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Income Tax Appellate Tribunal, “A” BENCH : KOLKATA
Before: Hon’ble Shri M.Balaganesh, AM & Shri S.S.Viswanethra Ravi, JM]
ORDER Per M.Balaganesh, AM
This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-21, Kolkata [in short the ld CIT(A)] in Appeal No.10762/ACIT, CC-3(1)/CIT(A)-21/Kol/2016-17 dated 08.09.2017 against the order passed by the ACIT, Central Circle-3(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 29.12.2016 for the Assessment Year 2014-15.
The only issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the addition made towards share capital u/s 68 of the Act in the sum of Rs 10,56,00,000/- in the facts and circumstances of the case.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 3. The brief facts of this issue is that the assessee is a private limited company engaged in the business of manufacturing of coated diplex paper board. The return of income for the Asst Year 2014-15 was filed by the assessee on 27.11.2014 disclosing total income of Rs Nil. During the year under review, the assessee had received equity share capital with share premium from the following shareholders :-
Sr. Name of the PAN No. of Face Premium Total (Rs. No. Allottee Shares Value @ @ 50/- 60/- per Allotted Rs. 10/- share) 1 Apex AAGCA 2,70,0000 2,70,0000 13,500,000 16,200,000 Tradexim Pvt. 8097 C Ltd. 2 Bansi AAECB 20,000 200,000 1,000,000 1,200,000 Dealcom Pvt. 1132 B Ltd. 3 Epson AABCE 3,750 37,500 187,500 225,000 Electronics 4985 E Pvt. Ltd 4 Extreme Tie- AACCE 12,500 125,000 625,000 750,000 up Pvt. Ltd. 0207 G 5 RBM Impex AADCR 411,250 4,112,500 20,562,500 24,675,000 Pvt. Ltd. 6957 Q 6 Siksha AAQCS 17,500 175,000 875,000 1,050,000 Dealtrade Pvt. 7851 L Ltd. 2
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 TOTAL 735,000 7,350,000 36,750,000 44,100,000 Further the assessee company received preference share capital during the year under review from Apex Tradexim Pvt Ltd. The assessee allotted 615000 preference shares @ Rs 100 per share to the said shareholder.
3.1. Total Capital received during the Asst Year 2014-15
Face Value Premium Total Equity Capital 73,50,000 3,67,50,000 4,41,00,000 Preference Capital 6,15,00,000 6,15,00,000 -------------------- Total Capital with Premium 10,56,00,000 -------------------- 3.2. A survey operation was conducted u/s 133A of the Act in the business premises of the assessee on 29.7.2015 . Post survey operations, statement was recorded u/s 131 of the Act by DDIT (Inv.) of the following directors of companies from which the Krishna Tissues group raised share capital :-
Name of the Party Statement taken on Statement Retracted on Brij Mohan Nangalia 17.8.2015 18.8.2015 Jaswant Kumar Nangalia 14.9.2015 16.9.2015 Rajesh Kumar Singhania 16.9.2015 18.9.2015
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 3.3. Post survey operations and during the course of assessment for the immediately preceding year i.e Asst Year 2013-14, the ld AO asked the assessee company to explain the genuineness of the share capital raised during the year. The ld AO was completely aware of the survey proceedings and the statement recorded of the above parties by the DDIT (Inv.). The assessee vide letter dated 9.11.2015 submitted the details of share allotment during the Asst Year 2013-14 and also submitted the annual accounts, bank statements, ITR acknowledgements and certificate of the source of funds of the share applicant companies. The details of share allotment made during Asst Year 2013-14 are as under :-
Name of No. of Share Share Total Director Party Shares capital @ premium @ Capital issued 10/- per 50/- per raised share share Chakra 85,000 850,000 4,250,000 5,100,000 Rajesh Tradecom Kumar Pvt. Ltd. Singhania Shiksha 50,000 500,000 2,500,000 3,000,000 Brij Mohan Dealtrade Nangalia Pvt. Ltd. Extreme 40,000 400,000 2,000,000 2,400,000 Jaswant Tie Up Pvt. Kumar Ltd. Nangalia RBM 110,000 1,100,000 5,500,000 6,600,000 Brij Mohan Impex Pvt. Nangalia Ltd. 4
