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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI RAJPAL YADAV & DR. MANISH BORAD
order
: February 23rd, 2024 ORDER
Per Manish Borad, Accountant Member:
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 the Commissioner of Income Tax (Appeals)-NFAC, Delhi [in short ld. 'CIT(A)'] dated 13.07.2023 which is arising out of the assessment order framed u/s 143(3) of the Act dated 27.03.2015.
I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. 2. The assessee has raised the following grounds of appeal: “1. That the learned Commissioner of Income Tax (Appeals), erred in passing the impugned order without granting the opportunity of being heard to the appellant assessee.
2. That the Ld. CIT (A)/NFAC, New Delhi has erred in directing the communication of hearing notice to incorrect email address resulting in passing the impugned order dated 13.07.2023 ex-parte.
3. That the learned Commissioner of Income fax (Appeals), grossly erred in law as well as on facts of the case in confirming the addition under observation that the A.O was justified to make addition of Rs.6,52,00,000/-.
4. That Ld. Commissioner of Income Tax (Appeals) has erred in adding back a sum of Rs. 1,02,350/-to the total income of the appellant by applying the provision of Rule 8D r.w.s. 14A of the Income Tax Act, 1961.
5. That Ld. Commissioner of Income Tax (Appeals) has erred in not appreciating the fact that Ld. AO has not issued the notice under section 143(2) during the assessment proceedings.
6. That the Appellant craves leave to alter, add or modify all or any of the ground or grounds of the appeal at or before the time of hearing.”
3. Brief facts of the case as culled out from the records are that the assessee is a private limited company engaged in the business of investment in shares and trading. Income of Rs. 74,420/- declared in the return of income filed for AY 2012-13 furnished on 20.08.2012. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. During the course of assessment proceedings, ld. AO noticed that during the year assessee has received sum towards share capital and share premium amounting to Rs. 6.52 Crore. Detailed questionnaire was issued u/s 142(1) of the Act. Notice u/s 131 of the Act was issued to the assessee company. In compliance thereto, assessee furnished the source of funding of the alleged share capital and Page 2 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. share premium/share application money. Assessee also filed documentary evidences in support of the said claim explaining the nature and source. However, the Assessing Officer (in short ld. 'AO') was of the view that personal appearance was avoided and mere filing of documentary evidence cannot discharge the assessee’s burden to prove a transaction to be true and genuine. Ld. AO just concluded the assessment by placing reliance on various judgments including that of Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT reported in 214 ITR 801 and made the addition u/s 68 of the Act for the alleged unexplained cash credit of Rs. 6.52 Crore received by the assessee towards share capital and share premium. Ld. AO also made disallowance u/s 14A of the Act of Rs. 1,02,350/- observing that the assessee had made investments in equity shares. Income assessed at Rs. 6,53,76,770/-.
4. Aggrieved, the assessee preferred appeal before ld. CIT(A) and filed various details which were filed before the AO to explain the nature and source of the alleged sum along with the details of all the 16 share subscribers. However, because the communication from ld. CIT(A)’s office to the assessee were sent on the wrong e- mail, assessee could not appear. Ld. CIT(A) accordingly, confirmed the finding of ld. AO holding that the assessee failed to discharge its initial onus to establish by cogent evidence, genuineness of the transaction and creditworthiness of the shareholders.
5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee referring to the detailed written I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. submissions as well as paperbooks in two volumes containing 731 pages submitted as follows: “That the learned Commissioner of Income Tax (Appeals), grossly erred in law as well as on facts of the case in confirming the addition under observation that the A.O was justified to make addition of Rs.6,52,00,000/-. That the learned CIT (Appeals) erred in confirming the additions of Rs. 6,52,00,000/-, as unexplained cash credit under section 68 of the Act, in respect of share capital and security premium received from certain companies/persons in spite of fact that appellant has substantiated the transaction before the Ld. AO by proving the identity of the concerned parties, their creditworthiness and the genuineness of the transaction and even proved the source of source of amount given by the shareholder companies/person, by submitting complete information, explanation, documentary proof/evidence thereof, Ld. CIT(A) gone ahead in confirming the addition made by AO merely on the basis of presumption and surmises only. That the net worth of each of the share applicants appearing in the audited financial statements of the relevant year has sufficiently justified the source of investments made in the assessee company. That Ld. AO has not made any independent enquiry in the matter. Further in absence of detailed and independent inquiry what is necessary is the share application money recorded in the books of account and the evidences produced by the appellant company. Hence the conclusion drawn by the Ld. AO and Ld. CIT (A) is of no relevance. That that creditworthiness of all the investor had been duly explained and established. All the contribution to the share capital has been made though banking channel the appellant company has proved the identity of all the investors, their creditworthiness and genuineness of the transaction of receipt of share capital and share premium, even source of the source amount of the shareholder company has been produced before the Ld. AO. Merely on the basis of apprehensions and theory of AO. Hence, the finding recorded by the assessing officer is perverse and liable to be set aside. That 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 Page 4 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. want to subscribe the shares at such a premium or not. This was a commercial decision share holder and the company concern. In day- to-day market, unless and until, the rates are 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. That