ITO, WD-5(2), KOLKATA, KOLKATA vs. M/S SAYAJI MARKETING PVT. LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : KOLKATA [Before Hon’ble Shri S.S. Godara, JM & Shri M.Balaganesh, AM ] I.T.A No. 282/Kol/2014 Assessment Year : 2010-11 ITO, Ward-5(2), Kolkata -vs- M/s Sayaji Marketing Pvt. Ltd. [PAN: AAGCS 0147 M] (Appellant) (Respondent) C.O. No. 39/Kol/2018 (Arising out of I.T.A No. 282/Kol/2014) Assessment Year : 2010-11 M/s Sayaji Marketing Pvt. Ltd. -vs- ITO, Ward-5(2), Kolkata [PAN: AAGCS 0147 M] (Cross Objector) (Respondent)

For the Assessee : Md. Usman, CIT DR For the Department : Shri M. Kataruka, Advocate

Date of Hearing : 29.08.2018 Date of Pronouncement : 05.09.2018

ORDER Per M.Balaganesh, AM

2 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 2. At the outset, we find there is an inordinate delay of 1462 days in filing of cross objection by the assessee before us. The reason adduced by the assessee by way of Affidavit for condoning the delay was that it had been advised by the Senior Advocate to prefer Cross Objection before this tribunal pursuant to discussions with the Learned Senior Advocate during discussions for preferring a tax case appeal in the case of a group company i.e. M/s Blessing Commercial Pvt. Ltd. before the Hon’ble Calcutta High Court. In other words, this cross objection was preferred by the assessee based on the advice of ld. Senior Advocate handling the income tax appeal before the Hon’ble Calcutta High Court in the case of Group Company of the assessee. The preliminary objection raised by the assessee in its cross objection is that the assessment was framed on a non-existent person inasmuch as the assessee company stood amalgamated with M/s Subhlaxmi Compusis Pvt. Ltd. vide order of Hon’ble Calcutta High Court dated 17.05.2012 with effective date from 31.03.2010. The assessee company stated that the assessment u/s 143(3) was framed by the ld. AO on 28.03.2013 for the assessment year 2010-11, on which date , the assessee company was not in existence.

3 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 resorted in AO framing an assessment in the hands of the assessee company i.e. Sayaji Marketing Pvt. Ltd. u/s 143(3) of the Act dated 28.03.2013 determining the total income of the assessee at Rs. 1,89,99,97,780/-.

4 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 Commercial Pvt. Ltd. in I.T.A. No. 271/Kol/2014 for assessment year 2010-11 dated 28.06.2017. For the sake of convenience the said order is reproduced hereunder: “This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-VI, Kolkata, (hereinafter the “Ld. CIT(A)”), dt. 19/11/2013, passed u/s 250 of the Income Tax Act, 1961 (hereinafter the ‘Act’), relating to Assessment Year 2010-11. 2. Facts in brief:- The assessee is a company and is engaged in the business of finance and investment. It filed its return of income for the Assessment Year 2011-12 on 22/09/2010, declaring –NIL- income. It showed a loss of Rs.668/-. The facts as recorded by the Assessing officer in the assessment order are extracted below:- “Para 1.2.1 The assessee has shown receipt of under mentioned Share Capital of Rs.1,90,00,000/- & Share Premium of Rs.188,10,00,000/- during the Asst. Year 2010-11. The assessee credited Rs.1,90,00,000/- in total in its books against the above receipts. The assessee claimed that the detail of receipts are as under :- Table-1 Particulars of Receipts of Share Capital/Investment during Asst. Year 2010-11 Date of Application : 05-06-2009 Date of Allotement : 22-06-2009

SI Name & Address of the Share No. of Amount of Share Amount of Share Total Amount No. Holder Share Capital (Face Premium (Value : @ (Total Value : Capital Value : @ 10/-) 990/-) @ 1,000/-) 1 Double Plus Softwre Pvt. Ltd. 650000 65,00,000 64,35,00,000 65,00,00,000 10159, Padam Singh Road, Karol Bagh, New Delhi – 110 007. PAN: AABCD3206F 2 Sayaji Marketing Pvt. Ltd 650000 65,00,000 64,35,00,000 65,00,00,000 5, Russel Street, 1st Floor, Kol.-71. PAN : AAGCS0147M 3 StephensFinancial Services Pvt. 600000 60,00,000 59,40,00,000 60,00,00,000 Ltd. Vasundhara, 6th Floor, 2/7, Sarat Bose Road, Kolkata- 700 020. PAN : AAGCS2740G. 19000000 19,00,00,000 188,10,00,000 190,00,00,000 Para 1.2.2. The assessee has shown subsequent investment against this huge receipt. There is nothing extraordinary that the receipt was utilized in investment with others. But the most 4