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 Epson 50,000 500,000 2,500,000 3,000,000 Brij Mohan Electronics Nangalia Pvt. Ltd. Apex 885,000 8,850,000 44,250,000 53,100,000 Rajesh Tradexim Kumar Pvt. Ltd. Singhania GBR 45,000 450,000 2,250,000 2,700,000 Jaswant Holdings Kumar Pvt. Ltd. Nangalia Mahamaya 15,000 150,000 750,000 900,000 Rajesh Tie Up Kumar Pvt. Ltd. Singhania Apex 50,000 500,000 2,500,000 3,000,000 Rajesh Barter Pvt. Kumar Ltd. Singhania 1,330,000 13,300,000 66,500,000 79,800,000 The ld AO perused the documents submitted by the assessee in detail and thereafter issued summons u/s 131 of the Act dated 18.11.2015 to the directors of the above companies to appear personally and give complete details of investemtn in the shares of assessee company. The said summon was duly complied with by the parties concerned and all the related documents with regard to the investment in the assessee company in Asst Year 2013-14 were submitted. The ld AO independently examined the documents submitted by the assessee and the share applicant companies in detail and found no discrepancy with regard to the 5
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 identity, creditworthiness of the parties and genuineness of the share allotment made during the year. The assessment for the Asst Year 2013-14 was completed u/s 143(3) of the Act on 26.3.2016 and no addition towards share capital was made u/s 68 of the Act by the ld AO, though the same was passed subsequent to the survey operations conducted on 29.7.2015.
3.4. Further even in Asst Year 2012-13, the assessee allotted 1522300 equity shares to the following shareholders at a premium of Rs 90 per share :- Name of the Party Number of Shares Apex Tradexim Pvt Ltd 1,60,000 RBM Impex Pvt Ltd 30,000 Extreme Tie Up Pvt Ltd 10,000 Siddhi Suppliers Pvt Ltd 13,22,300 ---------------- 15,22,300 In the course of assessment proceedings for the Asst Year 2012-13, the ld AO asked the assessee to submit the supporting papers with regard to the increase in share capital. In response, the assessee vide letter dated 29.10.2014 submitted the annual accounts, bank statements, ITR acknowledgements and certificate of the source of funds of the share applicant companies. The ld AO perused the submissions of the assessee in detail and found no discrepancy in the share capital raised during the year. The assessment for the Asst Year 2012-13 was completed u/s 143(3) of the Act on 13.11.2014 and no addition towards share capital was made u/s 68 of the Act by the ld AO.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 3.5. The proceedings for the Asst Year 2014-15 began with the issuance of notice u/s 143(2) of the Act dated 28.8.2015 and the assessee was asked to explain the genuineness of share capital raised during the year among other issues. In response, the assessee submitted the annual accounts, ITR acknowledgements and relevant bank statements of share applicant companies. Summons u/s 131 of the Act dated 9.12.2016 was again issued by the ld AO to the directors of the share applicant companies being Brij Mohan Nangalia , Jaswant Kumar Nangalia and Rajesh Kumar Singhania. However, summon was not issued to the Director of Bansi Dealcom Pvt Ltd. In response, the directors of the share applicant companies appeared on 16.12.2016 and submitted the annual accounts, ITR, computation of income and the relevant bank statements of the share applicant companies substantiating the genuineness of share transaction. Further, a copy of the retraction affidavit was also filed retracting the contents of the statement recorded by the DDIT (Inv.) during survey operations.
