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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-16, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-16/ITO 8(1)(3)/IT/178/2012-13 dated 22.05.2015. The Assessment was framed by the Income Tax Officer, Ward 8(1)(2), Mumbai (in short ITO) for the assessment year 2010-11 vide order dated 20-03-2013 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO of share capital and share premium received by assessee from the 11 private Limited companies and according to Revenue genuineness of transaction and creditworthiness of these subscribers could not be proved in terms of section 68 of the Act. For this Revenue has raised following ground No. 1 and 2 : -
“1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in admitting new evidences with regard to the parties which had purportedly subscribed to the issue of the shares at a premium, despite adequate opportunity having been granted during the assessment proceedings.
2. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred deleting the addition made u/s. 68 of the I.T. Act, of Rs. 22,04,40,000/- without considering that the genuineness of the transactions and creditworthiness of the subscribers to the shares was to be determined on the touchstone of human probabilities and the surrounding circumstances of the case and ignoring the fact that the bulk of the subscribers had minimal business operations, the financials of the assessee company could not justify the exorbitant premium paid by them and substantial funds invested by them appeared to have bee
sourced, in turn by the way of share capital, premium.”
Briefly stated facts are that the AO during the course of assessment proceedings noticed from the balance sheet that the assessee company has received an amount of ₹ 27,06,00,000/- on account of 8% non-cumulative preference shares of hundred each at a premium of ₹ 1100 from the 11 parties: - Total Name of the party Amount Sr. No No, of Premium Shares Received 1. Alken Management and 20900 25080000 2090000 22990000 Financial Services Put. Ltd 2. Hare Krishna Securities Pvt. 2090000 22990000 25080000 20900 Ltd.
3. Empower Indus Ltd 41700 4170000 45870000 50040000 4. Signora Finance Pvt. Ltd 1670G 1670000 18370000 20040000 5. Lilac Medicines Pvt Ltd / 20900 2090000 25080000- 22990000 6. Sonal Cosmetic (Exports) Ltd 20900 2090000 22990000 25080000 7. Raw Securities Pvt. Ltd 8400 840000 9240000 10080000 8. Prabhav Industries PvK Ltd. 41700 4170000 45870000 50040000 9. Sonal Sil Chem Ltd 1250Q 1250000 13750000 15000000 4200 420000 4620000 5040000 10. Dynachem Pharmaceuticals (Exports) Ltd, 11. Sonal International Ltd. 16700 1670000 18370000 20040000 225500 2,25,50,000 24,80,40,000 27,06,00,000 Total r~ 4. The AO in order to verify the identity, genuineness and creditworthiness of the above parties issued notices under section 133(6) of the Act and out of the above said parties, the parties namely Dynachem Pharmaceutials Export Ltd. Sonal International Ltd., sonal Sil chem. Ltd., Sonal cosmetic Export Ltd., Raw Gold Securities Pvt. Ltd, Hare Krishna Securities Pvt. Ltd., Empower Indus Ltd., Prabhv Inds Ltd. & Signora Finance Pvt. Ltd. notices returned back and the AO required the assessee to produce these parties. The assessee filed the following details: - “(a) As far as Identity of shareholder is concerned, the Company has demonstrated the souse by filing registered address (as reflected in their Application for shares and other ROC records) PAN numbers along with copy of Return furnished with particular ward of Income tax Department.
(b) As far as Genuineness of transaction is concerned, the Company has demonstrated the souse by showing that the assessee had, in fact, received money front the said shareholder and it came from the coffers from those very shareholders. When the money is received by cheque and is transmitted through banking or other indisputable channels, genuineness of transaction would be proved. Other documents showing the genuineness of transaction such as copies of the share application, Share Certificate, return of allotment filed with ROC forms, etc. were also been furnished to AO.
(c) As far as Credit worthiness of shareholders is concerned, the Company has demonstrated the sonic by producing the bank statement of the subscribers showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. “
But the AO, was of the view that the assessee has not filed any details despite of giving various opportunities. For this he observed in Para 4.6 as under: - “4.6 As such the assessee was required to produce the identity of the person who had applied for the shares giving the name, address and PA Number. But no such details have been tiled by the assessee Inspite of giving various opportunities. Further the assessee was required to give the genuineness of the transaction showing that the assessee has received the money from the person who have applied for shares giving the cheque No., Bank details, etc. Further in order to prove this creditworthiness, the assessee should have produced the Balance Sheet or Bank of Account of the person who have applied the shares to show that he had sufficient balance in his accounts to enable him to subscribe the share capital. However the assessee has not produced any of the above details. Needless to mention that, the assessee has allotted shares to these persons/entities and assessee itself could not produce its shareholders.”
