ITO-13(2)(1), MUMBAI, MUMBAI vs. SETHIA INFRASTRUCTURE PVT. LTD, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI

BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON'BLE ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, HON'BLE JUDICIAL MEMBER

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) ITO-13(2)(1) v. Sethia Infrastructure Pvt. Ltd 701, Central Plaza 147, 1st Floor, Aayakar Bhavan Daftari Road, Malad (East) M. K. Marg, Mumbai Mumbai, Maharashtra -400097 Maharashtra-400020 PAN: AALCS9354B (Appellant) (Respondent) Assessee Represented by : Jaiprakash Bairaga & Rupa Nanda Department Represented by : Dr. Kishor Dhule

Date of conclusion of Hearing : 06.05.2024 Date of Pronouncement : 10.05.2024

O R D E R PER NARENDRA KUMAR BILLAIYA (AM)

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd 2. The grievance of the revenue read as under: -

“1. "Whether on the facts and circumstances of the case and in law Ld. CIT(A) has erred in quashing the order u/s 143(3) r.w.s. 147 of the Act dated 27.12.2016 stating that assessment order has been passed without issue of notice u/a 143(2) of Act which is factually incorrect as notice u/ s 143(2) of the Act issued on 19.09.2016 during the re-assessment proceedings which was duly served on the assessee through speed post on 20.09.2016." 2. "Whether on the facts and circumstances of the case and in law lad. CIT(A) is justified in quashing the order u/ s 143(3) r.w.s. 147 of the Act dated 27.12.2016 without giving ample opportunity to the AO to submit the remand report." 3. "Whether on the facts and in the circumstances of the case and in law Ld CIT (A) has erred in holding that receipt of share premium is capital in nature and thus cannot be brought to tax under section 68 of the Income-tax Act 1961 without appreciating the facts that Hon'ble Supreme Court in case CIT vs NRA Iron and Steel Pvt. Ltd. Appeal (C) No. 29855/2018 has held that provision made in section 68 is having wider scope and addition can be made for share application money and share premium even before the amendment in income tax Act, 1961." 4. "Whether on the facts and circumstances of the case and in law Ld CIT (A) is justified in deleting the addition on account of Share Premium of Rs. made u/s 68 of the Income Tax Act, 1961 relying some old decision without discussing the facts of the cases relied and facts of case of the assessee." 5. The appellant craves leave to add, amend or alter all or any of the grounds of appeal.”

Page No. 2

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd 4. Having heard the rival submissions, we have carefully perused the orders of the authorities below. Before the Ld. CIT(A) the assessee has challenged the validity of the assessment order as the assessee contended that the assessment order has been framed without issuing any notice under section 143(2) of the Act.

Page No. 3

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd

Page No. 4

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd

Page No. 5

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd reiterated that the same was not submitted during First Appellate Proceedings, however, appeal may be decided on merits of the case.

Page No. 6

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd that actual physical receipt of notice by the assessee or the expression “served” is inter-changeable with the word “issue”.

“We are of the opinion that the expressions 'serve' and 'issue' the opinion that are interchangeable, as has been noticed in Section 27 of the General Clauses Act, 1887 and also in a judgment of Hon'ble Supreme Court reported as Banarsi Devi Ys. The Income Tax Officer, District IV. Calcutta and others AIR 1964 SC 1742. In the aforesaid case, an argument was raised that Section 4 of the Amending Act (Act No.1 of 1959) only saves a notice issued after the prescribed time, but does not apply to a situation where notice is issued within but served out of time. The Court observed as under: "(10) ...... Section 4 of the Amending Act was enacted for saving the validity of notices issued under Section 34(1) of the Act. When that Section used a word interpreted by courts in the context of such notices, it would be reasonable to assume that the expression was designedly used in the same sense. That apart, the expressions "issued" and "served" are used as interchangeable terms both in dictionaries and in other statutes. The dictionary meaning of the word "issue" is "the act of sending out, put into circulation, deliver with authority or delivery". Section 27 of the General Clauses Act (Act X of 1897) reads thus: "27. Meaning of service by post - Where any Central Act or Regulation made after the commencement of this Act authorizes or requires any document to be served by post, whether the expression "serve" or either of the expressions "give" or "send" or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, pre- paying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post." It would be seen from this provision that Parliament used the words "serve", "give" and "send" as inter-changeable words. So too, in Sections 553, 554 and 555 of the Calcutta Municipal Act, 1951, the two expressions "issued to" or "served upon" are used as equivalent expressions. In the legislative practice of our country the said two expressions are sometimes used to convey the same idea. In other words, the expression "issued" is used in a limited as well as in a wider sense. (emphasis supplied). We must, therefore, give the expression issued in Section 4 of the Amending Act that meaning which carries out