3.6. The ld AO observed that in the statement recorded of Brij Mohan Nangalia, he had commented that he had provided accommodation entries of bogus share capital to assessee company. Since the statements were recorded at the back of the assessee, the assessee requested the ld AO to provide the assessee an opportunity to cross examine the persons who has given the alleged statements before the DDIT(Inv.). However, the ld AO mentioned in his assessment order directly that no opportunity of cross examination need to be given as the directors of the share applicant companies had filed the retraction affidavit before the ld AO. The assessee came to know of the retraction affidavits filed by the directors of the share applicant companies only from the observations made in the assessment order and accordingly made a request to the ld AO seeking for 7
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 certified copies of the said affidavits vide its letter dated 3.1.2017 filed on 5.1.2017, which were furnished to the assessee by the ld AO vide letter dated 19.1.2017 (i.e after the completion of assessment for the Asst Year 2014-15 on 29.12.2016).
3.7. The ld AO again recorded the statement of Jaswant Kumar Nangalia and Brij Mohan Nangalia (directors of share subscribing companies) on 16.12.2016 when they appeared in person in response to summons issued u/s 131 of the Act, wherein they were asked the reason behind investment in assessee company. In response, both the parties had stated that their companies invested in the assessee company keeping in mind the growth and future prospects of the company. In this regard, the assessee submitted that the profits in the immediately succeeding year FY 2014-15 was more than 200% of the profits in FY 2013-14 , being the relevant year under consideration and profits in the FY 2015-16 was more than 300% of the profits in FY 2013-14 and as such earnings per share (EPS0 had also increased.
3.8. The ld AO noted that there was no basis for issuing shares at a premium of Rs 50/- per share. In this regard, the assessee vide letter dated 19.6.2016 submitted the certificate under Rule 11UA of the Income Tax Rules issued by a practicing Chartered Accountant wherein the value of equity share was arrived at Rs 67.78 . Since the assessee had issued equity shares at Rs 60 per share (face value of Rs 10 and premium of Rs 50 per share) , as such the total issue price of Rs 60/- per share was less than the fair market value as determined in accordance with Rule 11UA of the Rules.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 3.9. The ld AO completely overlooked the documents submitted by the assessee and the directors of the share applicant companies (which were collected behind the back of the assessee) and on the backdrop of the depositions taken by the DDIT(Inv.) , held the share capital raised during the year of rs 10.56 crores as unexplained cash credit u/s 68 of the Act. In doing so, he erred in placing reliance on the statements which were immediately retracted by the parties. This action of the ld AO was upheld by the ld CITA by reiterating the contents in the assessment order.
Aggrieved, the assessee is in appeal before us on the following grounds:-
1. That on the facts and circumstances of the case, the Ld. CIT(A) grossly erred in having endorsed the presumption of AO of treating the equity share capital with security premium of Rs. 4,41,00,000/- and preference share capital of Rs. 6,15,00,000/- raised during the year, aggregating to Rs. 10,56,00,000/- as accommodation entries and hence unexplained cash credit u/s 68 of the Act without properly appreciating the explanation of the appellant with authentic evidences in support of the genuine transactions.
2. That the AO solely based on the information received from the DDIT(Inv.) and without undertaking any independent exercise to rebut the submission and authentic evidences in support of the share capital made addition of Rs. 10,56,00,000/- u/s 68 of the Act and the Ld. CIT(A) erred in having upheld such illegal addition without considering that all the share applicant companies had furnished the source of funds before investing in the share capital of the appellant.
3. That the Ld. CIT(A) further erred in having upheld the addition of Rs. 10,56,00,000/- on the basis of alleged statements by the directors of different companies before the DDIT(Inv.) and completely ignored the fact that the statements recorded by the deponents were retracted, leading the entire exercise made by DDIT(Inv.) to a nullity.
4. That the Ld. CIT(A) erred in not having considered that the addition made by the AO on the basis of cash trail assumed by him was totally unfounded and 9
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 baseless inasmuch as the figures shown were imaginary and not as per records and furthermore the entire transactions mentioned in the cash trail were through banking channel and no cash was deposited in the bank account and they were not related parties to the appellant.