6. And finally, added the share capital amounting to ₹ 22,04,40,00/- to the returned income of the assessee under section 68 of the Act. Aggrieved, assessee preferred appeal before CIT(A).
7. The CIT(A), deleted the addition after considering the submissions of the assessee and by observing as under: -
5. I have gone through the assessment order, remand reports sent by the AO and submissions made by the appellant from time to time. The brief back ground of the case is that during the course of assessment proceedings, it was observed by the AO that the assessee had received an amount of Rs.2,25,50,000 and premium of Rs. 24,80,50,000 by issuing 2,25,5008% noncumulative preference shares of Rs.100 each at a premium of Rs. 1,100 to 11 parties. Notices tinder section 133 (6) were issued to 11 parties after of the said parties, in some cases the notices issued were returned back by the postal department and in some cases notices were served but no reply was received. The non- compliance was from 9 parties whose share application aggregates to ₹22,04,40,000/-. The AO asked the AR of the assessee to produce those parties. Further, the AR of the assessee was also asked to explain why the amount received from such parties against preference shares issued, should not be disallowed under section 68 of the Act if the assessee fails to prove the identity, genuineness and creditworthiness of those parties. The appellant vide letter dated 14th March 2013 objected to the proposed addition. The submission of the appellant was not acceptable to the AO. In the opinion of the AO the appellant has not discharged the onus casted on it to prove the identity of the person who applied for shares, the genuineness of the transaction and creditworthiness of the persons who have applied for shares. The AO also observed that the appellant has failed to produce the shareholders. The AO relied on various case laws in support that the appellant has failed to fulfil the onus casted on it. Before dealing with the case laws it is necessary to appreciate the development after admission of the additional evidences and reports received from the AO and its reply by the appellant. Firstly, I take up the doubts created by the AO on premium charged by the appellant company. In the remand report dated 27 October 2014 the AO has submitted that premium of Rs. 1,100 charged by the appellant company is without any basis and the earnings per share, ratio of profit before tax, no dividend history of future years etc. do not support premium received by the appellant company. In my opinion valuation of the company need not be decided exclusively on the present position but the future potential also has to be looked into. ln the case of the appellant company the management estimated the share premium at the rate of Rs. 1100 on the basis of various plots and parcels of land in different villages of Taluka Khalapur. There was proposal to develop the project spread over those plots under one scheme/ Project. The company was planning to make necessary applications for conversion to non-agricultural use by making necessary payments for the conversion. Schedule E forming part of the balance sheet shows that under the head "advances against plot" Rs. 14,33,73,009 is stated. This schedule refers to note 5. Note 5 gives details of the advances paid for purchase of land and includes advances paid to farmers for which agreement have been entered and also advances paid to farmers for which agreements have been executed in the name of the company. These details were filed before the assessing officer during the course of assessment proceedings. Notes 6,7 and S annexed to and forming part of the accounts for the year ended 31 March 2010 are also relevant and the same are reproduced herein below: -
“6. The company is in the process of acquisition of land/ property is. Some of the lanes purchased ending in the name of nominees of come are pending for necessary permissions from the revenue Department.
The permissions under the Bombay Tenancy and Agricultural Land Act (BTAL) from revenue Department for acquiring agricultural land in excess of ceiling limit are subject to certain conditions imposed by the Government which states that approvals /permissions under ML Rode, Restoration of Land to ST Act, BTAL Act, Forest Act, CRZ, NDZ and other similar Ian's wherever applicable are necessary.
The company has during the year based on management estimate with regards to the market value, issued 2,25,5008% non- cumulative convertible preference shares of Rs. 100 each at a premium of Rs. 1100."
5.2 As per the submissions made by the appellant total area for such development admeasured 15,76,959.12 square meters. Transactions for such plots of land in the surrounding locality were done at rates ranging from Rs. 200 per square metre to Rs. 400 per square metre of area. Taking every rate at Rs. 300 per square metre the plots could be valued at Rs. 47,30,87,736/-. Due to this potential the value of premium was estimated at Rs. 1100/-. Subsequently, on 31st March 2010 valuation report was also obtained for these plots of Iand. In view of this background of the appellant company value of premium can he estimated at Rs. 1100/-.