Ld. CIT (A) has failed to appreciate that once the genuineness, creditworthiness and identity are established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case. That Ld. CIT (A) has erred in not appreciating that in the instant case, there are no dispute about the receipt of funds through banking channel nor there is any dispute about the identity, creditworthiness and genuineness of the investors and, therefore, the same has been established beyond any doubt and there should not have been any question or dispute about premium p aid by the investors therefore, unless there is a limitation put by the law on the amount of premium, the transaction should not be questioned merely because the assessing authority thinks that the investor could have managed by paying a lesser amount as Share Premium as a prudent businessman. That Ld. CIT (A) failed to appreciate that the appellant has submitted the required documents to establish the identity and creditworthiness of the shareholder companies/person and" genuineness of the transactions including the documents which even shows the source of the source of the shareholder companies/persons and in absence of any inquiry, the share application money recorded in the books of account and the evidences produced by the appellant company cannot be rejected by the Ld. AO. Hence the conclusion drawn by the Ld. AO merely on the basis of presumptions, surmises and conjecture are totally unjustified. That Ld. CIT (A) has evaded that position of law that the test of prudence by substituting its own view in place of the businessman's has been disapproved by the Supreme Court in the decisions of CIT V/s. Walchand & Co. Pr. Ltd. [(1967) 65ITR 381] and J.K. Woollen Manufacturers V/s. CIT [(1969) 72 ITR 612]. That the Ld. CIT (A) has failed to appreciate the dictum of Hon'ble Allahabad High court in the matter of CIT v. S. Kamaljeet Singh [2005] Page 5 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. 147 Taxman 18(AIL) their lordships, on the issue of discharge of assessee's onus in relation to a cash credit appearing in his books of account. That Ld. CIT (A) has further failed to understand that when a question as to the creditworthiness of a creditor is to be adjudicated and if the creditor is an Income Tax assessee, it is now well settled by the decision of the Calcutta High Court that the creditworthiness of the creditor cannot be disputed by the AO of the assessee but the AO of the creditor. In this regards our attention was drawn to the decision of the Hon'ble High Court, Calcutta in the Commissioner of Income Tax, Kolkata v. Dataware Private Limited IT AT No. 263 of 2011, 21st September, 2011. That Hon'ble Supreme Court while dismissing SLP in the ease of Lovely Exports as has been reported as judgment delivered by the CTR at 216 CTR 295. That Ld. CIT (A) has further failed to understand that the decision of the Hon'ble High Court, Calcutta in the case of Commissioner of Income Tax Vs M/s. Leonard Commercial (P) Ltd on 13 June, 2011 in ITAT NO 114 of 2011. That Ld. CIT(A) has failed to appreciate that details which emerges from the paper book filed before the lower authorities, it is vivid that all the share applicants are (i) income tax assesses. (ii)they are filing regularly their return of income, (iii) the share application form and allotment letter is available on record, (iv) the share application money was made by account payee cheques, (v) the details of the bank accounts belonging to the share applicants and their bank statements, (vi) in none of the transactions the AO found deposit in cash before issuing cheques to the assessee company, (vii) the applicants are having substantial creditworthiness which is represented by a capital and reserve as noted above. That it is pertinent to mention herein that as noted from the judicial precedents cited above, where any sum is found credited in the books of an assessee then there is a duty casted upon the assessee to explain the nature and source of credit found in his books. In the instant case, the credit is in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital is seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of source of credit, the Appellant assessee has to prove the three I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. That further for proving the identity of share applicants, the assessee furnished the name, address, PAN of share applicants together with the copies of balance sheets and Income Tax Returns. With regard to the creditworthiness of share applicants, as we noted supra, these Companies are having capital in several crores of rupees and the investment made in the appellant company is only a small part of their capital. These transactions are also duly reflected in the balance sheets of the share applicants, so creditworthiness is proved. Even if there was any doubt if any regarding the creditworthiness of the share applicants was still subsisting, then AO should have made enquiries from the AO of the share subscribers as held by Hon'ble jurisdictional High Court in CIT vs Dataware (supra) which has not been done, so no adverse view could have been drawn. Third ingredient is genuineness of the transactions, for which it may be noted that the monies have been directly paid to the assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants. It will be evident from the paper book that the appellant has even demonstrated the source of money deposited into their bank accounts which in turn has been used by them to subscribe to the assessee company as share application. Hence the source of source of source is proved by the assessee in the instant case though the same is not required to be done by the assessee as per law as it stood/ applicable in this assessment year (prior to amendment brought by the Finance Act, 2012 w.e.f, 1.04.2013). That the matter is covered with the various judgments of the Hon'ble ITAT Kolkata in which the Hon'ble ITAT has deleted the addition on account of share application in similar, circumstances (relevant portion are not reproduced herewith for the sake of brevity and the same shall be provide separately with case law compilation) names of the few cases are as follows:
1. 1. CIT V/s. Walchand & Co. Pr. Ltd. [(1967) 65 ITR 381] (Supreme Court), dated 17-03-1967.
2. J.K. Woollen Manufacturers V/s. CIT [(1969) 72 ITR 612], (Supreme Court), dated 02-08-1968.
3. CIT v. S. Kamaljeet Singh [2005] 147 Taxman 18(All) (Allahabad High Court), dated 28-01-2005.
I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd.
