SATYANARAYAN HOLDINGS PVT. LTD.,KOLKATA vs ITO, WARD-5(2), KOLKATA

Income Tax Appellate Tribunal, “A” BENCH, KOLKATA

Before: Shri Sanjay Garg & Dr. Manish Borad

Satyanarayan Holdings Pvt. Ltd. …… Appellant 18, R. N. Mukherjee Road, Mission Road, Kolkata-700001. (PAN: AAHCS6407R) Vs. ITO, Ward-5(2), Kolkata. …… Respondent Appearances by: Shri Siddharth Agarwal, Advocate appeared for Appellant Shri Bonnine Debbarma, Addl. CIT, DR appeared for Respondent Date of concluding the hearing : 12.08.2024 Date of pronouncing the order : 26.09.2024 ORDER

Per Dr. Manish Borad, Accountant Member:

1. This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 in short the “Act”) by Ld. Commissioner of Income-tax (Appeal)-10, Kolkata [in short ld. “CIT(A)”] dated 24.12.2019 arising out of the assessment order framed u/s 143(1) of the Act by ITO, Ward-5(2), Kolkata dated 30.03.2015.

2. Registry has informed that the appeal of the assessee is time barred by 1472 days. The assessee has applied for A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. condonation of delay along with an affidavit on the ground that the appeal was heard before the commencement of Covid-19 but no appellate order was received by the assessee physically. It also submitted that meanwhile the country was hit by Covid and the business operation were closed due to various on going disputes in the company. Hence, no proper action could be taken against the appellate order since none of them was aware about the said order.

We have duly considered the rival contentions and gone through the record carefully. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross- objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression sufficient cause employed in the section has also been used identically in sub-section 3 of section 249 of Income Tax Act, which provides powers to the ld. Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon’ble High Court as well as before the Hon’ble Supreme Court, then, Hon’ble Court were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon’ble Supreme Court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353: Page 2 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd.

1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.

Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. "Every day’s delay must be explained" does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner.

4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.

6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.

4. Similarly, we would like to make reference to authoritative pronouncement of Hon’ble Supreme Court in the case of N. Balakrishnan Vs. M. Krishnamurthy (supra). It reads as under: “Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the Page 3 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss”.

We do not deem it necessary to re-cite or recapitulate the proposition laid down in other decisions. It is suffice to say that the Hon’ble Courts are unanimous in their approach to propound that whenever the reasons assigned by an applicant for explaining the Page 4 of 21

In the light of above, if we examine the explanation of the assessee, then it would reveal that on account of Covid-19 and closing down of business operation due to various ongoing disputes in the company, assessee could not file it well in time. It is also pertinent to note that in March, 2020, COVID had already struck. We are thus satisfied that there was reasonable cause which prevented the assessee from filing the instant appeal within the prescribed time limit and therefore, we condone the delay of 1472 days and admit the appeal for adjudication on merits.

The assessee has raised following grounds of appeal: “1.For that the Ld. CIT(A) was not justified in confirming the addition of Rs.1,64,00,000/- made by the AO on account of share capital including share premium by wrongly invoking the provisions of section 68 of the Act.

2. The appellant craves leave to add further grounds of appeal or alter the grounds at the time of hearing.”

Brief facts of the case are that the assessee is a private limited company engaged in the business of share trading and investment. Loss of Rs.215/- declared in the return for AY 2012-13 e-filed on 14.09.2012 and the same was processed u/s. 143(1) of the Act. Subsequently, the case selected for scrutiny assessment through CASS followed by valid notices u/s. 143(2) and Page 5 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. 142(1) of the Act. During the course of assessment proceedings, ld. AO observed that assessee has issued 32800 equity shares of face value of Rs. 10/- at a premium of Rs. 490/- thereby raising a total amount of Rs.1,64,00,000/-. Ld. AO wanted to examine the share application money in the light of the provision of section 68 of the Act. Though the assessee furnished certain details regarding PAN, address, I. T return of the share applicants but Ld. AO wanted personal presence of the director of the assessee company as well as share applications and issued summon u/s 131 of the Act but in absence of their personal presence, ld. AO treated the alleged share capital as bogus and made the addition u/s. 68 of the Act at Rs.1,64,00,000/- and assessed the income at Rs.1,63,99,785/-.