5.3 Further 5 parties at Ahmedabad and one party at Baroda have confirmed of having paid the premium of Rs. 1,100 per share. Hence there can be no doubt at the amount of premium fixed by the appellant company.
5.4 Now, I take up of the observations oil shareholder's case by the AO. In the remand report the AO has given his observations against all the 9 shareholders. His main submissions are that all these companies have not generated any profit and hence could not have issued themselves shares at a premium and the assesse company has taken bogus entries to rotate its own money and those companies have no creditworthiness.
5.5 In the case of M/s. Prabhav Industries Limited, Baroda (Rs. 5,00,40,000/-) it is seen that the company was incorporated on 08/12/1995 as per PAN card. Thus this is an old company. The financial statement of the said company reveals the following: i. Equity share capital of ₹ 46,08,91,000 with high reserves and surplus of ₹ 1,02,58,57,000/-. ii. Fixed Assets of ₹ 3,74,78,065/- including additions made in the current year of ₹ 3,73,84,398/- majorly in buildings, plant & machinery and electrical instalments. iii. The company has huge cash and bank balance of ₹ 93,05,748/-.- iv. It has also paid right issue and bank balance of ₹ 4,14,159/- and penalty to Stock Exchange of ₹ 4,80,000 which proves that it’s a running concern.
5.5. This proves the capacity to make investment in the appellant company and also issue shares at premium. The said company is holding shares till date of the appellant company. Thus there is no rotation of money 5.5.2 Also Addl. Director of Income Tax (Investigation), Baroda, has sent his report dated 4- 6-2014 confirmed that the party namely M/s. Prabhav Industries Limited actually exists and its address has changed. It shows the shares as investment as shown by the appellant. Balance sheet for i.e. on 31-3-10 is filed before him and the same shows the same figures as stated herein above. From the bank statements filed by it investment on various dates have been found. In view of this, other observations of the AO are not relevant, though the appellant has satisfactorily replied to them also.
5.5.3 This not only proves the identity of party but also proves the genuineness and capacity. Hence addition made in the assessment is not correct.
5.6 In the case of M/s. Empower Industries India Limited, Mumbai (Rs. 5,00,40,000/-), the said company has given 281h Annual Report in the year under consideration. Thus it is a very old company. The said company has also declared dividend of 3% in A.Y. 2010-11. The financial statement of the said company reveal the following:- i. Equity share capital of Rs. 12,41,42,875, share application money of Rs. 93,88,06,000 and reserves and surplus of Rs. 18,70,917 ii. Fixed Assets of Rs. 5,13,06,789 including additions made in the current year of Rs. 1,19,64,849/- majorly in computer and computer peripharels. iii. The company has inventories of Rs.3,15,18,831 and huge cash and bank balance of Rs. 5,57,69,177 which includes balance of ED with Foreign Bank of Rs. 1,31,91,650. iv. The company has huge investments of Rs. 64,64,25,000. v. The said company has written off GDR issue expenses 01 Rs. 10,10,43 and paid salary and wages of 2,31,46,513.
5.6.1 The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium.
5.6.2 Identity was proved by submitting the PAN card and registered address of the said company.
5.6.3 Bank account of the said company reflects the payment made to the appellant company for investing in shares. But there is no entry in bank accounts which reflects that the appellant company has paid back the amount of investment.
5.6.4 As regards the statement of Shri Devang Dinesh Chandra Master, Director of Empower Industries India Limited recorded u/s. 131 on 12.03.2013 where he admitted. that the entire trading activity in sale and purchase of computer hardware and software is bogus and this was mainly done to increase the top link of bank and other credit proposal the said company has made bogus purchases and sales to other companies. It does not mean that this company has also made bogus investment in M/s. Citygold Education Research Ltd. Also in the statement recorded u/s. 131 nowhere it is mentioned that investment made is bogus.
5.6.5 As regards Ahmedabad Investigating Wing's action u/s. 132 that Shri Devang Dinesh Chandra Master is only a entry providerthe said company has made bogus purchases and sales to other companies, which does not mean that it has made bogus investment too.
5.6.6 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at page 40 of PB. Therefore, statement of Shri Devang Dinesh Chandra Master, Director of Empower Industries India Limited is not called for.
5.6.7 The amount which has been paid by the said company never came back to the appellant company. The said company are holding till date the shares of the appellant company.