Commissioner of Income Tax, Kolkata v. Dataware Private Limited ITATNo. 263 of 2011, (Calcutta High Court), dated 21-09-2011.
Commissioner of Income Tax Vs. Lovely Exports (P) Ltd. (Supreme Court), dated 11-01-2008.
Commissioner of Income Tax Vs M/s. Leonard Commercial (P) Ltd on in ITATNO 114 of 2011 (Hon 'hie Calcutta High Court), dated 13- 06-2011.
7. Orthy Impex Pvt. Ltd. Vs. ITO, Ward-14(3), arising out from IXA. No. 855/Kol/2023 decided on 06-11-2023.
8. Ivy Build Real Pvt Ltd. Vs. ITO, Ward-6(2), arising out from decided on 06-11-2023.
Combined Merchants Private Limited Vs. ITO, Ward-12(2), arising out from I.T.A. No. 548/Kol/2020 decided on 04-08-2022.
10. M/s. Inter Securities Pvt Ltd. v. Income Tax Officer, arising out from I.T.A. No. 609/Kol/2018 decided on 16-10-2023.
11. M/s Realty Pvt Ltd., Kolkata vs Ito, Ward - 9(1), Kolkata, arising out from IT A. No. 1243/Kol/2018 decided on 13-03-2019.
12. Devghar Suppliers Pvt Ltd. v. ITO, Ward-6(1), arising out from IT. A. No. 2098/Kol/2018 decided on 23-11-2022.”
6. On the other hand, ld. D/R vehemently argued referring to the finding of both the lower authorities and stated that the alleged share applicant companies are showing meagre income and mainly engaged in rotation of funds in order to provide accommodation entries to various beneficiaries. He further, alleged the share applicants to be Jama-Kharchi/paper/shell companies with the help of which assessee company has routed its unaccounted income. He thus, prayed that the addition u/s 68 of the Act may please be confirmed.
We have heard rival contentions and perused the records placed before us. The first issue for our consideration is regarding the addition at Rs. 6.52 Crore confirmed by ld. CIT(A) which has Page 8 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. been made by the AO alleging it to be unexplained cash credit received by the assessee in the form of share capital and share premium. The Revenue authorities have alleged that the assessee has merely furnished the documentary evidences but the assessee failed to appear before the Revenue authorities for recording their statements. The AO has also alleged that the assessee has been unable to discharge its primary onus casted under the provisions of Section 68 of the Act to explain the nature and source, in other words, unable to prove the identity and creditworthiness of the share applicants and genuineness of the transaction.
8. Before us, ld. Counsel for the assessee referring to the paperbook and details has submitted that all the share applicant companies are duly registered with the Ministry of Corporate Affairs and are assessed to income tax. All the share applicants are filing income tax returns and books of accounts are duly audited. It is also claimed that all the alleged share applicants have sufficient net worth to explain the source of investment made by them in the equity of the assessee company. Before us, various details of share applicants have been filed and they have been tabulated in a chart form reproduced below:
S.No. Name of the Party and Amount Net Worth as Copy of documents of concerned PAN invested per audited share applicants submitted to (appearing balance sheet of establish identity, Creditworthiness and in Audited the Genuineness financial concerned of the transaction statement share investment applicant schedule of concern share applicant) 1. Abhimanyu Viiicom 68 Lacs 7,01,01,031/- Copy of Auditor's Report (68) Private Limited (Page no. 72 Audited Balance Sheet (72), Bank AAICA7299J of the paper book) statement. (80), Incorporation certificate (82), Income Tax Return Acknowledgement (83), Master data as appearing on MCA (84), details of Page 9 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. directors as appearing • on MCA (85), Memorandum and Articles of Association (86), Copy of PAN Card (104) copy of share application form (105), Copy of confirmation of Investment (106) 2. Akshay Vintrade Private 26 Lacs 13,51,01,123/- Copy of Audited Balance Sheet (109), Limited (Page no. 109 of the Bank statement (117), Incorporation AAICA7109F paper book) certificate (119), Income Tax Return Acknowledgement (120), Master data as appearing on MCA (121), details of directors as appearing on MCA (122), Memorandum and Articles of Association (123), Copy of PAN Card (141) copy of share application form (142), Copy of confirmation of Investment (143) 3. Artjani Tradelinks Private 2.50 Lacs 20,23,00,682/- Copy of Auditor's Report (144), Audited Limited (Page no. 148 of the Balance Sheet (148), Bank statement AAJCAD590K paper book) (156), Incorporation certificate (157), Income Tax Return Acknowledgement (158), Master' data as appearing on MCA (159), details of directors