ITO WARD 17 (4) vs. VITAL COMMUNICATION LTD,

Date of Hearing : 17-05-2016 Date of Order : 15-06-2016

ORDER PER H.S. SIDHU, J.M.

This Appeal has been filed by the Department against the order of the Ld. CIT(A)-XX, New Delhi dated 1.3.2007 pertaining to assessment year 2003-04.

2. The Revenue has raised the following ground in its appeal.

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 27 crores made u/s 68 of the Income Tax Act, 1961 in respect of share capital.

4. Against the aforesaid assessment order, the assessee appealed before the Ld. CIT(A), who vide impugned order dated 01.3.2007 has allowed the appeal of the assessee and deleted the addition in dispute.

5. Aggrieved with the impugned order, the Revenue is in appeal before the Tribunal.

6. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.

7. On the contrary, Ld. Authorised Representative of the assessee has relied upon the order of the Ld. CIT(A) and stated that the order of the Ld. CIT(A) is a well reasoned order and therefore, the same may be upheld and Revenue’s appeal may be dismissed accordingly.

“5. The first substantive issue in this regard is of the addition of Rs.27,OO,OO,OOO/- made on account of unexplained cash credits uls 68 of IT Act. AO has made this addition on the following accounts - i) Increase in share Rs. 2,00,00,000/- capital by allotment of 20 lacs equity shares of Rs. 10/- each on preferential basis to promoters against cheque. ii) Increase in share Rs. 10,00,00,000/- capital by allotment of one crore equity shares of Rs. 10/- each on preferential basis to 3 other companies under swap arrangement of shares. iii) Increase in share Rs. 15,00,00,000/- capital by allotment of 1.5 crores equity shares of Rs. 10/- each to eleven parties against their outstanding trade credit balances Total Rs. 27,00,00,000/- 5.1 In respect of first category, shares were issued to four promoters as under:

No. of shares i) M/s Avisha Credit Capital Limited 500000 ii) M/s Master Finlease Limited 500000 iii) Smt. Shubha 500000 iv) Smt. Angoori Devi 500000

2000000

During the course of assessment proceedings, appellant filed the confirmation letters, bank accounts and income tax returns of the aforesaid four creditors showing that entire payments from where the amounts were paid by cheques to the appellant company on behalf of Smt. Shubha and Smt. Angoori Devi. However the Assessing Officer did not accept the creditworthiness of these two lady creditors for the reason that the income shown in their return of income did not justify their creditworthiness. AO also did not accept the creditworthiness of the other two creditor companies – M/s. Avisha Credit Capital Limited and M/s. Master Finlease limited - for the reason that assessee did not produce their bank accounts and their complete accounts with appellant.

5.2 In respect of second category, shares were issued to three companies under swap arrangement of shares as under :-

No. of shares i) M/s Anupama Communication 5000000 ii) M/s Wisdom Publishing Pvt. Ltd. 2500000 iii) M/s Chanakya Overseas Pvt. Ltd. 2500000

1000000

Assessee issued the aforesaid one crore shares against the receipts of one crore shares from the aforesaid companies under the swap arrangement of shares. No consideration in cash or cheque was receipt by the appellant in lieu of issue of aforesaid one crore shares. The appellant filed the copies of swap agreements with the said three companies. AO did not consider these swap arrangements of shares as genuine due to the reason that the copy of agreement with MIs.

Wisdom Publishing Pvt. Ltd. was dt.5-8-0-2002.

However the agreement copy filed with the AO of M/s.

Wisdom Publishing Pvt Ltd. was 3-8-2002. Moreover the agreements' were signed through their authorized representatives, were not signed by the witnesses and were not registered. The appellant company increased the authorized capital without obtaining permission from ROC. Hence the swap arrangement of shares were held as make believe arrangements and not genuine transactions.

5.3 In respect of third and last category, shares were issued to eleven trade creditors as under-

No. of shares i) M/s Anupama Communication Pvt. Ltd. 3,10,000 ii) M/s Wisdom publishing Pvt. Ltd. 8,35,000 iii) M/s Chanakya Overseas Pvt. Ltd 9,55,000 iv) M/s Avisha Credit Capital Ltd 9,00,000 v) M/s Master Finlease Ltd 18,75,000 vi) Smt. Shubha 18,80,000 vii) Smt. Angoori Devi 18,70,000 viii) Heritage Corporate Services Ltd 18,50,000 ix) Cosmo Corporate Services 18,60,000 x) Brut Finance India Pvt. Ltd 7,80,000 xi) Troop Trac Marketing Pvt.ltd 18,85,000

1,50,00,000 5.4 Before the Assessing Officer, appellant filed confirmation letters of the aforesaid parties stating that the shares were allotted against-outstanding trade liabilities and no cash / cheque amount was paid by those creditors. The assessing officer was not satisfied with the explanation and evidences filled by the appellant. According to him, the appellant has raised the share capital in respect of which though the assessee filed evidences but those evidences fail to establish the creditworthiness of the shareholders.