5.6.8 Hence addition made in the assessment is not correct.
5.7 As regards Harekrishna Securities Private Ltd, Mumbai (Rs.2,50,80,000/-), date of incorporation of the said company is 01-09-1994 as per PAN card. The financial statement of the said company reveal the following: i. Share application money of Rs. 4,70,00,000. ii. The company has huge investments of Rs. 10,01,19,700. iii. The bank balance of the company is 34,81,294.
5.7.1 The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium.
5.7.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction.
5.7.3 Audited balance sheet needs to be accepted. There is no reason to doubt it. Apparent is real unless proved otherwise. Notice was served on that company. Hence existence also can't be doubted.
5.7.4 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
5.7.5 Hence addition made in the assessment is not correct.
5.8 In the case of Signora Finance Private Limited, Mumbai (Rs. 2,00,40,000/-), the said company has given 141\ Annual Report in the year under consideration. This shows that it is an old company. The financial statement of the said company reveals the following: i. Equity share capital of Rs. 2,94,00,000, securities premium of Rs. 13,86,00,000 and remaining reserves and surplus of Rs. 55,05,380 ii. Gross Block of Fixed Assets of Rs. 1,19,45,452 iii. The company has huge investments of Rs. 12,84,86,582.
5.8.1 The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium.
5.8.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction.
5.8.3 As regards an increase of Rs. 1,78,51,000/- only whereas the investment of Rs. 2,00,40,000/- in the appellant company agree with the submission of the appellant that the said company might have sold few of its investment. The appellant company has received money from the said company and it is reflected in the bank account of the said company and also in appellant company.
5.8.4 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
5.8.5 Hence, addition made in the assessment is not correct.
5.9 As regards Sonal Cosmetics (Export) Limited, Ahmedabad (₹2,50,80,000/-), the said company has given 18th Annual Report in the year under consideration. This shows that it is an old company. The financial statement of the said company reveals the following. i. Equity share capital of Rs. 12,06,00,000 and securities premium of Rs. 12,06,00,000. ii. Gross Block of Fixed Assets of Rs. 3,21,21,1 62 iii. The company has huge investments of Rs. 11,07,19,768, 5.9.1 The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium.
5.9.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction.
5.9.3 As regards no increase in investments for F.Y.200940 as compared to investments in F.Y. 2008-09 and Cash Flow Statement as on 31" March 2010 not showing any investments made during F.Y.2009-10, the appellant had filed confirmation on page 142 of PB where the above company has confirmed of having applied for the shares at premium of Rs. 1,100/- and has given details of payments made through RTGS from its Kotak Mahindra Bank. Further, in the statement recorded on oath u/s. 131 of Shri. Vimal Gala, director of Sonal Cosmetics (Export) Limited, he has confirmed the transaction of investing in the preference shares of the appellant company. The observation made by the AO were before the above statement taken on oath. However now, there is no room for doubt.
5.9.4 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
5.9.5 Hence addition made in the assessment is not correct.
5.10 As regards Raw Gold Securities Pvt. Ltd. Ahmedabad (Rs, 1,00,80,000/-), the said company has given 141h Annual Report in the year tinder consideration. This shows that it is an old company. The financial statement of the said company reveal the following: i. Equity share capital of Rs. 1,34,31,500. ii. Capital Reserve of Rs. 4,76,920, securities premium of Rs. 12,21,22,500 and profit and loss A/c of ₹ 8,06,486/-. iii. The company has huge investments of ₹ 11,87,98,000 5.10.1 The above details prove that the company had capacity to make investment in the appellant’s company and also issue shares at premium.
5.10.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction.
5.10.3 As regards sale of an investment of Rs.13,44,62,500/- and fresh investment of Rs.11,87,98,000/- but not showing Profit(net) on sale of Investment, it has been stated that investment in M/s. City Gold Education Research Private Limited is reflecting in the books of MIS. Raw Gold Securities Pvt Ltd. I agree with the appellant that selling the investments with Nil profit has nothing to do with the genuineness of the transaction of investing in shares of appellant company. Company has certified of having paid for preference shares by RTGS from Kotak Mahindra Bank.