as appearing on MCA (160), Memorandum and Articles of Association (161), Copy of PAN Card (179) copy of share application (180), Copy of confirmation of Investment (181) 4. Aqua Viiicom Private 25 Lacs 11,13,01,196/- Copy of Auditor's Report (182), Audited Limited. (Page no. 186 of the Balance Sheet (186), Bank statement AAJCA0593L paper book) (194), Incorporation certificate (195), Income Tax Return Acknowledgement (196), Master data as appearing on MCA (197), details of directors as appearing on MCA (198), Memorandum and Articles of Association (199), Copy of PAN Card (217) copy of share application (218), Copy of confirmation of Investment (219) 5. Aryawart Viacom Private 111 Lacs 11,71,50,828/- Copy of Auditor's Report (220), Audited Limited. (Page no. 224 of the Balance Sheet (224), Bank statement AAICA6743K paper book) (233), Incorporation certificate (234), Income Tax Return Acknowledgement (235), Master data as appearing on MCA (236), details of directors as appearing on MCA (237), Memorandum and Articles of Association (238), Copy of PAN Card (256) copy of share applications (258- 261), Copy of confirmation of Investment (262-265) 6. Arrow Space Construction 25 Lacs 9,58,00,213 Copy of Auditor's Report (269), Audited Consultants Private (Page no. 273 of the Balance Sheet (273), Bank statement Limited. paper book) (279), Incorporation certificate (280), AAKCA2263L Income Tax Return Acknowledgement (281), Master data as appearing on MCA (282), details of directors as appearing on MCA (283), Memorandum and Articles of Association (284), Copy of PAN Card (301) copy of share application (302), Copy of confirmation of Investment (303) 7. M/s. Champion Advisory 20 Lacs 25,48,50,316 Copy of Auditor's Report (304), Audited Private Limited. (Page no. 308 of the Balance Sheet (308), Bank statement AAECC6553B paper book) (316), Incorporation certificate (318), Page 10 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. Income Tax Return (319), Master data as appearing on MCA (320), details of directors as appearing on MCA (321), Memorandum and Articles of Association (322), Copy of PAN Card (339) copy of share application (340), Copy of confirmation of Investment (341) 8. Honey Bee Dealcom 30 Lacs 25,85,50,823/- Copy of Auditor's Report (342), Audited Private Limited. (Page no. 346 of the Balance Sheet (346), Bank statement AACCH4079.B paper book) (354), Incorporation certificate (355), Income Tax Return Acknowledgement (356), Master data as appearing on MCA (357), details of directors as appearing on MCA (358), Memorandum and Articles of Association (359), Copy of PAN Card (3 78) copy of share application (379), Copy of' confirmation of Investment (380) 9. M/s. Legendary Nirman 20 Lacs 20,04,91,509/- Copy of Auditor's Report (3 81), Audited Private Limited, (Page no. 385 of the Balance Sheet (385), Bank statement AACCL117411 paper book) (395), Incorporation certificate (396), Income Tax Return Acknowledgement (397), Master data as appearing on MCA (398), details of directors as appearing on MCA (398), Memorandum and Articles of Association (399), Copy of PAN Card (421) copy of share application (422), Copy of confirmation of Investment (423) 10. M/s. Luminous Infia 5 Lacs 25,36,64,789/- Copy of Auditor's Report (424), Audited Properties Private Limited (Page no. 428 of the Balance Sheet (428), Bank statement, AACCL1422A paper book) (439), Incorporation certificate (440), Income Tax Return Acknowledgement (441), Master data as appearing on MCA (442), details of directors as appearing on MCA (442),- Memotandum and Articles of Association (443),. Copy of PAN Card (465) copy of share application (466), Copy of confirmation of Investments (467) 11. Manyata Suppliers Private 35 Lacs 10,15,00,561/- Copy of Auditor's Report (468), Audited Limited (Page no. 472 of the Balance Sheet (472), Bank statement AAGCM9937P paper book) (481), Incorporation certificate (482), Income Tax Return. Acknowledgement (483), Master data as appearing on MCA (484), details of directors as appearing on MCA (485), Memorandum and Articles of Association (486), Copy of PAN Card (505) copy of share application (506), Copy of confirmation of Investment (507) 12. M/s. Nupur Dealmaik 25 Lacs 14,90,50,429/- dopy of Auditor's Report (508), Audited Private limited (Page no. 512 of the Balance Sheet (512), Bank statement AADCN8443Q paper book) (520), Incorporation certificate (521), Income Tax Return Acknowledgement (524), Master data as appearing on MCA (525), details of directors as appearing on MCA (526), Memorandum and Articles of Association (527), Copy of PAN Card (543) copy of share application (544); Copy of confirmation of Investment (545)
I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd.