Though assessing officer has raised several contentions in the assessment order but all those contentions point out to this aspect that the assessee has not established the creditworthiness of the shareholders. Assessing Officer relied on various case laws for the proposition that since appellant could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of Rs.27,OO,OO,OO0/- is to be treated as unexplained cash credits u/s 68 of the IT Act.

5.5 During the appeal proceedings, the appellant has filed very comprehensive written submissions contending that the appellant has submitted all what was required and what was essential to discharge the burden cast u/s 68. Appellant filed a paper book too containing the evidences filed in assessment proceeding to drive home its view point that not only identity of the shareholder was proved but also genuineness of transactions and creditworthiness of the shareholders, and that all the shareholders are existing income tax assesses and thus identity in any case stood established and in such a case, addition cannot be made in the hands of the company in view of several decisions cited in the written submissions including ones rendered by Delhi High Court. It was pleaded that adverse observations made in the assessment order were made without giving any opportunity of being heard and that is why the appellant, according to Ld. Counsel, is constrained to file petition for additional evidence and if such evidences are taken into account, there is no warrant whatsoever for making impugned addition.

5.6 Petition for additional evidence was also forwarded to the AO in accordance with the provisions of Rule 46A of IT. Rules for his verification and comments. The Assessing Officer submitted his reports. The counter comment received were made available to the appellant, which has also filed its replies thereto.

5.7 Before I take the appeal, it is expedient to dispose the petition for additional evidence. I have considered the petition, reply of AO thereto. It is seen from the two questionnaires dated 27.5.2005 and 25.10.2005 issued and order sheet entries as rightly contended by the appellant that AO never asked even confirmations in respect of share capital of Rs. 2 Crore and 10 crores issued against cheques received and against SWAP arrangement respectively. AO in fact asked about the names and addresses and income tax particulars of the shareholders, only in his first questionnaire dated 30- 05-2002. Confirmations of the shareholders were asked for the first time vide questionnaire dated 25-10-2005 but sent with notice dated 8.2-2006 It is incorrect on the part of AO to say that vide order sheet entry dated 17-03-2006, asked about the creditworthiness of all shareholders of Rs. 15 crores to whom shares were allotted against the credit balances only. Therefore, there was no justification for him to make any adverse observation in regard. Adverse observations made in the assessment order in respect of this much of share capital were thus made without giving any opportunity of hearing.

5.8 I have seen that additional evidences are in connection with share capital of Rs. 2 Crore only and are. evidences to prove the source of funds in hands of M/s Virasat Developers and Builders Pvt. Ltd. which could not be filed before AO as nothing was asked by him during the course of assessment proceedings regarding the source of Rs. 50 lacs in the hands of M/s Virasat Developers Pvt. Ltd. It is further seen that the additional evidences are showing the source of Rs. 30 Lacs in the hands of Mr. Vijay Jhindal which were given to M/s Vital Communications Ltd. by him on behalf of Smt. Shubha. Further evidences are showing the bank statements of M/s Avisha Credit Capital Ltd. and source of funds in their hands. Petition contains the evidences showing the bank statements of M/s Master Finlease Ltd. and source of funds in their hands and further evidence to show the source of Rs. 20 lacs in the hands of M/s Master Finlease, Ltd. which was given to by M/s Master Finlease Ltd. Thus, when adequate opportunity of hearing was not given, it is incumbent for the appellate authority to admit the evidences.

After considering all the facts and circumstances of the case and after considering the replies filed on behalf of the parties, additional evidences filed by the assessee are admitted for the above stated reason and also the same were found necessary to decide this appeal.

5.9 The main issue to be decided in this appeal is whether the onus u/s 68 of the Act in respect of fresh share capital was discharged by the appellant. It is seen that the A.O. has expressed his doubt only about the creditworthiness of the shareholders and the identity of the persons/ entities subscribing to the share capital was not doubted by the assessing officer and this fact is clear from the plain reading of the assessment order.

Full Bench of Hon'ble Delhi High Court in case of CIT vs Sophiya Finance Limited 205 ITR 98 held that once identity of the shareholder is established, no addition on account of share capital can be made in the hands of the company-assessee. Appellant has also laced reliance on the following decisions.