5.10.4 Further, Report of the DDIT,(Inv) Unit I-(3) dated 2-3-2015 is submitted by the AO. The DDIT (INV), Ahmedabad has also forwarded the statement of Shri Hiren C Chhatrawala, authorized by the Board of Director for the deposition by M/s. Raw Gold Securities Pvt Ltd. following observations can be made from the statement of Shri 1-liren C. Chhatrewala: i. Business activities of the companies of trading in commodities especially through commodity exchanges were explained. (Ans to Q 4) ii. Confirmed the transaction of subscribing preference share of the appellant company and submitted share application form. .(Ans to Q 7) iii. Details about business activities of appellant company were also provided. (Ans to Q 8) iv. The shares were subscribed for the purpose of investment and through common acquaintances. (Ans to Q 8)
V. Investment registers, audited accounts, return of income and bank statements were provided for the FY 2009-10 of all four companies. (Ans to Q9,1O) vi. Source of funds for making investment in the appellant company were explained. It was explained that the company had surplus funds in form of share capital. The said funds are extended as loans to various parties. The investments have been made out of the share capital and the short- term loans taken from other parties or loan repayments received by these companies. .(Ans to Q 12) vii. It was confirmed that shares are still held with the all four companies and share certificates issued by the appellant company to all the four companies were submitted.
Thus, from the above statement recorded on oath and the documents provided by Shri Hiren C. Chhatrewala, the identity & creditworthiness of M/s. Raw Gold Securities Pvt Ltd and genuineness of the transaction with the said company cannot be doubted.
5.10.5 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company; Thus there is no rotation of money.
5.10.6 Hence addition made in the assessment is not correct.
5.11 As regards Sonal SilChem Limited. Ahmedabad (Rs. 1,50,00,000/-), the said company has given 201h Annual Report in the year under consideration. This shows that it is very old company. The financial statement of the said company reveals the following: i. Equity share capital of Rs. 8,45,40,000. ii. Gross Block of Fixed assets of Rs. 6,89,1 6,942. iii. The company has huge investments of Rs. 1,41,83,691.
5.11.1 The above details prove that the company had capacity to make investment in the appellant's company.
5.11.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction.
5.11.3 As regards the observation of the AO that there was no increase under the head Investment in the Balance Sheet as on 3111 March 2010, though the said company claims to have made an Investment of Rs.1,50,00,000/- with M/s Citygold Education Research Limited during A.Y.2010-11, the appellant had filed confirmation on page 193 of PB where the above company has confirmed of having applied for the preference share at premium of Rs. 1,100/-. It has also confirmed that payments are made through RTGS from its Kotak Mahindra Bank.
5.11.4 As regards the observation of the AO that during the course of search and seizure action u/s 132 of the Act in the case of MIs J Kumar lnfra projects Ltd. (formerly known as J Kumar & Co) and its associate cases on 25.08.2009, it emerged that M/s SonaliSilChem Limited was one of the entities which provided bogus entries I agree with the appellant that merely because the said company was providing bogus entries to M/s. Kumar Infraprojects Lts, it does not prove that the said company has made bogus investment in the appellant company. No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is after the date of search i.e. 25.08.2009.
5.11.5 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at PB page 193 and also in the staemeM recorded on oath of u/s. fl of Shri. Vimal Gala, director of SonalSilChem Limited, he has confirmed the transaction of investing in the preference shares of the appellant company. The observation made by the AO were before the above statement taken on oath. However now, there is no room for doubt.
5.11.6 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
5.11.7 Hence addition made in the assessment is not correct.
5.12 As regards Dynachem Pharmaceuticals (Exports) Limited, Ahmedabad (Rs. 50,40,000/-),the said company has given 18th Annual Report in the year under consideration. This shows that it is a very old company. The financial statement of the said company reveal the following: i. Equity share capital of Rs. 11,57,85,000. ii. Gross Block of Fixed assets of Rs. 2,68,05,018. iii. The company has huge investments of Rs. 6,95,50,000.
5.12.1 The above details prove that the company had capacity to make investment in the appellant's company.
5.12.2 Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction.
5.12.3 As regards the Cash Flow Statement for the year ended 316t March 2010, showing sale of an investment of Rs.98,85,940/- and no fresh Investment during the year. Page 224 of PB shows confirmation of the company that it has applied for preference shares at premium of Rs. 1100/- and has paid through RTGS from its Kotak Mahindra Bank. Company has certified of having paid for preference shares by RTGS from Kotak Mahindra Bank.
