the assessee to prove the identity of the creditors, their creditworthiness and genuineness of the transaction about which M/s. Jasamrit Creations P. Ltd.
there can be no quarrel, which has been duly complied with by the assessee in the present case. In the case of Nova Promotors & Finlease Pvt. Ltd. (supra) the AO had received information from Investigation Wing about 16 entry operators who had given accommodation entries to several persons including the assessee. Upon examination, the Assessing Officer found that the material available showed link between the entry providers and the assessee-company. Besides, out of the 22 companies whose names figured in the information given by them to the Investigation Wing, 15 companies had provided share subscription monies to the assessee. In Independent Media (P) Ltd. (supra) the alleged shareholders had confessed that they had provided entry against receipt of cash. The facts of the present case are different. In Focus Exports Pvt. Ltd. (supra) the assessee was not co- operative and did not furnish complete details/particulars in respect of the share application money received. In fact, the assessee had 'absconded' as a result of which the assessment was completed ex-parte whereas in the present case the facts are different. In N R Portfolio Pvt. Ltd. (supra) not only the share applicants did not attend the proceedings despite summons issued u/s.131 of the Act but also most of the notices were received back unserved whereas in the present the investor provided information in response to notice under section 133(6).
In the light of the above facts and the ratio laid down by various decisions, we are of the view that the order of the CIT(A) confirming the order of the AO on the ground that the share capital and share premium are non genuine and suspicious is not correct and therefore cannot be sustained. In the present case the identity, creditworthiness and genuineness are proved by filing the necessary evidences. We, therefore, set aside and reverse the order of the CIT(A) and direct the AO to delete the addition.”
It is clear from the above order that that clear finding has been recorded by the coordinate bench with respect to all the three ingredients, i.e. creditworthiness and identity of the investor company i.e M/S Janitor Distributors Ltd. and genuineness of the transactions. The Hon’ble High Court of Bombay, in the case of Gagandeep Infrastructure Pvt Ltd 394 ITR 680 has held that proviso to section 68 of the Act was applicable from assessment year 2013-14 and the assessment year 2012-13.
M/s. Jasamrit Creations P. Ltd.
In view of the above said facts and decision under identical facts by the Coordinate Bench in the case of the sister concern as discussed above, we reverse the order of the CIT(A) and allow the appeal of the assessee. The AO is directed accordingly.
Order pronounced in the open court on 14th March, 2018.