5. That on the facts and circumstances of the case, the Ld. CIT(A) erred in upholding the addition of Rs. 10,56,00,000/- on account of share capital raised by the appellant as unexplained income u/s 68 of the Act in spite of that conditions precedent to invoke the said section have not been satisfied in the instant case.
6. That therefore, the order of the Ld. CIT(A) suffers from illegality and perversity inasmuch as he has failed to appreciate that the touchstone points on the basic issue of addition u/s 68 of the Act are identity, creditworthiness and genuineness of the transactions which are totally established and not hence the addition sustained in the garb of sec. 68 on generalized background of some cases is not only arbitrary, whimsical but also bad in law.
That the Ld. CIT(A) erred in upholding the addition of Rs. 10,56,00,000/- made by the AO by invoking provisions of Section 68 of the Act as unexplained income in the hands of the appellant in spite of the fact that source of share application money received from the share applicants was also established with evidence and the addition was on the basis of suspicion and misnomer only.
That the Ld. CIT(A) while upholding the addition u/s 68 of the Act ought to have considered the settled position in law that onus was on the department to link the assessee with the purported unaccounted source and when that link was missing or had not been conclusively proved, it was not open to the department to fasten the assessee with such an uncalled for addition in the garb of unaccounted money merely on surmise and conjecture.
That without any prejudice to the above, the Ld. CIT(A) ought to have considered that the case laws cited by the appellant were directly on the issue involved in the appeal, whereas the decisions relied upon by him were distinguishable to the facts and circumstances of the appellant’s case and hence the additions sustained u/s 68 of the Act on surmise and conjecture is liable to be deleted.
10. That as the order of Ld. CIT(A) on the above issues suffers from illegality and is devoid of any merit, the same should be quashed and your appellant be given such relief(s) as prayed for.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 11. That the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.
We have heard the rival submissions and perused the materials available on record including the paper book of the assessee containing all the relevant documents required for the disposal of this appeal. The ld AR argued that assessee is the largest manufacturer of paper board in Eastern India and in order to expand its business further and to reduce the burden of interest payable on its long term borrowings, the assessee sought to receive equity and preference share capital from its existing shareholders of the company. Accordingly it received equity share capital at premium of Rs 50 per share (face value Rs 10 per share) to the une of Rs 7.98 crores from the shareholders as stated above during the Asst Year 2013-14. The assessee company also received equity share capital at premium of Rs 50 per share to the tune of Rs 4.41 crores during the Asst Year 2014-15 (i.e the year under appeal) from its existing shareholders and a new shareholder. The only new shareholder from whom share capital and premium was received to the tune of Rs 12 lacs during the year under appeal was from M/s Bansi Dealcom Pvt Ltd (PAN – AAECB1132B). The details of parties from whom monies were received are as follows:-
Sr. Name of Allottee No of Shares No. of Shares No. of Shares No. Allotted in A Allotted in A Allotted in A Y 2014-15 Y 2013-14 Y 2012-13 1 Apex Tradexim Pvt. Ltd. 270,00 885,000 160,000 2 Bansi Dealcom Pvt. Ltd. 20,000 3 Epson Electronics Pvt. 3,750 50,000 11
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 Ltd. 4 Extreme Ti-up Pvt. Ltd. 12,500 40,000 10,000 5 RBM Impex Pvt. Ltd. 411,250 110,000 30,000 6 Siksha Dealtrade Pvt. 17,500 50,000 Ltd.
5.1. Apart from this, the assessee company was also in receipt of preference share capital from its existing equity shareholder M/s Apex Tradexim Pvt Ltd to the tune of Rs 6.15 crores during the year under appeal. Hence the total capital with premium received during the year worked out to Rs 10.56 crores.