5 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 extraordinary fact is that the assessee has shown its investment with the same companies with same denomination & most interestingly through the same through the same cheque, details of which are given below in Table-2 : -

Table – 2 Particulars Of Investment during Asst. Year 2010-11 Date of Allotment : 22-06-2009 S.I. Particulars of the Company in which No. of Share Amount of Amount of Total Amount of No. Investment was made applied for & Share applied Share Premium Share applied for Allotment for & Allotment (Value : @ & Allotment received received (Face 990/-) received (Total Value: @ 10/-) Value : @ 1,000/-) 1 Double Plus Software Pvt. Ltd. 650000 65,00,000 64,35,00,000 65,00,00,000 2 Sayaji Marketing Pvt. Ltd. 650000 65,00,000 64,35,00,000 65,00,00,000 (See Note -1 below) 3 Stephens Financial Services Pvt. 600000 60,00,000 59,40,00,000 60,00,00,000 Ltd. 19000000 19,00,00,000 188,10,00,000 190,00,00,000

Note – 1 : Although the assessee has shown receipt of Rs.65 Crore as share application money from M/s Sayaji Marketing Pvt. Ltd., in later stage it appears that the total receipts from M/s Sayaji Marketing Pvt. Ltd. was Rs.130 Crore. On being asked, the A/R cum Director explained that the assessee company received share application of Rs. 130 Crore from M/s. Sayaji Marketing Pvt. Ltd. But allotment was made for Rs.65 Crore and balance amount of Rs.65 Crore refunded to M/s Sayaji Marketing Pvt. Ltd. 3. The submissions of the assessee before the Assessing Officer are as follows:- a) Cheques were received as “cheques” or “endorsement of cheques”, as share applicants money, for allotment of shares from three companies and thereafter the very same cheque were endorsed to another company for allotment of shares or as refund of the amount received. b) All the above transactions are valid transactions under the Negotiable Instruments Act, 1881 and that there is no embargo or prohibition on such transactions. c) The transaction can be termed as criss cross holding. The Assessing Officer thereafter verified the claims of the assessee and this process is recorded at Para 1.4. to 1.4.1. of the Assessment Order. 3.1. The A.O. concluded that the assessee has not proved the genuineness and creditworthiness of the cash credits. At para 1.5 and 1.6 of his order he held as follows:- 5

6 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 Para 1.5 Modus operandi of the transaction: - From the above discussion it is clear that the four companies including the assessee company are circulating the above mentioned four cheques among themselves by endorsement only one after another until it returns to the issuer. The modus operandi of the assessee company & other three companies is to raise fictitious funds through book entry. The assessee & other three companies raised their capital to the tune of Rs.190,00,00,000/- each through this fictitious book entry. Para 1.6 Conclusion: - The above facts & circumstances leads to a reasonable conclusion that the above arrangement were made by the assessee with other three companies. The idea of counterbalancing the capital raise by way of investment of similar nature does not sound novel or worth mentioning. The unique feature of the overall transactions lies in a different field and smacks of meticulous planning in order to throw dirt in the eyes of all and sundry. On a careful analysis of the data made threadbare in the discussion above, it is crystal clear that the labyrinth woven by the assessee company in convenience with the other three companies is nothing but a mare's nest. As is apparent from the record and as submitted by the assessee company itself, the said four cheques only made their ways between the interacting companies without ever being deposited in any bank A/c and ultimately reached back to the issuing company. Thus no money has ever changed hands and the receipts of alleged capital & alleged investment were simply on paper, made contra entries and counter balancing each other and the entire transaction were made through book entry. This is also a clear instance that the assessee must have control any way with the alleged shareholders and the money so far introduced/credited by the assessee in its books through the alleged shareholders is nothing but a sham transaction. By issuing cheque and endorsing it to others and further endorsing it, the assessee tried to give it a look of real transaction, which it failed to establish. Honourable Calcutta High Court in the case of Bhola Shankar Cold Storage (P.) Ltd. v. Joint Commissioner of Income-tax [2005] 144 TAXMAN 889 (CAL.) observed as under: - "Whether since assessee failed to establish genuineness of transaction and creditworthiness of investors, addition made by Assessing Officer was valid - Held, yes". It is also to be mentioned in this connection that the assessee company shown the source of receipts of share capital of Rs.190,00,00,000/- (as credited in its books) as receipts through the above four cheques, which it failed to establish. Therefore, the concerned investment through those four cheques is also not established. Without introduction of any acting money or bank transaction, the assessee has managed to introduce share capital in the books of these companies. 6