5.12.4 As regards the observation of the AO that during the course of search and seizure action under section 132 of the Act in the case of M/s J Kumar Infraprojects Ltd (formerly known as J Kumar & Co) and its associate cases on 25.08.09, it emerged that this was one of the entities which provided bogus entries I agree with the appellant that merely because the said company was providing bogus entries to MIs. J Kumar Infraprojects Ltd, it does not prove that the said company has made bogus investment in the appellant company. No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is alter the date of search i.e.25.08.2009.
5.12.5 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at page 224 of PB and also in the statement recorded on oath of u/s. 131 of Shri. Vimal Gala, authorized for the deposition by Dynachem Pharmaceuticals (Exports) Limited, he has confirmed the transaction of investing in the preference shares of the appellant company. The observation made by the AO were before the above statement taken oil However now, there is no room for doubt.
5.12.6 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
5.12.7 Hence, the addition made in the assessment is incorrect.
5.13 As regards Sonal International Limited, Ahemdabad (Rs. 2,00,40,000/-), the said company has given 17th Annual Report in the year under consideration. This shows that the company is a very old company. The financial statement of the said company reveals the following: i. Equity share capital of Rs. 6,27,00,000. ii. Gross Block of Fixed assets of Rs. 2,92,33,813. iii. The company has huge investments of Rs. 3,13,62,987.
5.13.1 The above details prove that the company had capacity to make investment in the appellant's company.
5.13.2 Identity was proved by submitting the PAN card and registered address of the said company.
The above details prove the genuineness of the transaction.
5.13.3 As regards Cash Flow Statement for the year ended 31st March 2010 showing that there is neither any new investment made nor any investment sold, Page 254 of PB shows that the company has confirmed that it has applied for preference shares at premium of ₹ 1,100/- and has paid through RTGS from its Kotak Mahindra Bank.
5.13.4 As regards the observation of the AO that during the course of search and seizure action u/s 132 of the Act in the case of M/s J Kumar Infraprojects Ltd (formerly known as J Kumar & Co) and its associate cases on 25.08.2009, it emerged that this company was one of the entities which provided bogus entries I agree with the appellant that merely because the said company was providing bogus entries to MIs. I Kumar Infraprojects Ltd, it does not prove that the said company has made bogus investment in the appellant company. No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is after the date of search i.e. 25.08.2009.
5.13.5 The above company has specifically confirmed the transaction of making investment in the shares of appellant company vide confirmation filed by the appellant at page 254 of PB and also in the statement recorded on oath of u/s. 131 of Shri. Vimal Gala, Director of Sonal International Limited, he has confirmed the transaction of investing in the preference shares of the appellant company. The observation made by the AO were before the above statement taken on oath. However now, there is no room for doubt.
5.13.6 The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
5.14 Report of the DDITI(INV) Unit 1-(3) dated 2- 3-2015 is submitted by the AC). The DDIT (INV), Ahmedabad has also forwarded the statement of Shri VimalNemchand Gala, director and authorised for the deposition by MIs Dynachem Pharmaceuticals (Exports) Limited, Sonal International Limited, SonalSil - Chem Limited, Sonal Cosmetic (Exports) Limited.
5.15 From the statement of Shri VimalNemchand Gala it can be noticed as follows: i. Business activities of the companies were explained. They are engaged in business of trading in chemicals ( Ans to Q 4) ii. Confirmed the transaction of subscribing preference share of the appellant company. (Ans to Q 8) iii. Details about business activities (Real estate) of appellant catchpenny were also provided iv. The shares were subscribed for the purpose of investment and through common acquaintances. v. Investment registers, audited accounts, return of income and bank statement were provided for the FY 2009-10 of all four companies. vi. Source of funds for making investment in the appellant company were explained. It was explained that the funds have been paid out of the share capital and short-term loans and advances of the company. He submitted the bank statements of all the 4 companies highlighting the payments made to the appellant. .(Ans to Q 12). It was again stated that the companies had surplus funds in the form of share capital. The said funds were extended as loans to various parties. The investments have been made out of the share capital and the short-term loans taken from other parties or loan repayment is received by these companies (.( Ans to Q 13) vii. Justification of investing in the shares issued with premium of appellant company was provided. It is stated that the appellant company was coming up with a township at Khalapur and looking at the prospective profits of the said project they have invested in the said company. He submitted a copy of the project report of the said project. .( Ans to Q 17) viii. It was confirmed that shares are still held with the all four companies and share certificates issued by the appellant company to all the four companies were submitted..( Ans to Q 18,19)
Thus, from the above statement recorded oil and the documents provided by Shri VimalNemchand Gala, the identity & creditworthiness of MIs. Sonal International Ltd, Mis. SonalSilChem Ltd, M/s. Sonal Cosmetic Export Ltd and MIs. Dynachem Pharmaceuticals Export Ltd and genuineness of the transaction with the said companies is proved beyond doubt.