Aggrieved, assessee preferred appeal before the Ld. CIT(A) and furnished all the documents to prove the identity and creditworthiness of the share applicants and genuineness of the transaction but the Ld. CIT(A) was not satisfied and placing reliance on various decisions finally dismissed the appeal finding no infirmity in the order of the Ld. AO. Aggrieved, assessee is now in appeal before this Tribunal.

10.

Ld. Counsel for the assessee vehemently argued referring to the written submission filed before the Ld. CIT(A) and also referred to the audited financial Page 6 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. statement, ITR and bank statement of the assessee company, Form 2 issued for re-allotment of shares, list of share applicants and also referred to the ITR, Balance sheet, bank statement of alleged share applicants, application form and source of funds available with the share applicants for making the alleged investment. Ld. Counsel for the assessee also referred to the chart showing net worth of each of the share applicant vis-à- vis the investment made in the assessee company. Reference was also placed on various decisions referred in the written submission filed before the Ld. CIT(A).

11.

On the other hand, Ld. DR vehemently argued supporting the order of the lower authorities stating that the assessee has converted its unaccounted income by way of taking bogus share capital from various shell companies and, therefore, section 68 of the Act has rightly been invoked by the Ld. AO.

12.

We have heard rival submissions and perused the material available on record. Assessee is aggrieved with the finding of the Ld. CIT(A) confirming the addition made by the AO u/s. 68 of the Act treating the share application money received from eleven (11) share applicants as unexplained. The assessee is engaged in the business of shares and investments. In the regular course of its business contacted the other private limited body corporate known to it for making investment in the Page 7 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. equity share capital. On receiving the offer some of the private limited body corporate showed their interest and made an application for allotment of equity shares issued at face value of Rs. 10/- and premium at Rs. 499/- per share. On receiving application for allotment of equity shares the assessee company after having verified the details allotted the equity shares. Now, Ld. AO in the course of hearing of the assessment proceeding asked the assessee to explain the nature and source of the alleged share application money in the light of the provisions of section 68 of the Act. For necessary reference section 68 of the Act is reproduced below: “68. Cash credits.—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 source thereof or the explanation offered by him is not, in the opinion of the 1 [Assessing Officer], satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year: [Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.]”

13.

Now, on going through the above provision of sec. 68 of the Act, we find that the assessee is required to explain the nature and source of the alleged sum and as Page 8 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. held by the Hon’ble court that the nature and source can be explained if the assessee is able to prove the identity and creditworthiness of the share applicant and the genuineness of the transaction. We note that the assessee has furnished the details of income tax returns, audited balance sheet, bank statements, share application form and even the letters of the alleged share applicants providing details of source of funds through which they had applied for the equity shares of the assessee company. We find that all the share applicants are body corporate registered with the Ministry of Corporate Affairs and are regularly filing income tax returns so the identity of the share applicant is proved. So far as the genuineness of transaction is concerned, the assessee being a private limited company has approached the other private limited company to make investment in its equity. The assessee company being engaged in the business of share and investment in certainly eligible to receive share application money from the share applicants. The transaction of making investment in the equity by one body corporate in another body corporate are being carried out regularly in the course of business, therefore are genuine transactions. Now, coming to creditworthiness of the share applicants, we note that the assessee has furnished a chart showing the net worth of each of the share applicants placed at page 110 of the paper book and the same is reproduced below: Page 9 of 21

14.

On going through the above chart, we find that all the above referred share applicant companies were having sufficient net worth in the form of share capital in accumulated reserves to cover up the investments made in the assessee company. Out of the 11 share applicants referred above, we would like to take note of few of them Page 10 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. like Daffodil Commodeal Pvt. Ltd. having net worth of Rs. 5.24 Cr. has made investment of Rs. 13,00,000/-, Seasite Finance Ltd. having net worth of Rs.15.93 Cr. has invested only Rs. 8,00,000/-, Srilakshmi Finvest Pvt. Ltd. having net worth of Rs.27.34 Cr. has invested only Rs. 5,00,000/-, Maxworth Logistics Pvt. Ltd. having net worth of Rs.2.49 Cr. has invested Rs. 10,00,000/- and so on. Going through the foregoing details as well as the documents filed in form of ITR, Balance Sheet, bank statement, we are satisfied that the assessee has successfully discharged its primary onus by explaining the nature and source of the alleged sum and identity and creditworthiness of the share applicants and genuineness of the transaction.