7 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 In view of the facts & circumstances and forgoing discussions, it is held that the arguments, explanations & submissions placed by the assessee company have no legs to stand upon. The entire transactions provide no sequence or consequence and are found to be unfit for consideration to be valid. It is fact that (A) the assessee credited a sum of Rs.190,00,00,000/- in total in its books for Asst. Year 2010-11 as receipts of share capital & premium and (B) the explanation offered by the assessee is not satisfactory. Therefore, the sum of Rs.190,00,00,000/- is to be charged to income tax as income of the assessee for the previous year ended 31-03-2010. In view of the above, the entire sum of Rs.190,00,00,000/- is added to the total income of the assessee for the Asst. Year 2010-11 as unexplained Cash Credit. The assessee furnished inaccurate particulars in this regard and by this way understand its income. Hence, Penalty proceeding u/s 271(1)(c) is applicable in this issue and accordingly initiated. Accordingly, total income of the assessee for the Asst. Year 2010-11 is assessed & calculated as under:- Total Returned Income : Rs. NIL

Total Loss as per return : -668 Add: (i) Unexplained Cash Credit, as in Para 1.6 : 190,00,00,000.00 ----------------------------------- Total Assessed Income = Rs.189,99,99,332.00 Rs.189,99,99,330.00 -----------------------------------

Tax on assessed income Rs.189,99,99,330/-, as above : Rs.56,99,99,799.00 For Tax Computation, see separate sheet enclosed herewith. -------------------------------------------------------------------- : ----------------------- Total Payable by the assessee 87,83,01,290/- --------------------------------------------------------------------- : ------------------------

Penalty proceeding u/s 271(1)(c) already initiated against the assessee. Assessed u/s 143(3) of the Income Tax Act, 1961. Copy of the Order, Demand Notice &Challan issued to the assessee.

8 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 (b) These are mere paper transactions. (c) The transactions do not lead to any conclusion that the share capital shown to be received in this matter can be treated as unexplained cash credit u/s 68 of the Act. (d) No money has actually been received by the assessee and it was only a case of increase in capital by way of book entries. (e). The amount of capital has been counter balanced by simultaneous investment in share capital of other companies without actual movement of funds. (f). All the parties have confirmed the transactions and the assesse has discharged the onus that lay on it and hence no addition can be made. (g) If the transactions are sham transactions, as held by the A.O., no addition can be made. (h) He concluded that Section 68 of Act, does not apply. He deleted the addition and allowed the appeal of the assessee. 6. Aggrieved the Revenue is in appeal on the following grounds:- “1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in holding that provisions of section 68 are not attracted in the addition of Rs.190 Cr. On account of share capital, ignoring the facts that the appellant failed to establish the genuineness of the transaction, source of capital received and creditworthiness of the investors during the course of assessment in respect of capital of Rs. 190 Cr. Received during the period. 2. The appellant craves leave to adduce addition and / or supplementary ground / grounds and to amend and / or alter the ground / grounds any time before or at the time of hearing of the appeal.” 7. The ld. Counsel for the Revenue, Mr. GoulenHangshing, CIT, DR., submitted that Section 68 of the Act, applies on the facts and circumstances of the case, as the assessee has shown a credit in its books of account. He contended that the assessee received a cheque and after crediting the same in its books of account, endorsed it to a third party. The mode of utilisation of the credit, as per the ld. CIT, DR, is not relevant in the facts and circumstances of the case and what is to be seen is whether the three ingredients i.e. the identity, creditworthiness and genuineness of the credit transactions have been proved by the assessee. He took this Bench through the order of the ld. A.O. and submitted that circular transactions have been undertaken by the assessee at huge premium, without any justification. He pointed out to the cash balanceavailable in the bank account of these companies on various dates, which are at table 5 of the assessment order and submitted that, against a balance of Rs.11,288/-,a cheque of Rs.65 Crores was issued on 05/06/2009. Similar cheques were issue on different dates by other entities for crores of rupees though their bank balances were only a few thousand rupees. Hence he submits that the assesse has not proved the creditworthiness of the credit. He vehemently contended that there is no justification, whatsoever, for the premium charged and that this is a case where genuineness of the transactions has not been proved. He prayed that the order of the A.O. be upheld and the order of the ld. CIT(A) be reversed.