5.2. We find from the details available in the paper book as under :-
A) That the share capital and premium has been received by the assessee company during the year from its existing shareholders only except a sum of Rs 12 lacs received from M/s Bansi Dealcom Pvt Ltd. B) Even in Asst Year 2012-13, the assessee allotted 1522300 equity shares to the following shareholders at a premium of Rs 90 per share :- Name of the Party Number of Shares Apex Tradexim Pvt Ltd 1,60,000 RBM Impex Pvt Ltd 30,000 Extreme Tie Up Pvt Ltd 10,000 Siddhi Suppliers Pvt Ltd 13,22,300 12
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 ---------------- 15,22,300 During the course of scrutiny assessment proceedings for the Asst Year 2012-13, the ld AO asked the assessee to submit the supporting papers with regard to increase in share capital. In response, the assessee vide letter dated 29.10.2014 (copy enclosed in page 6 of second paper book) filed on 3.11.2014 submitted the annual accounts, bank statements, ITR acknowledgements and certificate of the source of funds of the share applicant companies. The ld AO perused the submissions of the assessee in detail and found no discrepancy in the share capital raised during that year. The assessment was completed for the Asst Year 2012-13 u/s 143(3) of the Act on 13.11.2014 without making any addition towards share capital u/s 68 of the Act. (copy of the said order is enclosed in pages 1 to 5 of second paper book).
C) The share capital and premium received from the shareholders during the Asst Year 2013-14 to the tune of Rs 7.98 crores was verified by the ld AO by issuing summons u/s 131 of the Act and the same has been accepted to be genuine by the ld AO and scrutiny assessment for the Asst Year 2013-14 was completed by the ld AO on 26.3.2016 which is 8 months after the date of survey.
D) The equity shares were issued to the shareholders at the rate of Rs 60 per share which includes premium of Rs 50 per share in both Asst Years 2013-14 and 2014-15.
E) The premium has been duly justified by an independent share valuation done by a Chartered Accountant in terms of Rule 11UA of the Income Tax Rules who 13
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 had certified the value per share at Rs 67.78 , whereas the assessee company had issued shares only at Rs 60 per share ( enclosed in page 202 of the paper book which is part of the reply letter dated 19.9.2016 filed before the ld AO during the scrutiny proceedings for Asst Year 2014-15) .
F) One of the main contentions of the ld AO for framing the addition towards share capital was due to the fact that in the post survey proceedings, the shareholders had given a statement u/s 131 of the Act wherein they had stated that the entire share capital given to Krishna Tissues group of companies are merely accommodation entries. But these statements had been immediately retracted within one or two days from the date of giving statement by way of an Affidavit explaining the circumstances in which the statements were recorded by the DDIT(Inv.). The ld AO was well aware of these initial statements and subsequent retractions while completing the scrutiny assessment for the Asst Year 2013-14. As stated above, the ld AO even examined the shareholders in person in Asst Year 2013-14 and accepted the fact that the entire share capital received in that year as genuine. The identity and creditworthiness of the shareholders together with the genuineness of the transactions were duly verified, examined by the ld AO and accepted by the ld AO in the scrutiny proceedings for the Asst Year 2013-14 and no addition towards share capital was made thereon u/s 68 of the Act. During the year under appeal (ie Asst Year 2014-15), shares were issued by the assessee to the very same shareholders at the very same rate including premium of Rs 50 per share, except in the case of Bansi Dealcom Pvt Ltd, which the ld AO did not chose to even verify during the year under appeal, while he chose to verify the other shareholders in the scrutiny proceedings for the Asst Year 2014-15. There is absolutely no reason for the ld AO to take a different 14
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 stand in the Asst Year 2014-15 with regard to the genuinity of the share capital and share premium in this year as no facts had changed from Asst Year 2013-14.
