ITO, WD-6(2), KOLKATA, KOLKATA vs. M/S LUXURY VYAPAAR PVT.LTD., KOLKATA

Learned Departmental Representative states at the outset that the relevant facts involving in both these cases culminating in similar section 68 addition of the respective share premium seems to be neither genuine nor creditworthy; are identical. We thus take up former case ITA No.1200/Kol/2015 as the lead case.

The former assessee M/s Luxuri Vyapaar Pvt. Ltd carries trade and investment business in shares and finance. It filed its return of income on 10.08.2011 declaring income of Rs.3,458/- only. The same stood processed u/s 143(1) of the Act. The case was selected for scrutiny. The Assessing Officer noticed in course thereof that the assessee had issued its shares of Rs.1 each with a premium of Rs.249/- to sixteen different companies in lieu of receiving the share premium as issue of Rs.31,69,00,000/-. He sought to verify identity, source, genuineness and creditworthiness thereof. The assessee furnished copy of final account, Income Tax acknowledgements, bank statement and share application money details received from its investor parties. This made the Assessing Officer to notice that the assessee as well as its investor entities had four to five common directors as well as addresses and their bank accounts had also been opened in the same period in the same branch. He issued section 133(6) notice to the said investor entities. It transpires that these investor entities did not have either business activities or any fixed assets. Their returned incomes were found to be very nominal. The Assessing Officer observed in assessment order dated 27.03.2014 that main source as evident from verification thereof was only transfer of money from one company to another company against sale of shares. He was of the view that the assessee’s premium had come from this source of income only. We find from page-4 of the assessment order that he prepared a detail compilation of the assessee’s bank accounts indicting sudden credit and withdrawals within a very short span of time. He therefore sought to know from assessee’s directors about the address proof, voter ID and residential proof., Income tax returns, bank statement in his return filed before ROC, any change in management and proof of identity, genuineness and creditworthiness of the above share applicants. He issued similar notices to the directors of some of the above said sixteen companies.

A perusal of the case file reveals that the said notices failed to evoke any response. The Assessing Officer therefore observed that all the above narrated facts sufficiently indicated that the share premium in question was neither genuine nor creditworthy. He quoted hon’ble apex court’s decision in CIT vs. Durga Prasad More[1971] 82 ITR 540 and Sumati Dayal vs CIT [1995] 80 Taxman 89/214 ITR 801 (SC) that all the relevant documentary evidence filed before the courts or tribunal have to be appreciated applying test of human probabilities. All this resulted in the impugned unexplained share application money addition of Rs.31,69,00,000/- u/s 68 of the Act.

The CIT(A) reverses the Assessing Officer’s action as follows :-

Learned Departmental Representative vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in reversing the Assessing Officer’s action adding share application/premium money of Rs.31.69 crores to be both genuine and creditworthy. We find considerable merit in the Revenue’s instant argument. It has come on record that the above investor entities had meagre incomes mainly from share transfers only from one account to another, no business activity or fixed assets, their common directors had failed to file any response to Assessing Officer’s repeated notices, as well as the fact that the assessee’s bank account had seen corresponding deposits followed by frequent withdrawals in the relevant accounting period(supra). The CIT(A) has failed to consider all these relevant facts whilst accepting the assessee’s contentions going by only documentary evidence on record without applying human probabilities test hereinabove We therefore conclude that the CIT(A)’s findings do not deserve to be concurred with par se on merits qua genuineness and creditworthiness aspect.

Coming to the CIT(A)’s finding that such kind of a share premium is not taxable as revenue receipt, as per hon’ble apex court’s decision in Vodafone case (supra) we are of the view that there is no dispute about the said settled legal position. The question that is involved in this appeal is altogether on a different footing. The assessee has failed to prove the genuineness and creditworthiness of its share premium in view of the above overwhelming circumstances raising serious doubts in view of multiple factual aspects hereinabove. We therefore are of the opinion that the hon’ble apex court’s decision would apply only if the assessee satisfies all the relevant parameters of identity, source, genuineness and creditworthiness of the amounts received from investor entities only and not in isolation. The CIT(A)’s findings are

Same order to follow in Revenue’s latter appeal No.1209/Kol/2015 involving similar unexplained share premium addition of Rs.38,80,00,000/- wherein the CIT(A) has passed the very order as extracted in preceding paragraphs. This latter appeal ITA No.1209/Kol/2015 is also accepted for statistical purposes.

These two Revenue’s appeals are allowed for statistical purposes.