Page No. 7

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd the intention of the Legislature in preference to that which defeats it. By doing so we will not be departing from the accepted meaning of the expression, but only giving it one of its meanings accepted, which fits into the context or setting in which it appears." The Hon'ble Supreme Court in Collector of Central Excise. Madras Vs. M/s M.M.Rubber and Co. Tamil Nadu 1992 Supp (1) SCC 471 examined the provisions in the context of time for the commencement of limitation such as "from the date of decision or order". It has been held that limitation shall commence in the cases where a right of the party is to avail remedy of appeal etc. is concerned from the date of communication of the decision or order appealed against. But if an authority is to exercise a power or to do an act affecting the rights of the parties, he shall exercise that power within the period of limitation. The decision of such authority comes into force and is operative from the date, it is signed by him. The Court held: "9. The words "from the date of decision or order" used with reference to the limitation for filing an appeal or revision under certain statutory provisions had come up for consideration in a number of cases, We may state that the ratio of the decisions uniformly is that in the case of a person aggrieved filing the appeal or revision, it shall mean the date of communication of the decision or order appealed against. However, we may note a few leading cases on this aspect. 11. The ratio of these judgments was applied in interpreting Sec. 33A(2) of the Indian Income Tax Act, 1922 in Muthia Chettiar v. C.I.T., ILR 1951 Mad 815 with reference to a right of revision provided to an aggrieved assessee. Section 33A(1) of the Act on the other hand authorised the Commissioner to suo motu call for the records of any proceedings under the Act in which an order has been passed by any authority subordinate to him and pass such order thereon as he thinks fit. The proviso, however, stated that the Commissioner shall not revise any order under that sub- section "if the order (sought to be revised) has been made more than one year previously". Construing this provision the High Court in Muthia Chettiar's case held that the power to call for the records and pass the order will cease with the lapse of one year from the date of the order by the subordinate authority and the ratio of date of the knowledge of the order applicable to an aggrieved party is not applicable for the purpose of exercising suo motu power. Similarly in another decision reported in Viswanathan Chettiar v. Commr, of Income Tax, Madras, 25 ITR 79 Mad, construing the time limit for completion of an assessment under Section 34(2) of the Income Tax Act, 1922, which provided that it shall be made "within four years from the end of the year in which the income, profit and gains were first assessable", it was held that the time limit of four years for exercise of the power should be calculated with reference to the date on which the assessment or reassessment was made and not the date on which such

Page No. 8

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd assessment or reassessment order made under Section 34(2) was served on the assessee. 12. It may be seen, therefore, that, if an authority is authorised to exercise a power or do an act affecting the rights of parties, he shall exercise that power within the period of limitation prescribed therefore. The order or decision of such authority comes into force or becomes operative or becomes an effective order or decision on and from the date when it is signed by him. The date of such order or decision is the date on which the order or decision was passed or made: that is to say when he ceases to have any authority to tear it off and draft a different order and when he ceases to have any locus panetentiae. Normally that happens when the order or decision is made public or notified in some form or when it can be said to have left his hand. The date of communication of the order to the party whose rights are affected is not the relevant date for purposes of determining whether the power has been exercised within the prescribed time.(emphasis supplied) 13. So far as the party who is affected by the order or decision for seeking his remedies against the same, he should be made aware of passing of such order Therefore Courts have uniformly laid down as a rule of law that for seeking the remedy the limitation starts from the date on which the order was communicated to him or the date on which it was pronounced or published under such circumstances that the parties affected by it have a reasonable opportunity of knowing of passing of the order and what it contains. The knowledge of the party affected by such a decision, either actual or constructive is thus an essential element which must be satisfied before the decision. can be said to have been concluded and binding on him. Otherwise the party affected by it will have no means of obeying the order of acting in conformity with it or of appealing against it or otherwise having it set. This is based upon, as observed by Rajamanner, CJ in Muthia Chettiar v. C.I.T. (supra) "a salutary and just principle". The application of this rule so far as the aggrieved party is concerned is not dependent on the provisions of the particular statute, but is so under the general law XXX XXX XXX 18 Thus if the intention or design of the statutory provision was to protect the interest of the person adversely affected, by providing a remedy against the order or decision any period of limitation prescribed with reference to invoking such remedy shall be read as commencing from the date of communication of the order. But if it is a limitation for a competent authority, to make an order the date of exercise of that power and in the case of exercise of suo motu power over the subordinate authorities' orders, the date, on which such power was exercised by making an order are the relevant dates for determining the limitation. The ratio of this distinction may also be founded on the