G) The directors of the share applicant companies ( Brij Mohan Nangalia, Jaswant Kumar Nangalia and Rajesh Kumar Singhania) had retracted from their original statements given during the survey by filing an affidavit before the ld AO which fact came to the knowledge of the assessee only from the assessment order. This is evident from the letter of the assessee dated 3.1.2017 filed on 5.1.2017 seeking for the certified copies of the retraction affidavits from the ld AO (copy enclosed in page 203 of paper book). In fact the assessee had sought for cross examination of these directors when it was confronted by the ld AO during the course of assessment proccedings based on the original survey statements. This opportunity of cross examination was denied by the ld AO to the assessee. The certified copies of the affidavits were submitted by the ld AO to the assessee vide his letter dated 19.1.2017 (copy enclosed in page 204 of paper book). The affidavits filed by these parties are enclosed in Pages 206 to 214 of paper book. In the said affidavits, it has been mentioned by the said directors that the statements during survey were made out of coercion and mental torture purportedly created by the office of the DDIT(Inv.). All these affidavits were filed within one day of giving the statement and had been duly sworn before the Notary Public at Bidhannagar Court.
H) The Directors of the share applicant companies in response to summons issued u/s 131 of the Act had responded vide reply letter dated 16.12.2016 filed on 16.12.2016 for the Asst Year 2014-15 as under:-
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 a) Copy of the PAN Card . b) Hard Copy of the ITR for the Asst Year 2014-15. c) Computation of Income for the year ended 31.3.2014. d) Copy of the Profit and Loss Account along with copy of Balance Sheet for the year ended 31.3.2014. e) Since the concerned director had no transactions with the assessee company in his individual capacity, he stated that there is no question of furnishing his relevant bank statement. f) Copy of the Company’s PAN Card. g) Hard Copy of the Company’s ITR for the Asst Year 2014-15. h) Computation of income of the company for the year ended 31.3.2014. i) Copy of the Profit and Loss Account and Balance Sheet of the Company for the year ended 31.3.2014. j) Copy of the relevant bank statements for the Asst Year 2014-15 of the company in connection with share application money made for equity shares and preference shares in assessee company. k) Copy of affidavit made before the Notary of Bidhannagar Court retracting from his statement made u/s 131 of the Act before the DDIT (Inv.) in connection with survey proceedings of assessee company.
In the said letter, the directors of the share applicant companies stated that they were willing to furnish further information as and when required by the ld AO. One of the directors of the share applicant companies Mr Rajesh Kumar Singhania had even stated that he had met with an accident and hurt his leg and advised medical treatment and hence unable to appear before the ld AO personally, in support of which Doctor’s prescription was also attached. 16
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 I) The assessee company is a profit making company and its turnover and net profit for various years are as under :- Year Ended Turnover Net Profit After Tax EPS Excl.Excise Duty & Sales Tax (Rs in Crores) (Rs in Crores) 31.3.2013 190.15 2.02 3.14 31.3.2014 243.59 2.79 3.55 31.3.2015 247.77 5.83 4.62 31.3.2016 217.03 7.64 5.12 EPS stands for Earnings per share J) From the aforesaid statistics, it could be seen that the assessee company also was justified in issuing shares at a premium of Rs 50 per share in Asst Years 2013-14 and 2014-15. At the cost of repetition, it would be pertinent to note that the issuance of shares at a premium is also justified by an independent share valuation done by a Chartered Accountant in terms of Rule 11UA of the IT Rules. Hence it could be safely concluded that the investors had obtained due capital appreciation out of their investments made in capital of the assessee company due to consistent good performance of the assessee company.
K) The source of funds were also duly explained by the share subscribing companies which are enclosed in pages 115-119 of the paper book ( Apex Tradexim Pvt Ltd) ; pages 131-133 of the paper book (RBM Impex Pvt Ltd ) ; pages 145-147 of the paper book (Extreme Tie up Pvt Ltd) ; pages 161-163 of 17
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 the paper book (Shiksha Dealtrade Pvt Ltd) ; pages 175-176 of the paper book (Epson Electronics Pvt Ltd) and pages 189 – 190 of the paper book (Bansi Dealcom Pvt Ltd). All the shareholders had duly submitted a certificate with regard to investment in the share capital of the assessee together with their audited accounts and ITR acknowledgements and relevant pages of their bank statements to explain their sources for making investments in share capital in the assessee company.