13. Satellite Infraprojects 10 Lacs 20,11,70,241/- Copy of Auditor's Report (546), Audited Private Limited (Page no. 550 of the Balance Sheet (550), Bank statement AAPCS2265R paper book) (562), Incorporation certificate (563), Income Tax Return Acknowledgement (565), Master data as appearing on MCA. (567), details of directors as appearing on MCA (568), Memorandum and Articles of Association (570), Copy of PAN Card (591) copy of share application (592), Copy of confirmation of Investment (556) 14. M/s. Utkarsh Infraprqject 25 Lacs 25,13,26,715/- Copy of Auditor's Report (595), Audited Private Limited (Page no. 599 of the Balance Sheet (599), Bank statement AABCU3012E paper book) (610), Incorporation certificate (611), Income Tax Return Acknowledgement (613), Master data as appearing on MCA (614). details of directors as appearing on MCA:(614), Memorandum and Articles of Association (615), Copy of PAN Card (636) copy of share application (637), Copy of confirmation of Investment (638) 15. Venky Agencies Pvt Ltd 70 Lacs 12,97,51,067/- Copy of Auditor's Report (639), Audited AADCV4942J - (Page no. 463 of the Balance Sheet (646), Bank statement paper book) (653), Incorporation certificate (656), Income Tax Return Acknowledgement (658), Master data as appearing on MCA (659), details of directors as appearing on MCA (660), Memorandum and Articles of Association (661), Copy of PAN Card (678) copy of share application (679-681), Copy of confirmation of Investment (682- 684) 16. Winsome Sales Pvt Ltd 154.50 Lacs 14,18,43,444/- Copy of Auditor's Report (685), Audited AAACW9316N (Page no. 689 of the Balance Sheet (689),, Bank statement paper book) (696), Incorporation certificate (699), Income Tax Return Acknowledgement (701), Master data as appearing on MCA (702), details of directors as appearing on MCA (703), Memorandum and Articles of Association (704), Copy of PAN Card (721) copy of share application (722-725), Copy of confirmation of Investment (728- 731) 9. From going through the above details, we notice that whatever best evidence which one can gather to discharge the onus casted u/s 68 of the Act i.e. to explain the nature and source of the sum found credited in the books has been done so by the assessee. The assessee has offered complete explanation to prove the identity and creditworthiness of the share applicants and genuineness of the transaction which have been routed through banking channel. Once the assessee has discharged its onus then Page 12 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. it’s the turn of the Revenue authorities to examine those details and also consider the explanation offered by the assessee and then to form an opinion about being satisfied with such evidence or not and so as to form an opinion, a proper satisfaction has to be recorded by the AO/CIT(A). This is the mandate of Section 68 of the Act which has two limbs; firstly, the explanation to be offered by the assessee to explain the nature and source and second limb is the opinion of the AO to satisfy the veracity of such explanation offered by the assessee. In the instant case, except for personally not appearing before the AO in few cases against the summons issued u/s 131 of the Act, all the other details and evidences have been filed. These details clearly shows that the investing companies i.e. alleged share applicants are duly registered with the Ministry of Corporate Affairs. Books of accounts and financial statements are duly audited. They are regularly filing the returns with the Income Tax Department as well as on the portal of Ministry of Corporate Affairs. All the transactions have been carried out through banking channel. Source of fund is well explained by the net worth of the share applicant companies. For instance, one of the share applicants namely Aqua Vincom Private Limited which has invested Rs. 25 Lakh in the equity shares of the assessee company has a net worth of approx 11.13 Crore as on the close of the financial year. Another share applicant namely M/s. Champion Advisory Private Limited which has invested Rs. 20 Lakh has a net worth of Rs. 25.48 Crore. Same is the situation for the remaining share applicants. It has been consistently held by the Hon'ble Court including that of Hon'ble Jurisdictional High Court in plethora of judgments that once an assessee discharges I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. its onus to explain the nature and source of the credit entry found in its books of accounts and places evidences on record then the onus shifts on to the Revenue authorities and they have to specifically pin point the errors, defects and inconsistency in such documents and details and if needed they need to conduct further enquiries using departmental machinery and then once they have an evidence against the assessee then the assessee needs to be confronted. But in the case before us, Revenue authorities have failed to discharge their burden of proof and have given general comments about meagre income and rotation of funds.
Though the assessee has referred to a plethora of judgments, we take note of the recent decision of this Tribunal in the case of M/s. Inter Securities Pvt. Ltd. vs. ITO in order dated 16.10.2023 wherein this Tribunal under the similar set of facts and circumstances and placing reliance on various judgments including that of the Hon'ble Supreme Court in the case of CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC), Hon'ble Bombay High Court in the case of CIT vs. Gagandeep Infrastructure (P) Ltd. 80 taxmann.com 272 (Bombay), Hon'ble Madhya Pradesh High Court in the case of PCIT vs. Chain House International (P) Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh) and the recent judgment of Hon'ble Jurisdictional High Court in the case of PCIT vs. Sreeleathers [2022] 448 ITR 332 (Calcutta) has decided in favour of the assessee deleting the addition u/s 68 of the Act observing as follows: “6. We have heard rival contentions and perused the material placed on record.
I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd.
7. Addition u/s 68 of the Act at Rs. 3.59 Crores is in dispute before us wherein both the lower authorities have held that the assessee had been unable to explain the nature and source of this share application money which included share capital and share premium totaling to Rs.3.59 Crores, on account of issue of share of face value of Rs.10/- and premium of Rs.90/- received from 14 share subscribers. We notice that the assessee has furnished following documents/information/evidence of all the alleged share subscribers:-
I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd.