Page No. 9

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd principle that the Government is bound by the proceedings of its officers but persons affected are not concluded by the decision." (Emphasis by us) The said principle of the issue of a notice or communication has also come up for consideration before the Hon'ble Supreme Court in the context of the provisions of Section 4 of the Contract Act, 1872. It has been held that the moment the proposer puts his proposal in the course of transmission, it is complete as against the acceptor i.e addressee. Therefore, the moment the notice it signed and put in the course of action by the department, the notice is deemed to be served as the communication is t of the proposer. (Emphasis by us) It has been so held by the Hon'ble Supreme Court in Bhagwandas Goverdhandas Kedia Girdharilal Farshottamdas & C0., AIR 1966 SC 343, wherein it has been held to the following effect "By the second clause of Section 4, the communication of an acceptance is complete as against the proposer, when it is put in a course of or to him, so as to be out of the power of the acceptor. This implies that where communication of an acceptance is made and it is put in a course of transmission to the proposer, the acceptance is complete as against the proposer as against the acceptor, it becomes complete when it comes is the knowledge of the proposer. In the matter of communication of revocation it is provided that as against the person who makes the revocation it becomes complete when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it, and as against the person to whom it is made when it comes to his knowledge". Subsequently in State of Punjab v Khemi Ram, AIR 1970 SC 214, the Court observed as: "16…… It will be seen that in all the decisions cited before us, it was the communication of the impugned order which was held to be essential and not its actual receipt by the officer concerned and such communication was held to be necessary because till the order is issued and actually sent out to the person concerned the authority making such order would be in a position to change its mind and modify it if it thought fit But once such an order is sent out, it goes out of the control of such an authority, and therefore, there would be no chance whatsoever of its changing its mind or modifying it. In our view, once an order is issued and it is sent out to the concerned government servant, it must be held to have been communicated to him, no matter when he actually received it. (Emphasis by us)

Page No. 10

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd We find it difficult to persuade ourselves to accept the view that it is only from the date of the actual receipt by him that the order becomes effective. If that be the true meaning of communication, it would be possible for a government servant to effectively thwart an order by avoiding receipt of it by one method or the other till after the date of his retirement even though such an order is passed and despatched to him before such date. An officer against whom action is sought to be takes, thus, may go away from the given by him for service of such orders or may deliberately give a wrong address and thus prevent or delay is receipt and be able to defeat its service on him. Such a meaning of the word ‘communication” ought not to be given unless the provision in question expressly so provides. Actually knowledge by him of an order where it is one of dial may perhaps, become necessary because of the consequence which the decision in The State of Punjab v Amar Singh Harika AIR 1966 SC 1313 contemplates. But such consequences would not occur in the ease of officer who has proceeded on leave and against whim an order of suspension is passed because, in his case there is no question of his doing any act or pasting any order and such act or order being challenged as invalid" Learned counsel for the petitioner has also relied the upon judgment of Hon'ble Supreme Court in Assistant Commissioner of Income Tax and another Vs. Hotel Blue Moon (2010) 3 SCC 259 But the said judgment does not provide any help to the argument raised. In fact, in para 7 of the said judgment, it has been observed that the Assessing Officer has to issue notice under Section 143 (2) within the prescribed time-limit to make the assessee aware that his return has been selected for scrutiny assessment. In AVI-OIL India P. Ltd. case (supra), the provisions of the Contract Act, the judgments of the Hon'ble Supreme Court were not brought to the notice of the Bench; therefore, the Bench has taken a view on the literal meaning of word expression "serve". In view of the above, the judgment rendered by the Division Bench of this Court in AVI-OIL India P. Ltd. case (supra) is in ignorance of the statutory and other binding precedents, therefore, does not lay down any binding principle and the same is per incuriam. Another judgment relied upon by the petitioner is Kanj Behari Vs Income Tax Officer, District-II (VD). Amritsar and others 1983 (139) ITR 73. The issue raised in the aforesaid case is not of issuance of serving of a notice, but method of substituted service. The issue raised is not necessary to be decided in the present case, as notice has been issued within the time prescribed. That issuance of notice is sufficient compliance of the provisions of Section 143(2) of the Act. We may notice that Hon'ble Supreme Court in Commissioner of Sales Tax and others Vs. Subhash & Co. (2003) 3 SCC 454 observed as under:

Page No. 11

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd 12. Whether service of notice is valid or not is essentially a question of fact. In the instant case, learned Single Judge found that certain procedures were not followed while effecting service by affixture. There was no finding recorded that such service was non est in the eye of the law. In a given case, if the assessee knows about the proceedings and there is some irregularity in the service of notice, the direction for continuing proceedings cannot be faulted. It would depend upon the nature of irregularity and its effect and the question of prejudice which are to be adjudicated in each case on the basis of surrounding facts. If, however, the service of notice is treated as non est in the eye of the law, it would not be permissible to direct de novo assessment without considering the question of limitation. There also the question of prejudice has to be considered. xxx xxx xxx 22. The emerging principles are: (i) Non-issue of notice or mistake in the issue of notice or defective service of notice does not affect the jurisdiction of the assessing officer, if otherwise reasonable opportunity of being heard has been given. (ii) Issue of notice as prescribed in the Rules constitutes a part of reasonable opportunity of being heard. (iii) If prejudice has been caused by non-issue or invalid service of notice the proceeding would be vitiated. But irregular service of notice would not render the proceedings invalid; more so, if the assessee by his conduct has rendered service impracticable or impossible. (iv) In a given case when the principles of natural justice are stated to have been violated it is open to the Appellate Authority in appropriate cases to set aside the order and require the assessing officer to decide the case de novo,"

“In view of the said judgment, the date of receipt of notice by the addressee is not relevant to determine, as to whether the notice has been issued within the prescribed period of limitation. The expression serve means the date of issue of notice. The date of receipt of notice cannot be left to be undetermined dependent upon the will of the addressee. (Emphasis by us)

Page No. 12

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd Therefore, to bring certainly, and to avoid attempts of the addressee to evade the process of receipt of notice, the purpose of the statute will be better served, if the date of issue of notice is considered as compliance of the requirement of proviso to Section 143(2) of the Act. In fact that is the only conclusion that can be arrived at to the expression serve" appearing in Section 143(2) of the Act.”

Page No. 13

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd course of the scrutiny proceedings the Assessing Officer found that the assessee has issued shares to various concerns on very high premium as under: -

Total Share No. of Capital Premium Capital & Sr.No. Name of Allottee Shares (₹.) (₹.) Premium (₹.) 1. Slogan Infolech Private Limited 34000 10 90 3400000 2. Gawarja Merchants Private Limited 40000 10 90 4000000 3 Seawoods Hospitality & Reality Private Limited 100000 10 90 10000000 Mumbadevi Finance & Investment Co. Pvt Ltd 4 40000 10 90 4000000 5 Sukaniya Properties Pvt Ltd 50000 10 90 5000000 6 Omega Vincom Trading Pvt Ltd 42000 10 4200000 7 Pranjal Trading Company Pvt Ltd 100000 10 90 10000000 8 Golden Meadows Export Pvt Ltd 50000 10 90 5000000 9 Varadvinayak Properties Pvt Ltd 75000 10 90 7500000 10. Attribute Shares & Securities Pvt Ltd 50000 10 90 5000000 11 Better Homes Bulldcon Pvt Ltd 40000 10 90 4000000 12 BKG Software Private Limited 75000 10 90 7500000 13 Golden Meadows Export Pvt Ltd 46000 10 90 4600000 14 Intime Reality Pvt Ltd 35000 10 90 3500000 15 Nouveau Cotspin Pvt Ltd 50000 10 90 5000000 16 Omega Vincom Trading Pvt Ltd 30000 10 90 3000000 17 Pranjal Trading co. Pvt Ltd 130000 10 90 13000000 18 Replica Tracom Pvt Ltd 73000 10 90 7300000 19 Varadvinayak Properties Pvt Ltd 25000 10 90 2500000 Total 108500000