9 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 8. The ld. Counsel for the assessee,Shri Manoj Kataruka, on the other hand, submitted that Section 68 of the Act does not apply to the facts and circumstances of the case as, no sum of money whatsoever was received by the assessee. He relied on the wording of Section 68 of the Act and submitted that admittedly the entire transactions were book entries without actual receipt of money. For the interpretation of the term “any sum” he relied on the following case- laws:- • H.H. Sri Rama Verma vs. Commissioner of Income Tax (1991) 187 ITR 308 (SC) • D.C.I.T. vs. Bhartiya Hotels Ltd. Kolkata ‘A’ Bench of the Kolkta Tribunal ITA No. 941/Kol/2011 • Jatia Investment Co. vs. Commissioner of Income Tax (1994) 206 ITR 0718 • ACIT vs. Mahendra Kumar Agarwal (2011) 142 TTJ 0035 (UO) • ACIT vs. Kerala Transport Co. (1994) 50 TTj 0189

8.1. Alternatively and without prejudice to his argument that Section 68 of the Act is not attracted to the facts and circumstances of the case, he submitted that the assessee had produced confirmation letter, copy of Form-2, evidences allotment of shares as filed with the register of companies, all records declaring ROC filings etc. to prove the identity of the persons, genuineness of the transactions and creditworthiness of the party. He submitted that the cheque that has been received from the creditor is the source of the funds and the source of source is another chequereceived by the creditor from another company and which in turn had received similar cheque from yet another company by way of circular transactions. Thus he submits that the identity as well as the creditworthiness is proved. He vehemently contended that the three requirements of Section 68 of the Act, have been complied with, in this case. The genuineness of the transaction is proved as the parties have confirmed the transaction. He further submitted that if it is the Revenue’s case that the entire transactions are sham transactions, then the transactions should be ignored and no cognigence should be taken of the same and hence no addition can be made. He argued that no money whatsoever was received by any of the companies and it was a case of “book building” by exchange of share capital. He relied on the order of the ld. CIT(A) and argued that the same may be upheld as this is a case where no real income has accrued to the assessee. 9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record as well as of the order of the Authorities below and case laws cited, we hold as follows:- 9.1. Section 68 of the Act, reads as follows: “68.Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year (emphasis our) 9.2. In this case admittedly, the assessee has received cheques as consideration for allotment of share capital at a premium. 9

10 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 9.3. The assessee credited these cheques in its books of account. The manner in which the credit has been used subsequently is not relevant for the application of Section 68 of the Act. The contention of the assessee was that “crossed & CO” cheques were received and subsequently these very cheques were endorsed to another company for allotment of Share Capital at a premium. It was contended before the Revenue authorities that all these transactions are legally valid and that the Negotiable Instruments Act authorizes such endorsementsand under the Companies Act, share capital (at a premium) has been validly allotted. Thus, the amount received by cheque and entered into the books of accounts of the assessee as a credit, in our view, satisfies the requirements of Section 68 of the Act which starts with the wording “Where any sum is found credited in the books of the assessee maintained for any previous year….”. 9.3. The contention of the assessee that receiving a cheque and not encashing the same but endorsing the same to a third party does not tantamount to “sum found credited in the books” is devoid of merit. In the case on hand, the sum was credited in the books as application money for allotmentsof share capital. Cheque validly received under the Negotiable Instrument Act 1881 is “any sum” and this sum was found credited in the books of account. 9.4. Reliance place by the assessee in the case of H.H. Sri Rama Verma vs. Commissioner of Income Tax (supra) is misplaced as in that case, the Hon’ble Court was interpreting the term “any sums paid”. The Hon’ble Court held that any sum paid contemplates payment of amount of money and not a donation in kind, though convertible into money at a later stage. It was not a case where payment was made by way of cheque. Equity shares were donated.In the case on hand, a cheque was received by the assessee and a cheque comes within the definition of the term “any sum” as it is a payment of amount of money. 9.4.1. The decision of the Cochin Tribunal in the case of Kerala Transport Co. (supra), does not apply to the facts of the case, as the Hon’ble Tribunal was in that considering a case where accounting entries were passed by debiting accounts of sister concerns without actual inflow of cash. Here a valid cheque was received and credited in the books of account as valuable consideration for allotment of shares. 9.4.2. Similarly, in the case of ACIT vs. Mahendra Kumar Agarwal(supra), the Jaipur Bench of the Tribunal was considering a case of unexplained investment, where there were certain journal entries passed without any cash transactions. It was not a case where cheques have been issued. Thus, on facts this case law does not apply. 9.4.3. In the case of Jatia Investment Co. (supra), the facts were that entries were made in the books of account so as to comply with the directions of RBI given to NBFC’s. These directions were in the public domain. The RBI had directed the three companies belonging to Jatia Group to maintain a particular ratio of loans to share capital and reserves. This required discharge of loans and through a transparent arrangement these three companies sold shares held by them in various other companies of Jatia Group and the consideration received through book entries were utilized for repayment of loans borrowed from a proprietary concerns of one of the partners. Under such circumstances, the Hon’ble Jurisdictional High Court held that there is no real cash entry on the credit side of the cash book. The Hon’ble High Court found fault with the Tribunal for refusing to take notice of the directions of the RBI. In the case on hand, the transactions undertaken by the assessee are not for complying with any of any authority, much 10