Anima Investment (P) Ltd. VS. ACIT 73 ITD 125 (Delhi)

(TM)

- Share application money - Where the share application money is received by the assessee company through banking channel, the assessee has only to prove the existence of the person in whose name share application is received - Additions could not be sustained where the existence of the investors is not doubted and the investment is not shown to have been made by somebody else - BARKHA SYNTHETICS LTD. VS. ASSTT. CIT 197 CTR 432 (RAJ)

- Share application money - Assessee having proved genuineness of subscribers of share capital, addition under section 68 could not be made on the ground that it did not establish genuineness of source of subscribers - SUMAK POWERCAP LIMITED VS. ASSTT.CIT 90 TTJ 420 (LUCKNOW).

- Share application money - Registered shareholders having not denied subscription to shares standing in their names, amount could not be regarded as undisclosed income of assessee company even if the subscribers were not genuine - BALDEO COLD STORAGE & ICE FACTORY PVT.L TD. VS. ACIT 89 TJ 908 (AGRA).

- Pursuant to search conducted for a block period - Assessing Officer required assessee company to produce shareholders before him for identification - On failure of assessee to produce shareholders, Assessing Officer made addition to income of assessee for said block period - Said addition was deleted by Tribunal - Whether when necessary material had been produced before Assessing Officer to establish identity of persons with their PAN/GIR numbers and other details, then it was not necessary for assessee to produce shareholders before Assessing Officer - Held, yes - Whether therefore, Tribunal was justified in deleting addition made by Assessing Officer - Held, yes - CIT VS. MAKHNI & TYAGI (P) LTD. 136 TAXMAN 641 (DELHI).

- Cash credits - Share application moneys received by assessee company - Finding that identify of creditors had been established - Tribunal justified in deleting addition to income - Income Tax Act, 1961 s. 68 - CIT V. DOWN TOWN HOSPITAL PVT.LTD. 267 ITR 460 (ALL).

CASH CREDIT - Share application money-assessee - company having proved the existence of two companies which had paid share application money to it through cheques, it had discharged its onus of proving the identity and creditworthiness of both the creditors as well as the genuineness of the transaction and therefore, no addition could be made under section 68 - Asstt, CIT vs Antarctica Investment (p) Ltd. (Del) 78 TTJ 257 Affirmed in CIT vs Antarctica Investment Pvt. Ltd. 262 ITR 493(Del) Achal Investment Ltd vs CIT 268 ITR 211 (Del).

Moreover, following decisions lay down that addition of share capital cannot be made in the hands of the company- assessee as was held by Hon'ble Delhi High Court in the case of CIT vs. Steller Investment Limited 192 ITR 287 which was later on affirmed in CIT vs. Steller Investment Limited 251 ITR 263(SC).

That being so, there is no question of any addition on this score in the hands of the appellant company and addition so made in defiance of the rulings cited above, the addition of Rs. 27 crores is liable to be deleted on this ground alone and is hereby deleted.

5.10 The aforesaid addition cannot be sustained for another legal premise also. Section 68 of the IT Act 1961 under which these additions have been made by the Assessing Officer reads as under: -

"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources 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."

It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,OO,OO,OOO made u/s. 68 of the IT Act, the amount of Rs.25,00,OO,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15.00.00,000 were issued against the outstanding liabilities i.e there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth RS.1O,OO,OO,OOO were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash! cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,OO,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained.

Though the said additions made u/s 68 cannot be sustained on the legal grounds itself as discussed above, I proceed to deal the addition on merit also. I have seen the evidences filed in the paper book and also the evidences filed with application under rule 46A and I find that the impugned addition could not be made under any circumstances as all the necessary ingredients of section 68 have been satisfactorily complied by the appellant. It is evident that the necessary ingredients of this section i.e. identity and capacity of the shareholders and genuineness of the transactions in respect of the impugned credits stood met by the appellant with the help of overwhelming evidences which are discussed hereunder.-

PB 50-51 is letter to A.O. in which details of new shareholders were furnished.

PB 52 is the details of shareholders with their PAN

No. furnished to Ld. A.O. showing allotment of shares against money and against consideration.

It is seen that all these shareholders are income tax assessee whose PAN Numbers were furnished to Ld .A.O.

PB 53-54 is another letter to Ld. A.O. through which confirmations were filed.

PB 56-63 are the confirmation from various shareholders in which shareholders confirmed to have made investments into the share capital of the appellant and have also disclosed their PAN

Numbers.

It is seen that confirmations placed at PB 56-63 cover the first seven names of shareholders given at PB - 52.

PB 64 is another letter to Ld. A.O. through which assessment details of the shareholders including the place of assessment were furnished, thus further proving the identity of the shareholders.

PB 65 is the assessment details of the shareholders furnished to Ld.A.O.

PB 66 is a letter to Ld. A.O. through which confirmations and other evidences establishing the share capital were filed to Ld. A.O.

PB 67-69 are the statement of accounts of swap of shares with M/s. Anupama Communication Pvt.