All the above details stood furnished before both the lower authorities. As far as assessee is concerned, in terms of provisions of Section 68 of the Act, it has discharged the primary onus by furnishing all the documents and details relevant/necessary to explain the identity, creditworthiness of share applicants and genuineness of the transactions. Once these documents have been filed then, the burden shifts over the revenue authorities and they have to examine those details and find out any discrepancy in such documents and then confront the assessee. Perusal of the impugned order as well as the assessment order reveals that no such discrepancies have been noticed by the assessing authorities except giving general remarks about the income and business turnover. In the paper book, the assessee had filed the confirmation letters and all the share subscribers have stated to have given the share application money and the source of such share application money in the confirmation letter which the share applicants received before making the investment in the assessee company. In other words, source of source has been explained by the assessee company. We also notice that the summons u/s 131 of the Act were issued to the Directors of the assessee company who have appeared before the Assessing Officer and submitted all the documents to establish the identity and I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. creditworthiness of the shareholders and genuineness of the transactions. 8.1. So far as the share premium of Rs.90/- charged by the assessee is concerned, we notice that as on 31/03/2011, the total of share capital & reserve surplus held by the assessee is Rs. 1,00,88,262/-. For computing the book value as on 31/03/2011, we need to divide total of share capital and reserve and surplus with 110000 equity shares issued upto 31/03/2011. Thus the book value as on 31/03/2011 would come to Rs.91.65 (Rs.1,00,81,262/- (÷) Rs.1,10,000/-). The share application money received during financial year 2011-12 is Rs.100/-, which comprises of share premium of Rs.90/- charged on equity shares of face value of Rs.10/- . Considering the book value, per share as on 31/03/2011 at Rs.91.65, we find that the assessee has not charged any exorbitant share premium from the share applicants and the share premium charged is not highly excessive in comparison to the book value. Therefore, on one hand, the share applicants have sufficient funds to explain the investment, so as to prove the identity and creditworthiness and on the other hand, the genuineness of the transaction is also proved as a fair investment has been made in the assessee company. Therefore, since the criteria to prove all the three ingredients i.e., the identity and creditworthiness of the share applicants and genuineness of the transactions have been fulfilled by the assessee so as to prove the nature and source of alleged sum, no addition is called for u/s 68 of the Act.
9. We find support from the various decisions as referred by the ld. Counsel for the assessee in the list of case-law (supra). We, find that this Tribunal in the case of DCIT, vs. Narsingh Ispat Limited; order dt. 26/07/2023, under identical facts and issue held as under:- “7. We have heard rival contentions and perused the material available on record. The revenue is aggrieved with the deletion of addition of Rs.19,14,50,000/- made by the assessing officer u/s 68 of the Act. We notice that the assessing officer when called for the details from the respective share applicants, namely, M/s. Honesty Dealers Pvt. Ltd. and M/s Seaview Agencies Pvt. Ltd., for the sum of Rs.10,52,00,000/- and Rs.8,62,50,000/-, received against the issue of equity capital during the year, both the share applicants of replied to the notice under section 133(6) of the Act and have filed complete details including bank statements, income tax returns, audited balance sheets, confirmation of accounts etc.. It was also submitted Page 20 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. that the alleged share applicants are part of the assessee’s group. However, when the summons under section 131 of the Act were not complied by the directors of the assessee company, the impugned additions were made under section 68 of the Act. Thereafter when the assessee preferred appeal before the ld. CIT(A), filing complete details and also stating that the source of source of the alleged sum is duly proved with the fact that both the alleged share applicants have received equity share capital and share premium in the preceding years and those years have been assessed to tax and even addition has been made in the hands of M/s. Honesty Dealers Pvt. Ltd., towards unexplained share capital at Rs.14,80,00,000/- in AY 2009- 10. Based on these submissions, the ld. CIT(A), deleted the impugned addition by observing as follows:- “3.1 I have carefully considered the facts of the case and submission of the appellant. I have also gone through the copies of the documents (order sheet etc.) submitted by the appellant. Perusal of the certified copy of the order sheet shows that the authorised representative of the assessee has attended before the AO on 25.07.2014, 05.12.2014, 06.02.2015, 17.02.2015, 25.02.2015 and 03.03.2015. Thus, AO's observation that appellant has not fully cooperated in the assessment proceedings is not correct. Further, appellant has also submitted the certified copy of the details submitted by M/s. Honesty Dealers Pvt. Ltd. and M/s. Seaview Agencies Pvt. Ltd. in the office of the Ld. Assessing Officer. Thus, it is apparent that the appellant and the said two shareholders had filed all the details during the assessment proceedings. AO's allegation that the said shareholders did not attend personally may be a matter of debate. Appellant submits that the Directors of the two investing companies had attended during assessment proceedings and as per AO's directions, details were filed in DAK. In any case, AO has not raised issue relating to non attendance of the Directors in the note sheet. Another crucial observation of the Assessing Officer that share capital has been received from outsiders is contrary to the facts. M/s. Honesty Dealers Pvt. Ltd., and M/s. Seaview Agencies Pvt. Ltd. are Group companies and the sister concerns of the assessee company. While questioning the motive of investments made by the said two companies, AO has observed that investment made by them were not justified on the basis of the performance of the assessee company. However, AO has overlooked the fact that assessee company had a genuine running business of manufacturing