11 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 less to comply with any law. When the assessee had received the cheque and thereafter utilized the same for allotment ofshare capital, it is a credit of a sum in the books of account. 10. Thus, in our view, these case laws do not come to the rescue of the assesse. Hence in our view, the argument of the ld. Counsel for the assessee that Section 68 of the Act, per se would not be attracted, is devoid of merit and hence rejected. 11. The second argument of the ld. Counsel for the assessee, is that the assessee has proved the identity and creditworthiness of the creditor company as well as the genuineness of the transactions. We are not able to agree with the same. A 10 rupees share has been issue at a premium of 990 rupees. On a question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrate that there is hardly any income was disclosed or any expenditure worth mentioning was claimed. There is no activity whatsoever in these companies. The Reserve Bank of India, the Institute of Chartered Accountants of India, and certain other organisations, have laid down various methods based on which the amount of share premium can be decided. None of these methods have been followed in this case. The exorbitant quantum of share premium collected shocks the conscience of any reasonable person. A mockery has been made of the whole system. These are not transactions which can be justified by any stretch of imagination. Thus, in our view, the genuineness of these transactions is not proved. 12. These being companies, which are registered with ROC,are artificial individual persons and hence, their identity has been proved. Coming to the creditworthiness of the creditor, the examination of the Balance sheet, Profit & Loss Account as well as balances in the Bank Account demonstrate that they are not more than a couple Hundreds of rupees or few thousands of rupees. No figures are in lakhs also, except the cheque issued. Bank Balance are around Rs.12,000/- Thus in our view the creditworthiness is not proved. As the genuineness of the transactions and the creditworthiness of the parties have not been proved, the addition has been correctly made u/s 68 of the Act by the A.O. 13. The last contention of the ld. Counsel for the assessee is that, if these credits as well as investments are sham, then no addition whatsoever can be made as these are not real transactions. He submits that when the A.O. gives a categorical finding that these are fictitious book entries, then logically no additions should be made. In our view, this argument has to be dismissed for the reason that credit entry has been made in the books of account consequent to receipt of cheques against which share capital has been allotted by the assesse company which, by the admission of the assessee, are legally valid transaction. The requirements of the Negotiable Instruments Act and the Companies Act are fulfilled in this case. Shares have been legally allotted. Amounts have been validly received by cheque. There is no violation of law. Thus, it cannot be said that these are fictitious or sham entries and no cognigence should be taken of theses entries. These are not unreal transactions as held by the A.O. These transactions are valid in law. 13.1. Hence, the credit recorded in the books of accounts of the assessee is not a fictitious credit and has legal sanction. In view of the discussions these arguments of the ld. Counsel for the assessee is dismissed as devoid of merit. 14. We find that the transactions undertaken by these groups of companies are scandalous. A number of companies have been floated and none of them have any business nor any asset 11