Ltd., Wisdom Publishing Pvt. Ltd. M/s. Chankaya

PB 70 is the confirmation from another shareholder namely Smt. Shubha confirming the investment made by her and disclosing her PAN no. PB 71 is acknowledgement of return of Smt.

Shubha filed to Ld. A.O. to establish that she was incometax assessee. PB 72-73 is the copy of bank statement of Smt. Shubha. PB 74 is the bank statement of Mr. Vijay Jhindal.

PB 75 is the confirmation from Smt. Angoori Devi another shareholder confirming the fact of investment made by her into the share capital of appellant and disclosing her PAN No. PB 76 is the copy of acknowledgement of return of Smt.

Angoori Devi to show that she was borne on the departmental assessment record.

PB 77 is a letter to Ld. A.O. through which further evidences of the share capital were filed.

PB 78 is the fresh confirmation from Smt. Angoori

Devi confirming the fact of investment and disclosing her PAN and place of assessment.

PB 79 is the statement of account of Smt. Angoori Devi in the books of M/s. Virasat Development & Builders Pvt. Ltd. showing the cheques issued on her behalf to the appellant.

PB 80 is the bank statement of M/s. Virasat from where the cheques were issued to appellant.

PB 81 is letter from the appellant to Smt. Angoori Devi acknowledging the receipt of share capital. PB 82 is an affidavit from Smt. Angoori Devi deposing all these facts. PB 83 is fresh confirmation from Smt. Subha. PB 84 is her bank statement where from the payment was made to the appellant. PB is a letter from Master Finlease Limited to Smt. Shubha confirming the loan giving to her.

PB 85, 86 are the evidences of Rs.30,OO,OOO/- investment made by Smt. Shubha by raising loan from Mr. Vijay Jhindal.

PB 89 is an affidavit from Smt. Shubha deposing all these facts.

PB 88 is acknowledgement of share capital from appellant to Smt. Shubha.

PB 91-92 are the confirmations from M/s. Cosmo and M/s. Troop Track showing their PAN No. and place of assessment.

PB 93-107 are the confirmations and evidences of further share capital from the parties mentioned at PB 52 showing PAN Number and place of assessment.

5.11 During the appellate proceedings, AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the appellant company were also demonstrated during the appellate proceedings on 26-2-2007 by the director of the appellant company Mr. J.P.Madaan.

There is no evidence brought on record the show that such transactions of purchase of softwares were sham transactions to evade the taxes nor there can be any, since there is no advantage to the appellant company to enter into such sham transactions. Appellant had neither debited such expenses on purchase of software into the P & L account nor claimed any depreciation thereon.

These were only reflected in the work in progress in the balance sheet under head fixed assets.

There is no tax implication of such transactions.

5.12 Appellant has also furnished the copies of agreements in respect of shares with the other three companies. Swapping of shares is a recognized standard Appellant has also furnished the copies of agreements in respect of swapping the commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s

Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of Rs.

2,50,00,000/-. This being the case, there is no question for making addition of this amount.

5.13 Thus the appellant has satisfactorily discharged the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the appellant is o required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions.

Appellant has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third parties in the chain were also filed by the appellant. Thus the appellant has not only proved the creditworthiness of the said share holders but also proved the source of the source, for which though no onus lie on him 5.14 Appellant has also furnished the. copies of agreements in respect of swapping the shares with the other three companies. Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Id. AR. It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped.

Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the appellant to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the appellant is unjustified and I therefore delete the addition of Rs. 27 crores.

5.15 It was rightly argued by the Ld. Counsel that onus to prove the source of the credits stood discharged in this case in terms of the following decisions with which I concur and there was thus no case for making any addition:-

Sarogi Credit Corp. vs. CIT 103 ITR 344/345 (Pat.) I. Add!. CIT vs.Bahri Bros (P) Ltd. 154 ITR 244(Pat.)

349/350 (SC)

3. CIT VS. Ram Narain Goel 224 ITR 180 (P&H)

(Delhi)

(Gauhati)

5.16 Assessing Officer has made certain adverse observations in the assessment order which have been met by the appellant in its written submissions. I have considered the adverse observations made by AO and reply of the appellant and I am satisfied that the observations of the AO do not carry any weight in the face of overwhelming evidences filed by the appellant which have been discussed above. These objections do not dilute the weight of the evidences filed by the appellant. However, I proceed to discuss each one of them:-

A. Assessing Officer has mentioned at Page 4 of the assessment order that on 8th March, 2006 and on I7th March, 2006 authorized representative of the assessee was asked to produce Smt. Angoori Devi and Smt. Shubha. But these were not produced.