15.

We further note that in similar type of cases where the share applicants are having sufficient documentary evidence and having sufficient net worth to make the investment, the additions made u/s. 68 of the Act have been deleted. We take support from one of such decision that is in the case of Kanchan Plywood Pvt. Ltd. Vs. ITO, dated 01.05.2019 wherein this Tribunal has also referred to other judgment of Hon’ble jurisdictional High Court and other Hon’ble Courts decided similar issue. Relevant part of the decision is reproduced below: “29. Reliance in this regard is also placed on the decision of the Delhi High Court in the case of CIT Vs Gangeshwari Metal (P) Ltd (ITA No. 597 of 2012) dated 21.01.2012. In this case the assessee had received share application money of Rs.55.50 lacs Page 11 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. during the year in question. The assessee filed the complete names, addresses of the share applicants, confirmatory letters from them, copies of bank statements of both the company as well as the share applicants and copies of share application forms. In spite of the aforesaid documentary evidences the AO held the explanation to be unacceptable and treated the share application as unexplained cash credit thereby making addition under Section 68 of the Income-tax Act, 1961. On appeal the CIT(Appeals) deleted the aforesaid addition holding that the identity of the share applicants stood established beyond doubt, all the payments were through account payee cheques and the share applicants were regular income-tax assessees. The CIT(Appeals) further held that the Revenue did not bring any evidence on record to suggest that the share application had been received by the assessee from its own undisclosed sources nor any material was brought on record to show that .the applicants were bogus. The Revenue was neither able to controvert the documentary evidences filed by the appellant nor prove that the share application were ingenuine or the applicants were non-creditworthy. The findings of the CIT(Appeals) were upheld by the Income-tax Appellate Tribunal. On appeal to the High Court, the Revenue placed strong reliance on the decision of another coordinate Bench of the same Court in the" case of CIT M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 Vs Novo Promoters &Finlease (P) Ltd (342 ITR 169). The High Court however held that the aforesaid judgment was distinguishable from the facts of the present case. The Court observed that in that judgment the Assessing Officer had brought on record enough corroborative evidence to show that the assessee had routed unaccounted monies into its books through medium of share subscription. The share applicants had confessed that they were "accommodation entry providers". The Assessing Officer in the latter case was able to prove with enough material that the share subscription was a pre-meditated plan to route unaccounted monies. In the present case however the Department was unable to bring any material whatsoever shows that share application was in the nature of accommodation entries. The Court observed that the appellant had filed sufficient documentary evidences to establish the identity and creditworthiness of the share applicant and the genuineness of the transaction. The AO however chose to sit back with folded hands till the assessee exhausted all the evidence in his possession and then merely reject the same without conducting any inquiry or verification whatsoever. The Court thus held that the decision of CIT Vs Novo Promoters &Finlease (P) Ltd (342 ITR 169) was not applicable to the facts of the case. Instead it was held that the issue in hands was on the lines of the decision of the Supreme Court in the case of CIT Vs Lovely Exports Pvt Ltd (319 ITR 5). Accordingly the addition made under Section 68 on account of share application was deleted.

30.

We would like to reproduce the Hon'ble High Court order in CIT vs. Gangeshwari Metal P.Ltd. in judgement dated 21.1.2013, the Hon'ble High Court after