12 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 worth mentioning. The first company issues a cheque to the second company forallotment of shares at a huge premium and the second company allots shares to the first company. The second company instead of encashing the cheque endorses this cheque to the third company as consideration of allotment of shares at a heavy premium in that company. The third company does not encash the cheque but in turn endorses this cheque to the fourth company towards consideration of allotment of shares at a huge premium by the fourth company. The fourth company in turn endorses this cheque to the first company as consideration for the allotment of shares at a huge premium by the first company to the fourth company. By this process the circuitous route of round tripping is completed. Through this process all the four companies have huge share capital and reserves and corresponding asset by way of investments in shares of the other group companies. We come to understand the modus operandi is to sell these companies having huge share capital and investments, to persons who have unaccounted money, by transfer of the shares at a nominal amount. The shares in these companies are sold at a ridiculously low value and consequently the management and control of this company is transferred. The purchasers of shares of the companies thereafter, show bogus sale of the investments held by such company to third parties through a chain of transactions, by way of layering and bring in their unaccounted money into that company. 14.1. Such practices have to be depreciated. In such cases the assessees cannot claim that the entire transactions are bogus transactions and hence the provisions of law will not apply and no addition can be made u/s 68. We dismiss this argument as devoid of merit. 15.The “B” Bench of the ITAT, Delhi in ITA No. 378& 2164/Del/2008, Assessment Year 2000- 2001, ITO vs. M/s. SBS Properties &FinvestPvt. Ltd., order dt. 30.05.2016, wherein one of us is the author of the decisions, has held as follows: 27. We now consider the merits of the addition without taking into consideration the statement of Shri S.K. Jain or the material found during the search of Shri S.K. Jain. On a perusal of the documents submitted by the assessee, we are of the considered opinion that the genuineness of the transaction and the creditworthiness of the creditors has not been demonstrated by the assessee. The AO in his order at page 7 has clearly recorded that the assessee company has no financial base or business and the money received by it was withdrawn the very same day or the next day. More important he has recorded that the assessee has not given any, let alone satisfactory explanation for the high premium charged on the shares. When shares are allotted within a span of less than one month, the reason for charging high premium in the case of VPC Financial Services P Ltd. ,Killa Financial Services Pvt. Ltd., Highyield Securities Pvt. Ltd. , MehulFinvest Pvt. Ltd. and Synergy Finlease P. Ltd. and reason for not charging premium in the case of M/s. Timely Fincap Pvt. Ltd. and Graph Financial Services Pvt. Ltd. is not at all explained. The explanation given that the Ld. Counsel for the assessee that charging of premium is the sole discretion of the company and that price is a contract entered between two parties and cannot be questioned by the revenue is devoid of merit. The AO cannot be expected to wear blinkers and accept bald explanations of the assessee. There should be some explanation which is logical and rationale. Ld. Counsel could not demonstrate that the assessee company was in fact, carrying on the business of finance and investment. It is common sense that shares of loss making companies do 12

13 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 not command a premium. The financial status or the projected cash flow of the assessee company or any such record has been produced by the assessee to justify the charging of such premiums for allotment. Discounted cash flow matter is one of the accepted methods to determine premium chargeable on share capital. Certain other methods have also been prescribed. Premium cannot be charged as per the whims and fancies of the company. In cases where explanation or justification of the valuation of shares is given, to explain the basis on which share premium has been fixed, then no addition can be made, as the genuineness of the transaction can be held as explained. In this case no explanation whatsoever has been given. Under these circumstances we are of the considered opinion that the assessee has not discharged the burden that lay on it in proving the genuineness of the cash credits. We also find that the AO was right in holding that the assessee has not proved the creditworthiness of the share holder companies. The balance sheets, income tax assessments etc. show that the resources of these companies are limited. We now discuss the case law on the subject. 28. In the case of Nova Promotors and Finlease (P) Ltd. the Hon'ble Delhi High Court at para 18 and 19 held as follows: "18. In the course of the assessment proceedings, the assessee had adduced documentary evidence in an attempt to prove all the three ingredients of Section 68 viz. (i) identity of the creditor, (ii) creditworthiness of the creditor and (iii) the genuineness of the transaction. But the question before us cannot be resolved merely on the basis of the documentary evidence. The evidence adduced by the assessee has to be examined not superficially but in depth and having regard to the test of human probabilities and normal course of human conduct. Before we proceed to note the findings of the Tribunal and decide whether they have been properly arrived at, it is relevant to note a few judgments of the Supreme Court. In CIT v .Durga Prasad More [1971] 82 ITR 540 Hegde J. speaking for the Supreme Court observed as under: - "Now we shall proceed to examine the validity of those grounds that appealed to the learned judges. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self- serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." In CIT vs. Daulat Ram Rawatmull [1973] 87 ITR 349, the Supreme Court dealt with the question as to when the findings of facts recorded by the Tribunal can be interfered with in a reference made under section 66 of the Indian Income Tax Act, 13