It is seen that vide letter dated 21.03.2006 placed at PB 77, It was submitted by the appellant to Assessing Officer that Smt. Angoori Devi is an Old Lady of 76 years and Smt. Shubha was unwell. Therefore, they were unable to attend and it was also requested to Ld. Assessing Officer to exempt their appearance before him for these reasons. The request of the assessee in my consideration was not unreasonable. When both the ladies were Income tax asses sees and overwhelming evidences of their identity were filed before Assessing Officer and source of money in their hands was more 'than established with the help of documentary evidences, there is no reason as to why non appearance of the two ladies be viewed against the appellant, B. Assessing Officer has observed at Page No. 5 of assessment order that Bank account of M/s Virasat Developers and Builders Pvt Ltd. had opening Balance of Rs. 2142 and then two sums of Rs. 30 Lacs and 20 lacs were credited in its account on 4.7.2003 and 5.7.2003.

It is seen that M/s Virasat Developers and Builders Ltd. has not made any investment in the share capital of the appellant company in respect of these two amounts of Rs. 30 Lacs and Rs. 20 Lacs. Therefore, source of these two sums in their hands in my considered opinion, is immaterial to the case of the appellant. Investment was made by Smt. Angoori Devi by raising loan from M/s Virasat Developers and Builders Ltd. In that context, context, copy of the bank account of M/s Virasat Developers and Builders was filed before Assessing Officer. It is seen that nothing was asked by the AO regarding the source of funds in the hands of M/s Virasat Developers and Builders Ltd. and thus there was no occasion to explain the source in the hands of M/s Virasat Developers and Builders Ltd. In fact, in petition for additional evidence even the source in the hands of M/s Virasat stands explained by way of funds received by them from M/s Flare Finance India Ltd. and M/s Perfect Car Scanner Pvt. Ltd. Therefore the adverse observations of Assessing Officer about the Bank account of M/s Virasat, was not warranted.

C. Assessing Officer has mentioned at page No. 5 of Assessment order that though Loan confirmation for M/s Master Finlease Ltd. to Smt. Shubha states that loan of Rs. 20 Lacs has been given to her but this amount is not reflected in her bank statement. It is seen that this allegation of Assessing Officer is factually incorrect. PB 84 may be in this regard referred and it is seen that this amount of Rs. 20 Lacs is very much appearing in her bank statement filed before Assessing Officer.

Therefore, such incorrect fact needs no adjudication.

D. Assessing Officer has mentioned at Page 5 of the assessment order that capital account or personal Balance Sheet of Smt. Angoori Devi and Smt Shubha have not been filed with their returns of income.

According to me, Source of funds in the hands of these 2 ladies with the help of overwhelming evidence were very much established by the appellant and therefore absence of Balance sheet with their returns is of no Significance and at any rate, no adverse inference can be drawn against the appellant If these two ladles have not filed their balance sheets with the Department .

E. Assessing Officer has mentioned at page 6 of Assessment order that in respect of Investment made by M/s Master Finlease Ltd. And M/s Avisha Credit Capital Ltd., the appellant has furnished confirmations but their bank statements or any other document have not been furnished. It is seen that PB 57 & 58 are the confirmations of these two shareholders which are comprehensive enough giving PAN no. and other necessary particulars and are sufficient evidence in, so far as the initial onus upon the appellant is concerned in view of the decision of Supreme Court in case of Orissa Corporation 159 ITR 78. In any case, it was seen by me that nothing thereafter was asked from the appellant by AO as is clear from Pg 6 of assessment order where in nothing has been mentioned by the Assessing Officer as to whether he did at all ask about these things in the assessment order. Therefore, there was no occasion for the appellant to furnish bank statement or any other document relating to these 2 companies who have filed very comprehensive confirmations of the investment made by them. However petition for additional evidence even the evidence of the source of funds in the hands of these 2 concerns including the copies of bank statements of these two concerns were filed. It is seen from these evidences that Master Finlease Ltd had obtained these funds from MIs Troop Track Electrodes Pvt. Ltd, Brut Finance India Ltd., A visha Credit Capital Ltd., MIs Chanakya Overseas Pvt. Ltd., M/s. Troop Track Marketing co. Ltd. and M/s Avisha Credit Capital Ltd. Ltd. and M/s Rajat Stock Invest Pvt. Ltd. Therefore, there is no reason for Assessing Officer's any objection in this regard.

F. Assessing Officer has mentioned at Page 7 of Assessment order that originally the appellant stated the sources of Investment made by 11 Shareholders was against the loans already given to the assessee and later on appellant changed the stand and explained the source out of the money payable against bills raised by these parties. Thus, according to Assessing Officer, there was shifting of stand. I have considered this objection but find no merit in that because the ultimate fact of the matter is that Investors have confirmed the fact of investment made by them in the capital of the appellant company, Shares were issued against the credit balances appearing in the accounts of these parties/ persons and it is a matter of inference as to whether the credit balances lying in the books were in the nature of loan or not. Therefore, nothing turns on such observation of AO, as rightly contended by the appellant.