Page 12 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. considering the decisions in the case of Nova Promoters and FinleasePvt. Ltd. 342 ITR 169 and judgement in the case of CIT vs. Lovely Exports 319 ITR (Sat 5)(5. C) held as follows:- "As can be seen from the above extract, two types of cases have been indicated. One in which the Assessing Officer carries out the exercise which is required in law and the other in which the Assessing Officer 'sits back with folded hands' till the assessee exhausts all the evidence or material in his possession and then comes forward to merely reject the same on the presumptions. The present case falls in the latter category. Here the Assessing Officer after noting the facts, merely rejected the same. This would be apparent from the observations of the Assessing Officer in the assessment order to the following effect:- ''Investigation made by the Investigation Wing of the department clearly showed that this was nothing but a sham transaction of accommodation entry. The assessee was asked to explain as to why the said amount of Rs.1,11,50,000/- may not be added to its income. In response, the assessee has submitted that there is no such credit in the books of the assessee. Rather, the assessee company has received the share application money for allotment of its share. It was stated that the actual amount received was Rs.55,50,000/- and not Rs.1,11,50,000/- as mentioned in the notice. The M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 assessee has furnished details of such receipts and the contention of the assessee in respect of the amount is found correct. As such the unexplained amount is to be taken at Rs.55,50,000/-. The assessee has further tries to explain the source of this amount of Rs.55,50,000/- by furnishing copies of share application money, balance4 sheet etc. of the parties mentioned above and asserted that the question of addition in the income of the assessee does not arise. This explanation of the assessee has been duly considered and found not acceptable. This entry remains unexplained in the hands of the assessee as has been arrived by the Investigation wing of the department. As such entries of Rs.5~50/000/- received by the assessee are treated as an unexplained cash credit in the hands of the assessee and added to its income. Since I am satisfied that the assessee has furnished inaccurate particulars of its income/ penalty proceedings under Section 271(1)(c) are being initiated separately. The facts of Nova Promoters and Finlease (P) Ltd. (supra) fall in the former category and that is why this Court decided in favour of the revenue in that case. However, the facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). There was a clear lack of inquiry on the part of the Assessing Officer once the assessee had furnished all the material which we have already referred to above. In such an eventuality no addition can be made under Section 68 of the Income Tax Act 1961. Consequently, the question is answered in the negative. The decision of the Tribunal is correct in law"

31.

The case on hand clearly falls in the category where there is lack of enquiry on the part of the A. O. as in the case of Ganjeshwari Metals (supra).

Page 13 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. b) In the case of Finlease Pvt Ltd. 342 ITR 169 (supra) in ITA 232/2012 judgement dt. 22.11.2012 at para 6 to 8/ it was held as follows. "6. This Court has considered the submissions of the parties. In this case the discussion by the Commissioner of Income Tax (Appeals) would reveal that the assessee has filed documents including certified copies issued by the ROC in relation to the share application affidavits of the directors, form 2 filed with the ROC by such applicants confirmations by the applicant for company's shares, certificates by auditors etc. Unfortunately, the Assessing Officer chose to base himself merely on the general inference to be drawn from the reading of the investigation report and the statement of Mr. Mahes Garg. To elevate the inference which can be drawn on the basis of reading of such material into judicial conclusions would be improper, more so when the assessee produced material. The least that the Assessing Officer ought to have done was to enquire into the matter by, if necessary, invoking his powers under Section 131 summoning the share applicants or directors. No effort was made in that regard. In the absence of any such finding that the material disclosed was untrustworthy or lacked credibility the Assessing Officer merely concluded on the basis of enquiry report, which collected certain facts and the statements of Mr.Mahesh Garg that the income sought to be added fell within the description ofS.68 of the Income Tax Act 1961. Having regard to the entirety of facts and circumstances, the Court is satisfied that the finding of the Tribunal in this case accords with the ratio of the decision of the Supreme Court in Lovely Exports (supra). The decision in this case is based on the peculiar facts which attract the ratio of Lovely Exports (supra). Where the assessee adduces evidence in support of the share application monies, it is open to the Assessing Officer to examine it and reject it on tenable grounds. In case he wishes to rely on the report of the investigation authorities, some meaningful enquiry ought to be conducted by him to establish a link between the assessee and the alleged hawala operators, such a link was shown to be M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 present in the case of Nova Promoters &Finlease (P) Ltd. (supra) relied upon by the revenue. We are therefore not to be understood to convey that in all cases of share capital added under Section the ratio of Lovely Exports (supra) is attracted, irrespective of the facts, evidence and material. "

32.