5.16 In view of the above facts the addition made under section 68 for all the above stated 9 companies is deleted.
5.17 As regards two companies whose share application is suggested to enhance by the AO in the remand report, the analysis of those two companiesare as under:-
I. As regards M/s. Alken Management and Financial Services Pvt. Ltd., Mumbai (Rs. 2,50,80,000/-)the AO stated that the turnover and profit before tax and earnings per share of Aiken Management and Financial Services Pvt. Ltd. did not reflect its credit worthiness and hence it could not command the share capital of Rs.10/- and premium of Rs.2725.64/- received on 50,000 shares.
A) The financial statement of the said company reveals the following: i. Share Premium of ₹ 13,62,82,000 ii. The company has huge investments of ₹ 9,95,64,379 b) The above details prove that the company had capacity to make investment in the appellant’s company and also issue shares at premium. c) The valuation of share premium at which shares were issued by the Said company was never disputed. Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. d) As regards the submission of the AO the said company has shown a decrease in Investment though it claims to make an Investment with M/s Citygold Education and Research Limited during A? 2010-11. This strengthens the finding that the transactions entered into by M/s Alken Management and Financial Services Ltd. are not genuine and are in the nature of accommodation entry. e) It is seen that in the bank statement of the appellant company, payment received from the said company is reflected. f) The AO has stated that during the course of search and seizure action u/s 132 of the Act in the case of M/s J Kumar Infraprojects Ltd (formerly known as Kumar & Co) and its associate cases on 25.08.2009, it emerged that M/s Alken Management and Financial Services Pvt. Ltd. was one of the entities which provided bogus entries. g) I agree with the appellant that merely because the said company was providing bogus entries to M/s. I Kumar Infraprojects Ltd, it does not prove that the said company has made bogus investment in the appellant company. h) No such confession is available for investment in appellant company. Moreover, the investment made in the appellant company is after the date of search i.e. 25.08.2009. i) The payment received by the appellant company from the above said company has been reflected in the bank account of the appellant company. j) The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till date the shares of the appellant company. Thus there is no rotation of money.
In view of the above facts question of giving an enhancement notice does not arise and the AO is correct in the assessment order by not making addition on account of this company
II. As regards Lilac Medicines Pvt. Limited, Mumbai (Rs. 2,50,80,000/-), as per the AO the ratio for profit before tax to the total credit to P&L is 0.98% for AY 2009-10 and 1.49% for AY 2010-11 and the earnings per share for AY 2010-11 is 0.28 whereas for AY 2009-10 it is 0.44. The turnover and profit before tax and earnings per share of Lilac Medicines Pvt. Limited did not reflect its credit worthiness and hence it could not command the share capital of ₹ 10.- and premium of ₹ 35.94/- received on 12.95,000 shares. a) The financial statement of the said company reveals the following: i. Equity Share Capital of Rs. 1,00,000, Share Application Money of Rs. 1,29,50,000 and Share Premium of Rs. 4,65,50,000. ii. The company has huge investments of Rs. 7,90,40,000. b) The above details prove that the company had capacity to make investment in the appellant's company and also issue shares at premium. c) The valuation of share premium at which shares were issued by the said company was never disputed. Identity was proved by submitting the PAN card and registered address of the said company. The above details prove the genuineness of the transaction. d) The payment received by the appellant company from the above said company has been reflected in the bank account of the appellant company and no cash has been received by the appellant company. e) The amount which has been paid by the said company never came back to the appellant company. Also the said company are holding till (late the shares of the appellant company. Thus there is no rotation of money.
In view of the above facts question of giving an enhancement notice does not arise and the AO is correct in the assessment order by not making addition on account of this company
Moreover, during the original assessment the Ld AO was satisfied with identity and creditworthiness of the above two parties and also genuineness of the transaction with them. The situation still remains the same as compared to the original assessment. Moreover, on the basis of the above analysis, I am of the opinion that the enhancement of addition is not required.”
Aggrieved, now Revenue is in second appeal before Tribunal.