and trading of iron and steel and for the current year it had filed return showing total income of Rs. 1,74,09,340/-. Thus, the assessee company appears to have good Page 21 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. performance record. In any case, investment decisions within the group concerns are not purely guided by the performance of the investee company. Rather, these are based on holistic and strategic view for the betterment of all the group concerns. Now coming to the identity and creditworthiness of the two shareholders, it is observed that their identities are not in doubt. These two concerns are companies having common Directors with the assessee company and they have been regularly filing their returns of income. Appellant has submitted assessment order for M/s. Honesty Dealers Pvt. Ltd. for assessment year 2009-10. Similarly, appellant has also submitted the assessment orders in the case of M/s. Seaview Agencies Pvt. Ltd. for AY: 2011-12 and 2012-13. This shows that both these companies have their separate existence and these have been verified independently by their respective AOS Regarding creditworthiness of the two parties, it is notice that M/s. Honesty Dealers Pvt. Ltd. had received share capital of Rs. 1,4,80,00,000/- in AY: 2009-10 and in scrutiny order u/s 144/263/143(3)/147 dated 12.03.2015, entire receipt of share capital has been added in the hands of M/s. Honesty Dealers Pvt Ltd. Further, perusal of the Balance-sheet of M/s. Honesty Dealers Pvt. Ltd. as on 31.03.2012 shows that major chunk of the share capital received in AY: 2009-10 has been invested in the shares of the assessee company in AY: 2012-13. Thus, the investments in the shares of assessee company, amounting to Rs.10,52,00,000/- has been out of the share capital raised in AY: 2009-10 and in AY: 2009-10, entire share capital raised by M/s. Honesty Dealers Pvt. Ltd. has been added in the hands of the party. Thus, the creditworthiness of M/s. Honesty Dealers Pvt. Ltd. vis- à- vis the investments in the shares of the assessee company gets established. There is a clear link between raising of share capital in AY: 2009-10 by M/s. Honesty Dealers Pvt. Ltd. and investing a major part of that share capital into the shares of assessee company in AY: 2012-13. As addition has already been made in the hands of M/s. Honesty Dealers Pvt. Ltd. for the amount received as share capital, another addition for the same amount cannot be sustained in the hands of the assessee company when the linkages between the two are apparent from records. Now coming to the M/s. Seaview Agencies Pvt. Ltd., it is noticed that this company had also raised huge share capital in AY: 2009-10 and the source of investments in the shares of the assessee company in the current year is the share capital raised by M/s. Seaview Agencies Pvt. Ltd. in AY: 2009-10. Although, there was no scrutiny in its case for AY: Page 22 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. 2009-10 but in the subsequent years, i.e., AY: 2011-12 and AY: 2012- 13, assessment proceedings were reopened on the basis of information received from the Investigation Wing and orders w/s. 147 read with section 143(3) have been passed on 21.12.2018 and 11.12.2018 respectively for assessment year 2011-12 and assessment year 2012-13. In the assessment year 2011-12 information was received from the Investigation Wing regarding unaccounted income of Rs. 3,00,000/- received by M/s. Seaview Agencies Pvt. Ltd. and accordingly addition of this amount was made by treating the same as unexplained cash credit u/s 68 of the Act. Similarly, for assessment year 2012-13, there was information from Investigation Wing regarding unaccounted income of Rs 20,00,000/- and accordingly this amount was added to the total income. Perusal of the assessment orders for these two years shows that AO has not made any adverse comments on the entries in the Balance-sheet. It also appears that even the Investigation Wing has not found any adverse evidence against share capital raised by M/s. Seaview Agencies Pvt. Ltd. in assessment year 2009-10. Otherwise, it would have informed the AO for necessary remedial measures, as has been done in assessment year 2011-12 and assessment year 2012-13. Thus, the Balance-sheet of M/s. Seaview Agencies Pvt Ltd. cannot be questioned without any adverse evidence. There is nothing on record to suggest that the share capital raised by M/s. Seaview Agencies Pvt. Ltd. in assessment year 2009- 10 was not genuine. Under the circumstances, investments made in the shares of the assessee company in assessment year 2012-13 (current year) cannot be questioned, as the creditworthiness of M/s. Seaview Agencies Pvt. Ltd. has been established. All the investments in the share capital of the assessee company have come through banking channels. The identities and creditworthiness of the investors are not in any doubt and the transactions are genuine. Thus, all the three ingredients of section 68, they are identity, creditworthiness and genuineness of transactions, gets established. Under the circumstances, there is no case for any addition u/s.68 of the Act. Hence, in view of the above discussion, AO is directed to delete the addition of Rs.19,14,50,000/-.”
8. On going through the above findings as well as the available records so far as the alleged sum of Rs.10,52,00,000/- received from Honesty Dealers Pvt. Ltd., is concerned, we find that the sum of Rs.14,80,00,000/- was raised by Honesty Dealers Pvt. Ltd., during the financial year 2008-09 towards share capital and share premium. Thereafter, Honesty Dealers Pvt. Ltd., was subjected to scrutiny Page 23 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. proceedings and vide order dt. 12/03/2015, passed under section 144/263/143 (3)/147 of the Act, the said sum of Rs.14,80,00,000/- was added. Since the alleged sum has been added in the case of Honesty Dealers Pvt. Ltd., and the sum received by it was invested in the form of loans and advances and investments, during the year under consideration some of the funds have been received backed by Honesty Dealers Pvt. Ltd., and has been utilised for investing in the equity share capital of the assessee company. These details have gone uncontroverted at the end of the revenue authorities and it remains an admitted fact that the source of the source stands proved with the details filed before us and, therefore, making an addition again in the hands of the assessee would tantamount to double addition and, therefore, the addition in the year under consideration is not warranted and the ld. CIT(A) has rightly deleted the same.