In this case on hand, we note that the A.O. has himself stated at page 2 of the assessment order that the assessee had submitted name and address of investing companies and notice u/s 133(6) were issued and confirmations were received confirming the assessee's claim, In the confirmations, investing companies forwarded PAN, copy of the IT Return, bank statements, copy of audited accounts, source of the funds details of share application money paid, extracts of minutes of meeting of the board of directors and letter of allotment of shares are also provided and their PAN number and address are also given. From the copies of the final audited accounts of the investor companies placed in the paper book, it can be seen that the investment made by the investor companies in the assessee company is a Page 14 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. fraction of their own fund which is evident from the following figures culled out from their respective audited balance sheets- Sl No. Name of the shareholder Own Fund (share Investment in company Capital & Reserves) assessee- company

Pragya Commodities Pvt. Rs. 7,63,30,550/- + Rs. 1.05 crores Ltd. 71,03,31,901/- =Rs. 78,66,62,451/-

2. Samrat FinvestorsPvt. Ltd. Rs. 7,81,26,700/- + Rs. 25 lakhs 70,82,16,536/- = Rs. 78,63,43,236/-

Narayan MercantilesPvt. Rs. 7,48,06,940/- + Rs. 50 lakhs Ltd. 76,26,98,268/- = Rs. 83,75,05,208/- Further replies received u/s 133(6) from the shareholder companies are seen annexed in the paper book. Thus, it is evident that the shareholder companies have also submitted the source of funds and enclosed the bank statements in support. Thus, the entire share capital has been received through banking channels which also proves the genuinity of transactions. M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 33. Further, merely because the income of the shareholders is meagre, it cannot be said that their creditworthiness is doubtful when their own funds are several times the investment made in the assessee company. In this regard, reliance is placed on the observation of the Hon'ble High Court of Delhi in the case of CIT vs. M/s. Mayawati 338 ITR 563, wherein a bench comprising of Hon'ble Justice A.K. Sikri and Hon'ble Justice Suresh Kait wherein Hon'ble Justice A.K. Sikri as his Lordships then were held as under:- "62. Further in the case of Mrs. Veena Jain, details of assets proved on record show that the total assets of Mrs. Veena Jain were of Rs. 1.34 crores and the liabilities were only of Rs. 2.11 Page 15 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. lakhs. We have perused the assets owned by Mrs. Veena Jain and found that she had capacity to borrow first, and then to gift as per her desire. The capacity does not mean what you are earning monthly or annually. The capacity includes how much total assets a person own." [Emphasis given by us] 34. From the above facts, it is evident that all the three ingredients viz., identity, genuinity and creditworthiness have been proved beyond doubt.

35.

In regard to the question of high premium on shares, the assessee's Ld AR filed a reply on 30.03.2015 which has been reproduced at page 6 of the assessment order wherein he submitted that the promoters are associated with their family business of plywood manufacturing unit. The company may be a newly formed one but since the promoter directors are well known business personalities, the company cannot be called a fledgling company. Thus, the high premium was justified by the assessee on the basis of promoter's background before the AO, which contention of assessee according to Ld AR has not been factually controverted by AO.

36.

Further, according to Ld AR in the case of unlisted companies, it is common knowledge that premium fixed is a matter of mutual agreement and ITAT Mumbai in the case of Gagandeep Infrastructure Pvt. Ltd., (supra) has held that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. And the aforesaid view of the ITAT has been upheld by the Hon'ble Bombay High Court order dated 20th March 2017. Further the Hon'ble High Court observed as under - " (i) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they Page 16 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. are bogus. The Apex Court in CIT v/s. Lovely Exports (P) Ltd. 317 ITR 218 in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit."

37.

According to Ld AR, recently, the Tribunal Mumbai Bench in the case of DCIT vs. M/s. Alcon Biosciences (P) Ltd., Order dated 28.02.2018 held as under - "As regards the AOs observation with regard to the issue of shares at a face value of Rs.10/- issued at a premium of Rs.990 per share, we find that there is no merit in the findings of the AO for the reason that the issue of shares at a premium and subscription to such shares is within the knowledge of the company and the subscribers to the share application money and the AO does not have any role to play as long as the assessee has proved genuineness of transactions. We further notice that the AO cannot question issue of shares at a premium and also cannot bring to tax such share premium within the provisions of section 68 of the Act, before (supra) held that Proviso inserted to section 68 is prospective in nature.