14 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 1922. The Supreme Court referred to the leading case of Edwards ( Inspector of Taxes) v. Bairstow [1955] 28 ITR 579 (H.L.) decided by the House of Lords in which Viscount Simonds observed as under: "For it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarized by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be " In the same case Lord Radcliffe expressed himself in the following words: "If the case contains anything exfacie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene." Reference was also made to the observations of Bhagwati, J. (speaking for the majority) in the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181(SC), which are as under:- "It follows, therefore, that facts proved or admitted may provide evidence to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact- finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question." In DIT v. Bharat Diamond Bourse [2003] 259 ITR 280 / 126 Taxman 365 , the Supreme Court again reiterated the aforesaid position and held as under: - "As a principle, this court does not disturb findings of fact unless the findings of fact are perverse. It appears to us this is one of those exceptional cases where the correct conclusion recorded by the Assessing Officer, and affirmed by the appellate authority, has been reversed by the Tribunal on account of perverse reasoning, as we shall presently see." 19. The position thus is that even where a reference of a question of law is made to the High Court under Section 66 of the Indian Income Tax Act, 1922 or Section 256 of the Income Tax Act, 1961 over which the High Court exercises advisory jurisdiction, and not appellate jurisdiction, where normally the findings of fact recorded by the Tribunal are binding on the High Court, it has been held by the Supreme Court that the findings are not binding on the High Court if they are perverse or if the findings are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. The position in an appeal under Section 260A of the Act is "a fortiori" as 14

15 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 the judgment of the Supreme Court in the case of Bharat Dimond Bourse, (supra) would show. We shall demonstrate in the following paragraphs as to how both the CIT (Appeals) and the Tribunal have failed to appreciate the evidence in the proper perspective and on the lines indicated by the Hegde J. in the case of Durga Prasad More (supra). The present case is also not one, as we shall show presently, where the conclusion of the Tribunal is a reasonable conclusion which should not normally be disturbed even if the appellate court would have taken a different view on the same evidence and material. In the present appeal the evidence and material on record, properly considered in the light of the surrounding circumstances and without attaching weight to neutral circumstances or circumstances of no relevance, point to only one conclusion, namely, that the monies introduced by the assessee as share subscriptions from 15 companies were its own unaccounted monies. 29. At para 41 he further held as follows :- "41. In the case before us, not only did the material before the Assessing Officer show the link between the entry providers and the assessee-company, but the Assessing Officer had also provided the statements of MukeshGupta andRajanJassal to the assessee in compliance with the rules of natural justice. Out of the 22 companies whose names figured in the information given by them to the investigation wing, 15 companies had provided the so- called ""share subscription monies" to the assessee. There was thus specific involvement of the assesee- company in the modus operandi followed by Mukesh Gupta and RajanJassal. Thus, on crucial factual aspects the present case stands on a completely different footing from the case of Oasis Hospitalities (P) Ltd. (supra)." 30. The case on hand the assessee company has links with the entry operator of Shri S.K. Jain. This is evident from the details filed by the assessee company in the form of assessment orders of the companies which have made share applications. Independent of this link we hold that the assessee has not proved the genuineness of the transaction in this case. The Hon'ble High Court has laid down that the evidence adduced in the assessee has to be examined, not superficially, but in depth and having regard to the test of human probabilities and normal course of human conduct. When we do so in this case we have to uphold the action of the AO. 31. In the case of CIT vs. Global Securities & Finance (P.) Ltd. (2014) 264 CTR 481 (Delhi) it is held as under :- "11. The respondent assessee is a private limited company. It is not the case of the respondent that their Directors or persons behind the companies, who had purportedly made investment in the shares were related or known to them. In the present case substantial investment has been made in a private limited company which includes share premium @ Rs.40/- per share amounting to Rs.41 ,88,000/-. It is not a case of the respondent assessee that they had a proven good past track record justifying a hefty premium, four times the face value. What was placed on record were certain papers which showed that the respondent assessee had taken care to ensure legal compliances. The said evidence is primarily documentary 15