5.3. We find that Mr Brij Mohan Nangalia and Mr Jaswant Kumar Nangalia had during the course of assessment proceedings had given a statement before the ld AO in person wherein they had accepted to the fact that their respective companies had invested in the share capital of the assessee company and had also retracted from the statements recorded by the DDIT(Inv.). They had also stated the reasons as to why the statements recorded by the DDIT(Inv.) could not be relied upon in the form of an affidavit stating that it had been obtained by coercion. Except the statement recorded u/s 131 of the Act, the ld AO does not have any corroborative evidence to come to a conscious conclusion that the receipt of share capital by the assessee is bogus , more so in the light of his decision taken for the immediately preceding asst year 2013-14 wherein the receipt of share capital and share premium from very same shareholders were accepted by the ld AO in the section 143(3) proceedings after due examination of the same. The directors of the share applicant companies had proved with supporting evidences that the contents of their statement were not true and as such the same cannot be used against the assessee. We would like to place reliance on the decision of the Hon’ble Apex Court in the case of Vinod Solanki vs Union of M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 India reported in (2009) 233 ELT 157 (SC) wherein in the context of using the retracted statement had held as under:- 22. It is a trite law that evidences brought on record by way of confession which stood retracted must be substantially corroborated by other independent and cogent evidences, which would lend adequate assurance to the court that it may seek to rely thereupon.
5.4. We find that vide question no. 35 and 47 asked by the ld AO to Jaswant Kumar Nangalia and Brij Mohan Nangalia respectively, these parties were asked to comment on the cash trail of Rs 48 lacs and Rs 10 lacs as prepared by the DDIT(Inv.). In this regard, both the parties stated that no cash was deposited by them in the bank account of RBM Impex Pvt Ltd. Further, as per the cash trail reproduced in the assessment order, RBM Impex Pvt Ltd had received funds of Rs 24 lacs and not Rs 48 lacs. As would be evident from the relevant bank statement of RBM Impex Pvt ltd and the assessee company enclosed at page 132 and 44-45 respectively of the paper book, the assessee received Rs 6 lacs from RBM Impex Pvt Ltd on 10.4.2013 and Rs 18 lacs on 11.4.2013. Further, the entire Rs 24 lacs was received by RBM Impex Pvt Ltd through normal banking channels and no cash was deposited in its bank account. Further none of the parties whose names are mentioned in the cash trail are in anyway related to the assessee company. Moreover, both the parties in their statements had repeatedly stated that they had signed the statements before the DDIT(Inv.) without reading the same. In any case, the statement given before the DDIT(Inv.) had already been retracted by those parties by way of an affidavit duly sworn before a registered Notary.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 5.5. We also find that merely rejecting the evidences filed by the assessee does not entitle the ld AO to make an addition u/s 68 of the Act . Such outright rejection of the evidences by the ld AO is totally contrary to the law as laid down by the Hon’ble Apex Court in the case of CIT vs Orissa Corporation (P) Ltd reported in 159 ITR 78 (SC) wherein it was held that :-
The question was again considered by this Court in Homi Jehangir Gheesta v. CIT [1981] 41 ITR 135, when this Court reiterated that it was not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established ; but where the circumstances of the rejection were such that the only proper inference was that the receipt must be treated as income in the hands of the assessee, there was no reason why the assessing authority should not draw such an inference. Such an inference was an inference of fact and not of law. It was further observed that in determining whether an order of the Tribunal would give rise to a question of law the Court must read the order of the Tribunal as a whole to determine whether every material fact, for and against the assessee, had been considered fairly and with due care; whether the evidence pro and con had been considered in reaching the final conclusion ; and whether the conclusion reached by the Tribunal had been coloured by irrelevant considerations or matters of prejudice. It was further reiterated that the previous decisions of this Court did not require that the order of the Tribunal must be examined sentence by sentence through a microscope as it were, so as to discover a minor lapse here or an incautious opinion there to be used as a peg on which to hang an issue of law. In considering probabilities properly arising from the facts alleged or proved, the Tribunal did not indulge in conjectures, surmises or suspicions.