Page No. 14

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd 18. During the survey proceedings statement of Shri Basant Raj Sethia and Shri Akshay H. Kothari, Directors of the assessee company were recorded. To further probe the Assessing Officer issued notice under section 131 of the Act to all the investor concerns. The Assessing Officer on the basis of the material collected was of the opinion that the assessee has obtained accommodation entries of share capital and share premium from the 19 investors mentioned elsewhere.

Page No. 15

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd that the assessee was fully aware of the fact that Shri Krishan Khadaria controlled all the share applicants.

Page No. 16

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd 22. We will address to the very basis of the decision of the Ld. CIT(A).

Firstly: CBDT Instruction No. 2/2015 dated 29.01.2015

Secondly: Decision of the Hon’ble Bombay High Court in the case of Green Infra Ltd., in ITA No. 7762/MUM/2012 dated 23.08.2013.

Page No. 17

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd is not applicable on the share premium received. In fact during the course of arguments, the Ld. DR sought permission to argue the case on the applicability of section 68 of the Act and the Tribunal after refereing to the decision of the Hon’ble Supreme Court permitted the Ld. DR to argue on section 68 and on the strength of the facts of that case the Tribunal deleted the addition. The most glaring fact was that all the share applicant companies were public sector undertaking in other words were government companies. Therefore, the identify could not have been questioned.

Thirdly: Decision of the Hon’ble Bombay High Court in the case of M/s. Gagandeep Infrastructure P. Ltd., [394 ITR 680].

Page No. 18

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd Assessing Officer had made enquires in respect of the share applicant companies by issuing notice under section 133(6) of the Act.

Page No. 19

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd person. The ratio laid down by the Hon’ble Supreme Court in the case of Sumati Dayal v. CIT [214 ITR 801] and CIT v. Durga Prasad More [82 ITR 540] squarely apply on the facts of the case.

“8.1. The issue which arises for determination is whether the Respondent / Assessee had discharged the primary onus to establish the genuineness of the transaction required under Section 68 of the said Act. Section 68 of the I.T. Act (prior to the Finance Act, 2012) read as follows: “68. Cash credits- Where any sum is found credited in the book 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 supplied) The use of the words “any sum found credited in the books” in Section 68 of the Act indicates that the section is widely worded, and includes investments made by the introduction of share capital or share premium. 8.2. As per settled law, the initial onus is on the Assessee to establish by cogent evidence the genuineness of the transaction, and credit-worthiness of the investors under Section 68 of the Act. The assessee is expected to establish to the satisfaction of the Assessing Officer, CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal) 15 : • Proof of Identity of the creditors; • Capacity of creditors to advance money; and • Genuineness of transaction

Page No. 20

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd This Court in the land mark case of Kale Khan Mohammad Hanif v. CIT, [1963] 50 ITR 1 (SC), and, Roshan Di Hatti v. CIT, [1977] 107 ITR (SC), laid down that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and credit-worthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assesse, and there would be no further burden on the revenue to show that the income is from any particular source. 8.3. With respect to the issue of genuineness of transaction, it is for the assessee to prove by cogent and credible evidence, that the investments made in share capital are genuine borrowings, since the facts are exclusively within the assessee's knowledge. The Delhi High Court in CIT v. Oasis Hospitalities Pvt. Ltd., 333 ITR 119 (Delhi)(2011), held that : “The initial onus is upon the assessee to establish three things necessary to obviate the mischief of Section 68. Those are: (i) identity of the investors; (ii) their creditworthiness/investments; and (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise.” It has been held that merely proving the identity of the investors does not discharge the onus of the assessee, if the capacity or credit-worthiness has not been established. In Shankar Ghosh v. ITO, [1985] 23 TTJ (Cal.), the assessee failed to prove the financial capacity of the person from whom he had allegedly taken the loan. The loan amount was rightly held to be the assessee's own undisclosed income. 8.4. Reliance was also placed on the decision of CIT v. Kamdhenu Steel & Alloys Limited and Other, (2012) 206 Taxaman 254 (Delhi), wherein the Court that : “38. Even in that instant case, it is projected by the Revenue that the Directorate of Income Tax (Investigation) had purportedly found such a racket of floating bogus companies with sole purpose of lending entries. But, it is unfortunate that all this exercise if going