G. Assessing Officer has mentioned at page 10 or Assessment order that equity shares were allotted to M/s Master Finlease Ltd. on 7/08/03 which according to Assessing Officer was not possible. I have seen the document and admittedly PB 94 which is the confirmation of Master Finlease Ltd. shows the date as "7/08/03" but this, according to the appellant, was typographical error and was so explained orally to Ld Assessing Officer during the course of assessment proceeding too. It is worth noticing that when this confirmation talks of "FY 2002-03" meaning thereby that it covers the period from 1.4.2002 to 31.3.03, how could there be any date beyond 31.3.2003.

H Assessing Officer has mentioned that confirmation /letters filed before him have not been signed by any directors but have been signed by the "authorized persons" with no designation. But it is seen that case of Ld. AO is not that such confirmations were required under the law to be signed by the directors alone and or that such confirmations are bogus or sham. It is not necessary for the directors to sign all the papers and authorized persons usually sign. It is interesting to note that on the one hand Assessing Officer is saying that these have been signed by "authorized persons", there is then no room left for any grievance on that score.

I. Assessing Officer has mentioned at page 10 of Assessment order that most of the share applications have not made any payment to the assessee in the form of share application money and shares have been allotted against bills raised by the share applicants. This observation of AO is vague. I am inclined to agree with the contention of the appellant that if Assessing Officer is convinced that shares have been issued without any money having been received by the appellant then there is no case all the more for making any addition u/s 68 as the first pre requisite of application u/s 68 is that there has to be "Any Sum" which means any sum of money. Fact of the matter in the present case is that there was enforceable liability against which instead of payments, the shares have been issued and allotted by the appellant in favour of these shareholders and there is nothing wrong in it.

J. Assessing Officer has mentioned at page 12 of assessment order the copy of agreement between assessee company and M/s Wisdom Publishing Pvt. Ltd. shows that agreement is dated 5/8/02 whereas the copy of agreement obtained from the AO of M/s Wisdom shows the same having been signed on 3/8/02. It is seen that Assessing Officer never confronted about this aspect during the assessment proceedings as rightly contended by the appellant, otherwise it would have been explained to him. Copy of agreement filed before Assessing Officer would show that this agreement was entered on 5.8.02 and was also signed on 5/8/02. In fact such agreement could not be signed prior to 5/8/02. A copy of this very agreement filed by M/s Wisdom Publishing Pvt. Ltd. in its assessment proceedings before its Assessing Officer appears to, bear the date on 3rd page of Agreement could be a typographical error which does not have a significant bearing on the present issue. Signing by witness or registration is not legally required and therefore observations of Assessing Officer on these aspects also do not carry any meaning.

K. AO has mentioned at page 3 of the assessment order that vide order sheet entries dated 17-03-

2006, creditworthiness of the parties were asked but it is seen as noted by me above also that that he did not ask for this evidence in respect of all the shareholders but asked about the shareholders to whom share capital was allotted against the credit balance. Fact of the matter is that evidences were filed which would show that onus to establish the share capital was discharged.

L. AO has mentioned at page 3 of the assessment order that bank statement was not produced. It is seen that the bank reconciliation statement was already filed with copy of bank statement with letter 20-9-2005 as is seen from the departmental assessment record. Thus, this contention of AO is incorrect.

M AO has mentioned at page 3 of the assessment order that books of accounts were not produced.

It is seen that appellant is a limited company whose accounts are audited both under Income

Tax Act and under Companies Act for which maintenance of books of accounts are inevitable.

According to the appellant. these were given to the AR Mr. D.P. Bansal for the production of the same but he did not produce the same. It was explained by the appellant that Mr. Bansal was suffering from depression due to his "marital discord problem" as could be known to the appellant after the assessment order was received containing such adverse observations and when it was put to Mr, Bansal. Medical certificate in support of this fact was made available to the appellant by Mr. Bansal. In fact, it was pleaded that it was a case of no malafide on the part of the appellant but a case of negligence on the part of AR due to medical reason. Otherwise, as explained by the appellant there was no purpose for not producing the books of accounts as none of the two additions has got any bearing on the books of accounts. I have considered the explanation supported with the medical reason. and I am convinced that it was a case of counsel's negligence due to the medical reason and in any case, this aspect has very little to do with the additions made here.

Considering the entire facts and material filed before me, I hold that addition of Rs.27,OO,OO,OOO/- on account of share capital made uls 68 of the IT Act, cannot be sustained both on facts and law and hence deleted.”