We have heard the rival contentions and gone through the facts 6. and circumstances of the case. We find from the remand report of the AO no. ITO-8(1)(2)/Remand Report/ Citygold-10-11/13-14 dtd. 27.10.14, the AO in para 3 has recorded the complete details i.e. the names and address of parties and issued & notices served on 4 parties namely HareKrishna Securities Pvt. Ltd., Empower Indus Ltd., Prabhav Inds Ltd., signora Finance Pvt. Ltd but other five parties left the addresses given. The AO analysed each of the parties and their financials from the records of the company and also referred to additional DIT investigation Baroda, who confirmed that these parties have confirmed the transitions i.e. Prabhav Inds Ltd., Empower Indus India Ltd. Harekrishna securities Pvt. Ltd., Signora Finance Pvt. Ltd. Sonal Cosmetics (Exports) ltd., Raw Gold Securities Pvt. Ltd., Sonal Sil Chem Limited., Dynachem Pharmaceuticals (Exports) Ltd., Sonal International Ltd., Alken management and Financial Ltd. and Lilac Medicines Pvt. Ltd. All these parties have admitted the transactions and also filed financials of these companies showing the investment in shares of the assessee company. The CIT(A) after getting the remand report from the AO, deleted the addition.
We find that the AO proceeded to discredit the investors of the 7. assessee, which is completely erroneous. The AO was looking for proof beyond doubt and proceeded on an element of suspicion that the amounts of investments are really those of the assessee, which have been ploughed back by the assessee. But the settle principle of law is that any amount of suspicion however, it strong might be, is no substitute for proof. Suspicion is not sufficient enough to lead to the conclusion that the investments received by the assessee company are all manipulated receipts and on that basis he can record a finding that the explanation of the assessee is not satisfactory. According to us, so long as the proof and identity of the investor and the payment received from him is through a doubtless channel like that of a banking channel, the receipt in the hands of the assessee towards share capital or share premium does not change its colour. The money so invested in the assessee company would still be the money available and belonging to the investors. The consistent principle followed is that the investors sources and creditworthiness cannot be explained by the assessee. If the Department has a doubt about the genuineness of the investor’s capacity, it is open to it to proceed against those investors. Without taking such a course of action, the AO proceeded on conjectures and surmises that the assessee has, in fact, ploughed back the money. The very approach of the AO is completely opposed to settled legal principles enunciated and they have arrived at conclusions contrary to the legal principles on the subject. Further, they are finding fault with the assessee for the alleged failure of its investors in proving beyond doubt that they have the capacity to invest at the moment they did in the assessee. The Assessee is not expected to perform a near impossibility.
From the above, it is clear that the assessee has completely 8. produced the evidences before the AO i.e. the identity of the shareholder by filing the registered address with ROC, PAN No. along with copy of returns of income furnished with particular Ward of the department of the investors. The assessee has also received money from shareholders through account payee cheque and issued documents such as share certificate, return of allotment filed with ROC forms which were filed before the AO. The assessee has also filed copies of bank statement of the subscribers showing that it had sufficient balance in its accounts to enabled the subscriber to subscribe the share capital. In view of these facts and circumstances, once the AO has not rebutted the evidences, the AO cannot disbelieve the same. This issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 394 ITR 680 (Bom), wherein Hon’ble High Court had held as under : - (e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd.(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.
Further, in recent decision of Hon’ble Bombay High Court in the 9. case of CIT vs. Orchid Industries Pvt. Ltd (2017) 397 ITR 136 (Bom), following the case law of Gagandeep Infrastructure Pvt. Ltd deleted the addition by observing in as under: -
“5] ‘ The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account.
6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case”
We have also made enquiry from the learned Sr. Departmental Representative, whether the investors or this company is a Shell company or in the list prepared by Ministry of Corporate Affairs, Govt. of India. The learned Sr. DR, stated that this information is not available with the department. Further, we made enquiry from the learned Counsel for the assessee whether this company has been strike off from the Registrar Of Companies or not, the learned Counsel stated that it is very much on the register of Registrar Of Companies. In view of these facts, we reach to a conclusion that this is existing company and even the investors are existing.
In view of the above facts and circumstances of the case, we are of 11. the view that CIT(A) has rightly deleted the addition and we confirm the same. This issue of revenue’s appeal is dismissed In the result, the appeal of Revenue is dismissed. 12.
Order pronounced in the open court on 31-01-2018.