Page No. 21

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd in vain as few more steps which should have been taken by the Revenue in order to find out causal connection between the case deposited in the bank accounts of the applicant banks and the assessee were not taken. It is necessary to link the assessee with the source when that link is missing, it is difficult to fasten the assessee with such a liability.” 9. The Judgments cited hold that the Assessing Officer ought to conduct an independent enquiry to verify the genuineness of the credit entries. In the present case, the Assessing Officer made an independent and detailed enquiry, including survey of the so- called investor companies from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of the parties, the source of funds invested, and the genuineness of the transactions. The field reports revealed that the share-holders were either non-existent, or lacked credit-worthiness. 10. On the issue of unexplained credit entries /share capital, we have examined the following judgments : i. In Sumati Dayal v. CIT, [1995] 214 ITR 801 (SC), this Court held that : “if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, vis., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably” ii. In CIT v. P. Mohankala, 291 ITR 278, this Court held that: “A bare reading of section 68 of the Income-tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee ; (ii) such credit has to be a sum of money during the previous year ; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory. It is only then that the sum so credited may be charged to Income-tax as the income of the assessee of that previous year. The expression “the assessee offers no

Page No. 22

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd explanation” means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.” (emphasis supplied) iii. The Delhi High Court in a recent judgment delivered in PR.CIT -6, New Delhi v. NDR Promoters Pvt. Ltd., 410 ITR 379, upheld the additions made by the Assessing Officer on account of introducing bogus share capital into the assessee company on the facts of the case. iv. The Courts have held that in the case of cash credit entries, it is necessary for the assessee to prove not only the identity of the creditors, but also the capacity of the creditors to advance money, and establish the genuineness of the transactions. The initial onus of proof lies on the assessee. This Court in Roshan Di Hatti v. CIT, (1992) 2 SCC 378, held that if the assessee fails to discharge the onus by producing cogent evidence and explanation, the AO would be justified in making the additions back into the income of the assessee. v. The Guwahati High Court in Nemi Chand Kothari v. CIT, [2003] 264 ITR 254 (Gau.), held that merely because a transaction takes place by cheque is not sufficient to discharge the burden. The assessee has to prove the identity of the creditors and genuineness of the transaction. : “It cannot be said that a transaction, which takes place by way of cheque, is invariably sacrosanct. Once the assessee has proved the identity of his creditors, the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-a- vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that though covered by cheques, the amounts in question, actually belonged to, or was owned by the assessee himself” (emphasis supplied)

Page No. 23

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd vi. In a recent judgment the Delhi High Court, CIT v. N.R. Portfolio (P.) Ltd.[2014] 42 taxmann.com 339/222 Taxman 157 (Mag.) (Delhi) 21, held that the credit-worthiness or genuineness of a transaction regarding share application money depends on whether the two parties are related or known to each other, or mode by which parties approached each other, whether the transaction is entered into through written documentation to protect investment, whether the investor was an angel investor, the quantum of money invested, credit- worthiness of the recipient, object and purpose for which payment/investment was made, etc. The incorporation of a company, and payment by banking channel, etc. cannot in all cases tantamount to satisfactory discharge of onus. vii. Other cases where the issue of share application money received by an assessee was examined in the context of Section 68 are CIT v. Divine Leasing & Financing Ltd., (2007) 158 Taxman 440, and CIT v. Value Capital Service (P.) Ltd., [2008]307 ITR 334. 11. The principles which emerge where sums of money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus. ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/ subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act. 12. In the present case, the A.O. had conducted detailed enquiry which revealed that : i. There was no material on record to prove, or even remotely suggest, that the share application money was