In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were the income-tax assessees. Their index number was in the file of the revenue. The revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 5.6. We hold that the ratio laid down by the Hon’ble Jurisdictional High Court in the case of Rajmandir Estates (P) Ltd vs CIT reported in (2016) 386 ITR 162 (Cal) is not applicable at all to the facts of the instant case. In the case before the Hon’ble Calcutta High Court, there is a finding to the effect that the recipient company of share capital with premium is a paper company and does not carry on any business to justify such huge premium. Whereas in the instant case, the assessee company before us (i.e Krishna Tissues P Ltd) is a running company engaged in the business of manufacturing of coated duplex paper board and is a pioneer in that industry in Eastern India. This company was incorporated on 30.3.2005 and is having a turnover of above Rs 200 crores. The assessee company before us had duly justified the premium per share for allotment of shares based on the strength of its financials and supported by a chartered accountant’s certificate in terms of Rule 11UA of the Income Tax Rules. These facts are conspicuously absent in the case before the Hon’ble Calcutta High Court in the case of Rajmandir Estates P Ltd supra. We find that the three ingredients of section 68 of the Act are duly fulfilled in the instant case which is not so in the case before the Hon’ble Calcutta High Court. Hence the reliance placed on the said decision by the ld DR does not advance the case of the revenue as it is factually distinguishable as explained above.
5.7. We find that the preference capital to the tune of Rs 6.15 crores has been received by the assessee company at par during the year under appeal from its existing shareholder only and hence the findings given hereinabove for receipt of equity capital would apply with equal force for preference capital also.
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 5.8. Moreover, we find that the statements recorded by the DDIT(Inv.) from the directors of the share subscribing companies had lost its evidentiary value in as much as the ld AO had recorded further statement from the very same directors during the course of assessment proceedings. Hence the ld AO ought not to have placed any reliance on the statements recorded by DDIT(Inv.) which is not supported by any other corroborative evidences.
5.9. We find that the reliance placed by the ld AR on the decision of the Hon’ble Delhi High Court in the case of Pr.CIT vs Laxman Industrial Resources Ltd in ITA 169/2017, C.M.Appl. 7385/2017 dated 14.3.2017 is well founded, wherein it was held that :-
This court notices that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. It was not a case where the share applicants are merely provided confirmation letters. They had provided their particulars, PAN details, assessment particulars , mode of payment for share application money, i.e through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master debt with ROC particulars. The AO strangely failed to conduct any scrutiny of documents and rested content by placing reliance merely on a report of the Investigation Wing. This reveals spectacular disregard to an AO’s duties in the remand proceedings which the Revenue seeks to inflict upon the assessee in this case. No substantial question of law arises. The appeal is dismissed.
5.10. In view of the aforesaid facts and findings and respectfully following the various judicial precedents relied upon hereinabove, we hold that the allegation of the ld AO that the assessee had introduced its own funds in the garb of share capital and premium is totally baseless and is only on surmises and conjectures. 22
M/s Krishna Tissues Pvt. Ltd. A.Yr.2014-15 No evidence or documents were brought on record by the ld AO to even remotely suggest that the assessee has introduced its own funds in the garb of share capital. Hence we have no hesitation in directing the ld AO to delete the addition made u/s 68 of the Act towards share capital and share premium in the facts and circumstances of the case. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 01.12.2017