8.1 We have heard both the parties and perused the records available with us, especially the impugned order passed by the Ld. First Appellate Authority as reproduced above. After going through the same, we are of the considered view that the addition in dispute is of Rs. 27,OO,OO,OOO/- was made on account of unexplained cash credits uls 68 of IT Act. We note that before the Assessing Officer, assessee filed confirmation letters of the aforesaid parties stating that the shares were allotted against outstanding trade liabilities and no cash / cheque amount was paid by those creditors. The Assessing Officer was not satisfied with the explanation and evidences filled by the assessee. According to AO, the assessee has raised the share capital in respect of which the assessee filed evidences, but as per the AO those evidences fail to establish the creditworthiness of the shareholders. Assessing Officer relied on various case laws for the proposition that since assessee could not prove the genuineness of transaction and creditworthiness of the said creditors, the sum of Rs.27,OO,OO,OO0/- is to be treated as unexplained cash credits u/s 68 of the IT Act. However, during the appellate proceedings, the assessee has filed written submissions contending therein assessee submitted all what was required and what was essential to discharge the burden cast u/s 68. Assessee filed a Paper Book containing the evidences filed in assessment proceeding to drive home its view point that not only identity of the shareholder was proved but also genuineness of transactions and creditworthiness of the shareholders, and that all the shareholders are existing income tax assesses and thus identity in any case stood established and in such a case, addition cannot be made in the hands of the company in view of several decisions cited in the written submissions including ones rendered by Delhi High Court. It was contended that adverse observations made in the assessment order were made without giving any opportunity of being heard and that is why the assessee filed petition for additional evidence and if such evidences are taken into account, there is no warrant whatsoever for making impugned addition. The Petition for additional evidence was also forwarded to the AO in accordance with the provisions of Rule 46A of IT Rules for his verification and comments. The Assessing Officer submitted his reports.

The counter comment received were made available to the assessee, who has also filed its replies thereto. We find that the Ld. CIT(A) has considered the petition, reply of AO thereto and observed that from the two questionnaires dated 27.5.2005 and 25.10.2005 issued and order sheet entries as rightly contended by the asessee that AO never asked even confirmations in respect of share capital of Rs. 2 Crore and 10 crores issued against cheques received and against SWAP arrangement respectively. AO in fact asked about the names and addresses and income tax particulars of the shareholders, only in his first questionnaire dated 30-05-2002. Confirmations of the shareholders were asked for the first time vide questionnaire dated 25-10-2005 but sent with notice dated 8.2- 2006 It is incorrect on the part of AO to say that vide order sheet entry dated 17-03-2006, asked about the creditworthiness of all shareholders of Rs. 15 crores to whom shares were allotted against the credit balances only. Therefore, there was no justification for him to make any adverse observation in regard. The additional evidences are related with share capital of Rs. 2 Crore only and are the evidences to prove the source of funds in hands of M/s Virasat Developers and Builders Pvt. Ltd. which could not be filed before AO as nothing was asked by him during the course of assessment proceedings regarding the source of Rs. 50 lacs in the hands of M/s Virasat Developers Pvt. Ltd. It was further seen that the additional evidences are showing the source of Rs. 30 Lacs in the hands of Mr. Vijay Jhindal which were given to M/s Vital Communications Ltd. by him on behalf of Smt. Shubha. Further evidences are showing the bank statements of M/s Avisha Credit Capital Ltd. and source of funds in their hands. Petition contains the evidences showing the bank statements of M/s Master Finlease Ltd. and source of funds in their hands and further evidence to show the source of Rs. 20 lacs in the hands of M/s Master Finlease, Ltd. which was given to by M/s Master Finlease Ltd. Ld. CIT(A) has rightly held that thus, when adequate opportunity of hearing was not given by the AO, it is incumbent for the appellate authority to admit the evidences. Hence, in view of the above, additional evidences filed by the assessee were rightly admitted by the Ld. CIT(A).

8.2 As regards the addition u/s. 68 it is observed that the A.O. has expressed his doubt only about the creditworthiness of the shareholders and the identity of the persons/ entities subscribing to the share capital was not doubted by the Assessing Officer and this fact is clear from the plain reading of the assessment order. In this behalf, we draw support from the decision of the Full Bench of Hon'ble Delhi High Court in case of CIT vs Sophiya Finance Limited 205 ITR 98 wherein it has been held that once identity of the shareholder is established, no addition on account of share capital can be made in the hands of the company-assessee. We find that moreover, following decisions lay down that addition of share capital cannot be made in the hands of the company assessee as was held by Hon'ble Delhi High Court in the case of CIT vs. Steller Investment Limited 192 ITR 287 which was later on affirmed in CIT vs. Steller Investment Limited 251 ITR 263(SC). Therefore, there is no question of any addition on this score in the hands of the assessee company and addition so made in defiance of the rulings cited above, the addition of Rs. 27 crores is liable to be deleted on this ground alone and was therefore, rightly deleted.