16 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 evidence. But, what the tribunal has noticed but not given due credence to are the surrounding circumstances which include a huge premium i.e. four times of the face value of the shares, credit entries in the bank accounts before transfer of money to the assessee, failure of the companies to file details of the inventories and the fact that the assessee company had not charged any premium earlier. Identity, creditworthiness of the shareholders and genuineness of the transaction in all cases is not established by only showing that the transaction was through banking channels or account payee instrument. It would be incorrect to state that the onus to prove genuineness of the transaction and creditworthiness of the creditor stands discharged in all cases if payment is made through banking channels. Surrounding and corroborative factual detail are equally important and may justify further proof or details before it is held that onus is discharged. As held in N.R. Portfolio (P.) Ltd. (supra) the question of discharge of onus depends upon whether the two parties are related or known to each other, the manner in which the parties approached each other, whether the transaction was entered into through written documents to protect the investment, whether the investor professes and was an angel investor, the quantum of money , creditworthiness of the recipient. the object and purpose for which payment was made etc. These fact are primarily in knowledge of the assessee and it is difficult for revenue to prove and establish the negative. Thus, mere reliance on neutral documentary evidence cannot always be regarded a satisfactory discharge of onus. 12. Investment decisions, that too of investing in share capital at a premium in a private limited company, in the normal circumstances, unless there are other peculiar or personal reasons, entails due diligence by both the share applicant and the recipient company. This implies inquiry and verification by the persons behind the artificial entity. There have been a spate of cases where private limited companies have purportedly received share application money from unconcerned, unrelated parties without securing adequate protection of their investment and with other surrounding circumstances clearly indicative of racket or a seam. We reproduce a portion the ruling in OnkarNath v. Delhi Administration AIR 1977 SC 1108, wherein it was stated: "6. The list of facts mentioned in Section 57 of which the Court can take judicial notice is not exhaustive and indeed the purpose of the section is to provide that the Court shall take judicial notice of certain facts rather than exhaust the category of facts of which the Court may in appropriate cases take judicial notice. Recognition of facts without formal proof is a matter of expediency and no one has ever questioned the need and wisdom of accepting the existence of matters which are unquestionably within public knowledge . .......... ........ No Court therefore insists on formal proof, by evidence, of notorious facts of history, past or present. The date of poll' passing away of a man of eminence and events that have rocked the nation need no proof and are judicially noticed. Judicial notice, in such matters, takes the place of proof and is of equal force. In fact, as a means of establishing notorious and widely known facts it is superior to formal means of proof..... " 16

17 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 13. It is important, to segregate cases of bonafide or genuine investments by third persons in a private limited company, from cases where receipt of share application money is only a facade for conversion of unaccounted for money or money laundering. The said question cannot be decided without taking notice of the surrounding facts and circumstances, by merely relying upon paper work which at best in some cases would be a neutral factor. The paper work though important may not be always conclusive or determinative of the final outcome or finding whether the transaction was genuine. When and under what circumstances onus is discharged, as held in NR.Portfolio (P.) Ltd. (supra), cannot be put in a strait jacket universal formula. It will depend upon several relevant factors. Cumulative effect has to be ascertained and understood before forming any objective opinion whether or not onus has been discharged by the assessee. Of course suspicion or doubts may not be sufficient and care and caution has to be taken that the assessee has limitations but this cannot be a ground to ignore contrary incriminating evidence or material which when confronted, meets silence or no answer." (emphasis own) 32. The proposition of law laid down by the Hon'ble High Court in the case referred above and the surrounding facts and circumstances considered by it are applicable to the facts and circumstances of the assessee company. On a careful consideration of the documents filed by the assessee and the explanations given by it, and without reference to evidences in the form of statement recorded from Shri S.K. Jain or the material seized by the investigation wing to the extent used against the assessee, we hold that the assessee has not discharged the burden of proof that lay out on it, to prove the genuineness of these cash credits as well as the creditworthiness of the share applicant companies. In view of the above discussions, the addition made by the AO u/s 68 of the Act is upheld and the order of the Ld. CIT(A) is vacated. 33. In the result we set aside the order of the Ld. CIT(A) and restore the order of the AO. The appeals of the revenue are allowed.” 15. Respectfully applying the propositions of law laid down by the co-ordinate bench of the Tribunal to the facts of the case, we find that Section 68 of the Act applies to the facts of this case as a sum of money was credited, in the books of the assessee and the assessee could not prove the genuineness of these credits as well as the creditworthiness of the creditor. Hence in our view the addition has rightly been made by the A.O. 16. The ld. CIT(A) was wrong in concluding that Section 68 of the Act does not apply as the transaction is a fraudulent transaction and as it is a sham transaction. He was also in error in holding that the assessee has discharged the onus that lay on it. The genuineness of the transactions has not been proved by the assessee. We reverse these findings of the ld. CIT(A). 17. In view of the above discussion, we set aside the order of the First Appellate Authority and restore the order of the Assessing Officer. 18. In the result, the appeal of the Revenue is allowed.”

18 ITA No.282/Kol/2014 & C.O. No. 39/Kol/2018 M/s Sayaji Marketing Pvt. Ltd. A.Yr. 2010-11 Respectfully following the Co-ordinate Bench decision of this Tribunal referred to supra we allow the grounds raised by the revenue.

Order pronounced in the Court on 05.09.2018

Sd/- Sd/- [S.S. Godara] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 05.09.2018 SB, Sr. PS

Copy of the order forwarded to: 1. ITO, Ward-5(2), Kolkata, P-7, Chowringhee Square, 8th Floor, Room No.6, Kolkata- 69 2. M/s Sayaji Marketing Pvt. Ltd., No. 5, Russel Street, 1st Floor, Kolkata-71. 3..C.I.T(A).- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.