Page No. 24

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd received from independent legal entities. The survey revealed that some of the investor companies were non- existent, and had no office at the address mentioned by the assessee. For example: a. The companies Hema Trading Co. Pvt. Ltd. and Eternity Multi Trade Pvt. Ltd. at Mumbai, were found to be non-existent at the address given, and the premises was owned by some other person. b. The companies at Kolkatta did not appear before the A.O., nor did they produce their bank statements to substantiate the source of the funds from which the alleged investments were made. c. The two companies at Guwahati viz. Ispat Sheet Ltd. and Novelty Traders Ltd., were found to be non-existent at the address provided. The genuineness of the transaction was found to be completely doubtful. ii. The enquiries revealed that the investor companies had filed returns for a negligible taxable income, which would show that the investors did not have the financial capacity to invest funds ranging between Rs. 90,00,000 to Rs. 95,00,000 in the Assessment Year 2009-10, for purchase of shares at such a high premium. For example: Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income of Rs. 9,744/- for A.Y. 2009-10, but had purchased Shares worth Rs, 90,00,000 in the Assessee Company. Similarly Warner Multimedia Ltd. - Kolkatta filed a NIL return, but had purchased Shares worth Rs. 95,00,000 in the Assessee Company - Respondent. Another example is of Ganga Builders Ltd. - Kolkatta which had filed a return for Rs. 5,850 but invested in shares to the tune of Rs. 90,00,000 in the Assessee Company - Respondent, etc. iii. There was no explanation whatsoever offered as to why the investor companies had applied for shares of the Assessee Company at a high premium of Rs. 190 per share, even though the face value of the share was Rs. 10/- per share.

Page No. 25

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd iv. Furthermore, none of the so-called investor companies established the source of funds from which the high share premium was invested. v. The mere mention of the income tax file number of an investor was not sufficient to discharge the onus under Section 68 of the Act. 13. The lower appellate authorities appear to have ignored the detailed findings of the AO from the field enquiry and investigations carried out by his office. The authorities below have erroneously held that merely because the Respondent Company - Assessee had filed all the primary evidence, the onus on the Assessee stood discharged. The lower appellate authorities failed to appreciate that the investor companies which had filed income tax returns with a meagre or nil income had to explain how they had invested such huge sums of money in the Assesse Company - Respondent. Clearly the onus to establish the credit worthiness of the investor companies was not discharged. The entire transaction seemed bogus, and lacked credibility. The Court/Authorities below did not even advert to the field enquiry conducted by the AO which revealed that in several cases the investor companies were found to be non-existent, and the onus to establish the identity of the investor companies, was not discharged by the assessee. 14. The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny. This would be particularly so in the case of private placement of shares, where a higher onus is required to be placed on the Assessee since the information is within the personal knowledge of the Assessee. The Assessee is under a legal obligation to prove the receipt of share capital/premium to the satisfaction of the AO, failure of which, would justify addition of the said amount to the income of the Assessee. 15. On the facts of the present case, clearly the Assessee Company - Respondent failed to discharge the onus required under Section 68 of the Act, the Assessing Officer was justified in adding back the amounts to the Assessee's income. 16. The Appeal filed by the Appellant - Revenue is allowed. In the aforesaid facts and circumstances, and the law laid down above, the judgment of the High Court, the ITAT, and the CIT are hereby set- aside. The Order passed by the AO is restored.”

Page No. 26

ITA NO. 2739/MUM/2023 (A.Y: 2010-11) Sethia Infrastructure Pvt. Ltd assessee has miserably failed to discharge the initial onus cast upon it by the provisions of section 68 of the Act in as much as failed to establish genuineness of the transactions and the First Appellate Authority has grossly erred in following the CBDT Instruction No. 2/2015 and decision of the Hon’ble Bombay High Court which are distinguished on facts mentioned elsewhere. Therefore, we have no hesitation in setting aside the findings of the Ld. CIT(A) and restoring that of the Assessing Officer thereby allowing the appeal of the revenue.

Order pronounced in the open court on 10th May, 2024.

Sd/- Sd/- (RAHUL CHAUDHARY) (NARENDRA KUMAR BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 10.05.2024 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum

Page No. 27