8.3 We find force in the Ld. CIT(A)’s finding that the aforesaid addition cannot be sustained for another legal premise also. Section 68 of the I.T.

Act 1961 under which these additions have been made by the Assessing Officer reads as under: -

"Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and sources 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."

8.3.1 It is evident from the perusal of this provision that section 68 can be invoked only if any "sum" is credited in the account books of the assessee for which no satisfactory explanations could be furnished by the assessee. "Sum" denotes the money brought into the account books by way of cash / cheque / draft. Mere transfer of entries from one head to another cannot be treated as sum credited in the account books for the purpose of see 68 of the IT Act. Similarly, exchange of shares also cannot be brought into the ambit of Section 68 of the IT Act. In the present case, out of the addition of Rs.27,OO,OO,OOO made u/s. 68 of the IT Act, the amount of Rs.25,00,OO,000 was not brought into the account books by way of cash / cheque / draft during the relevant previous year. Shares worth Rs.15,00,00,000 were issued against the outstanding liabilities i.e there were only the transfer of entries from trade liability head to the share capital head. No fresh capital was brought into the account books by way of cash / cheque / draft. Similarly, the shares worth RS.1O,OO,OO,OOO were issued against the shares received under the swapping arrangements. Here also, no fresh amount of money was brought into the books by way of cash/ cheque / draft. Hence, the addition made in respect of these share holders to the extent of Rs.25,OO,00,000 does not come into the purview of section 68 of the IT Act. On this ground also, the said addition cannot be sustained. Though the said addition made u/s 68 cannot be sustained on the legal grounds itself as discussed above 8.4 We further note that during the appellate proceedings, the Assessee’s AR has filed the copies of ledger accounts of eleven trade creditors to whom the shares were, issued to settle their outstanding liabilities. The software supplied by such creditors share holders to the assessee company were also demonstrated during the appellate proceedings on 26-2-2007 by the Director of the aaseessee company Mr. J.P.Madaan.

There is no evidence brought on record the show that such transactions of purchase of softwares were sham transactions to evade the taxes nor there can be any, since there is no advantage to the appellant company to enter into such sham transactions. Assessee had neither debited such expenses on purchase of software into the P & L account nor claimed any depreciation thereon. These were only reflected in the work in progress in the balance sheet under head fixed assets. There is no tax implication of such transactions. The Appellant has also furnished the copies of agreements in respect of shares with the other three companies.

Swapping of shares is a recognized standard Assessee has also furnished the copies of agreements in respect of swapping the commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreements is satisfactorily explained by the Ld. AR. It is worthwhile to note from the assessment record, that one of the shareholder namely M/s Wisdom Publishing Pvt. Ltd has even confirmed the allotment of shares to them directly to AO in SWAP arrangement to the extent of Rs. 2,50,00,000/-. In view of the above, there is no question for making addition of this amount. Thus the Assessee has satisfactorily discharged the onus lying on him by proving the identity of each and every new shareholder. Further, presuming that the assessee is required to prove the other two requirements of section 68, i.e., creditworthiness of the share holders and genuineness of transactions. Assessee has proved beyond any iota of doubt that all the share holders were creditworthy and all the transactions were genuine. It is so evident from the documents filed during the assessment proceedings. To explain the credit entries in the said bank accounts, the bank accounts of the third parties in the chain were also filed by the assessee. Thus the assessee has not only proved the creditworthiness of the said share holders but also proved the source of the source, for which though no onus lie on him.

8.5 The Assessee has also furnished the copies of agreements in respect of swapping the shares with the other three companies. Swapping of shares is a recognized standard commercial practice and cannot be treated as any tax evasion technique. The technical objections raised by the AO regarding the difference in the date of agreement is satisfactorily explained by the Ld. AR before the Ld. CIT(A). It is pertinent to mention here that the said swapping transactions have been accepted as genuine by the Assessing Officers having jurisdiction over the other companies with whom the shares were swapped. Therefore, having filed above evidences establishing the identity of the shareholders, genuineness of the transactions and capacity of the shareholder, there remains nothing more for the assessee to prove and onus is discharged and thus action of A.O. in treating the entire increase in share capital as undisclosed income of the assessee is unjustified and therefore Ld. CIT(A) has rightly deleted the addition of Rs. 27 crores.

8.6 In the background of the aforesaid discussions and precedents relied upon, we do not find any infirmity in the detailed and well reasoned order passed by the Ld. CIT(A), hence, we uphold the same by deleting the addition of Rs. 27 Crores. As a result, the ground raised by the Revenue stands dismissed.

Order pronounced in the Open Court on 15/06/2016.