11. In this view of the matter and considering the ratios of the case laws discussed above, we are of the considered view that the assessee has proved identity, genuineness of transaction and creditworthiness of the parties insofar as 3 share applicants are concerned. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. We do not find any error in the order of the CIT(A); hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the revenue. "

38.

According to Ld AR, recently, Hon'ble M.P. High Court in the case of CIT vs. Chain House International (P) Ltd., order dated 07.08.2018, decision reported in 98 taxmann.com 47 has held at para 52 as under - "Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates if fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned." M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 39. It was also brought to our notice that the Hon'ble Supreme Court has dismissed departmental SLP against the above decision vide its order dated 18.02.2019.

Page 17 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd.

40.

It was brought to our notice that various courts have held that share premium received by a company cannot be added to the total income of the said company since the same is in the nature of capital receipt. And relied on the decision of the ITAT, Mumbai in the case of Green Infra Ltd. v. Income Tax Officer held as follows: "The emphasis is on that ' income of every kind', therefore, to tax any amount under this section, it must have some character of "income". It is a settled proposition of law that capital receipts , unless specifically taxed under any provisions of the Act , are excluded from income. The Hon'ble Supreme Court has laid down the ratio that share premium realized from the issue of shares is of capital in nature and forms part of the share capital of the company and therefore cannot be taxed as a Revenue receipt. It is also a settled proposition of law that any expenditure incurred for the expansion of the capital base of a company is to be treated as a capital expenditure as has been held by the Hon'ble Supreme Court in the case of Punjab State Industrial Corporation Ltd. Vs CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. VS CIT. In the case of KapurchandShrimal Vs CIT 131 ITR 451, it was held that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal was preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. Considering the submissions of the Ld. DR in the light of the above ratio, let us test the transaction in the light of the provisions of Sec. 68 of the Act. As per Section 68 - the initial onus is upon the assessee to establish identity, genuineness of the transaction and the capacity of the lender or the depositor. The subscribers to the share capital were all companies. The confirmations of the transactions have been received by the AO by issuing notice u/s. 133(6) of the Act, therefore, identity has been established beyond all reasonable doubts nor the Revenue authorities have questioned the identity of the share holders. The genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels duly recorded in the books of accounts of the assessee duly reflected in the financial statement of the assessee. The bank statement is exhibited in which the transaction relating to the allotment of shares are duly reflected." (ii) According to the Ld Counsel the aforesaid order of Tribunal has been upheld by the Hon'ble Bombay High Court by observing as under:- Mr. Chhotaray the learned counsel for the Revenue states that the share premium of Rs. 490/- per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner."

Page 18 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 (h) The Mumbai Tribunal in the case of ACIT-1(1) vs. M/s. Gagandeep Infrastructure Pvt. Ltd. the ITAT has held as under: "We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with Sec. 78 of the Companies Act, 1956. Further, the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipt and is not income for its ordinary sense. It is not in dispute that the assessee had filed all the requisite details/documents which are required to explain in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies. ...................... Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee. Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s 68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Lovely Exports Ltd. 317 ITR 218."

41.

In this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee cannot be brushed aside by the AO to draw adverse view cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the claim of the assessee.

42.

To sum up section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax M/s. Kanchan Plywood Products Pvt. Ltd. AY- 2012-13 acknowledgments were placed on AO's

Page 19 of 21 A Y: 2012-13, Satyanarayan Holdings Pvt. Ltd. record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we are inclined to delete the addition confirmed by the Ld. CIT(A) and consequently the appeal of Assessee is allowed.”

16.

Respectfully following the above decision and under the given facts and circumstances of the case, we find that the same is squarely applicable so much so that the assessee has successfully discharged its primary onus by explaining the nature and source of the alleged sum and the Revenue authorities before rejecting the claim of the assessee have failed to bring on record any contrary material showing any discrepancy/error in the details filed by the assessee. We, therefore, set aside the finding of the Ld. CIT(A) and delete the impugned addition of Rs.1,64,00,000/-. Grounds of appeal raised by assessee are allowed.

17.

In the result, the appeal of the assessee is allowed.

SATYANARAYAN HOLDINGS PVT. LTD.,KOLKATA vs. ITO, WARD-5(2), KOLKATA