9. We find support from the decisions of the ITAT, Kolkata in the case of M/s Happy Structure Pvt Ltd (ITA 1977/Kol/2016) wherein on similar facts it was held that:- "Applying the proposition of law laid down in the above referred cases to the facts of this case and keeping in view the fact for the share applicant company have been assessed to tax u/s 143 (3) of the Act and the source of money in question was brought to tax in their hands, we uphold the order of the ld. CIT(A) that no additions can be made in the case of the assessee company"
10. The ld. CIT(A) duly perused the submissions of the assessee and noted that source of share application money received by the assessee from M/s Honesty Dealers Pvt Ltd has already been added in the hands of the share applicant. Hence, in view of the settled legal position, as the source has already been added, we uphold the action of the ld. CIT(A) in deleting the addition.
11. So far as the remaining addition towards alleged share capital of Rs.8.62 cr received from M/s Seaview Agencies Pvt Ltd, is concerned, we find that this company also raised equity share capital during the financial year2008-09 and it has been assessed to tax u/s 143(3)/147 of the Act for AYs 2011-12, 2012-13 and 2014-15. Even for AY 2012-13, though the case of M/s Seaview Agencies Pvt Ltd., was selected for the limited scrutiny for examining the unaccounted income of Rs.20,00,000/-and for this purpose all the details of M/s Seaview Agencies Pvt Ltd. including audited balance sheet and details of share capital were filed before the AO but except for the addition of Rs.20,00,000/- which was found to be income escaped I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. from assessment, no other addition was made in the assessment order dated 11/12/2018. This proves that the source of funds utilised for making the alleged investment in equity capital of the assessee company was available with M/s Seaview Agencies Pvt Ltd., from AY 2009-10 onwards and that fund has been rotated but it was always available for investment and during the year under consideration part of that fund has been utilised for making investment in the equity capital. 11.1. At this juncture we also notice that the assessee company is having a huge turnover and for financial year 2012-13, the same is amounting to Rs.145.38 Crores and net profit from continuing operations is Rs.1.45 Crores (approx.). In the return of income, total income has been declared at Rs.1.74 Crores. We find that the genuineness of the transactions is proved since the investment which has been made by the alleged share applicants is in a profit making company and, therefore, since the future prospect of investments are good, this decision of the share applicant company to invest in the equity of the assessee company is prudent one and, therefore, the genuineness of the transactions is established. 11.2. So far as the identity and creditworthiness of both the share applicant companies are concerned, as discussed in the preceding paragraphs, it has been established again and again that identity and creditworthiness of both the share applicant companies have been established beyond doubt.
Our view is fortified by the decision of this Bench of the Tribunal in the case of ITO vs. Dharmvir Merchandise (P.) Ltd. reported in [2023] 149 taxamann.com 221 (Kolkata- Trib.), wherein dealing with the similar issue, this Tribunal considering the facts of the case and judicial precedents deleted the addition u/s 68 of the Act on similar grounds observing as follows:- “9. We have heard rival contentions and perused the records placed before us. Addition u/s 68 of the Act for unexplained share capital and share premium of Rs. 1.40 Cr is in challenge before us. We notice that the assessee company issued fresh share capital during the year of face value of Rs. 10/- and premium of Rs. 240/- per share and received 1.40 Cr from following three companies: Sr No. Name of the Share Applicant Amount Received 1 Everlike Projects Pvt Ltd 50,00,000/- 2 Mahashakti Vintrade Pvt Ltd 50,00,000/- 3 Satyam Plywood Merchandise Pvt Ltd 40,00,000/- I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. TOTAL 1,40,00,000/- 10. After the case being selected for scrutiny, ld. AO asked the assessee to explain the source of above referred sum of share capital and share application money. In response, the assessee submitted the following documents: i. Party Wise details of share capital raised during the year, ii. Form 2, Form 5 filed with ROC, iii. Memorandum and Article of Association, iv. Bank Statement for the year, v. Share Application Form, vi. Form 18 in support of registered office address of the company, vii. Audited accounts for the year, viii. Relevant Bank Statement for the year, ix. Form 18 in support of registered office address of these companies.
Thereafter, summons were issued to the Directors of the share subscriber companies as well as the Directors of the assessee company which were duly served upon the respective persons and the details as called for were filed which included the following: i. Photo Identity and Address Proof, ii. Narration of all debit and credit entries in relevant Bank statements, iii. Copies of all relevant ROC returns, iv. Sources of funds and utilisation of funds, v. Evidence of creditworthiness along with Income Tax Returns filed and vi. Copies of Audited Accounts and Tax Audit Report for the relevant AY.
12. We further, notice that ld. AO has not pointed out any defect and not questioned the correctness of any of the documents filed by the assessee company, share subscriber companies as well as the Page 26 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. Directors. The only ground for making the addition is that the Directors of the assessee company as well as the investor companies have not appeared personally before ld. AO in compliance to the summons issued u/s 131 of the Act and applying the decision of this Tribunal in the case of Bisakha Sales Pvt. Ltd. (supra).
So far as reliance placed by ld. AO on the decision of this Tribunal in the case of Bisakha Sales Pvt. Ltd. (supra) is concerned, we fail to find any merit as the facts of Bisakha Sales Pvt. Ltd. (supra) are distinguishable from the facts of the present case. Firstly for the reason that the case of Bisakha Sales Pvt. Ltd. (supra) was in connection of the revisionary order passed by ld. CIT(A) u/s 263 of the Act where it was alleged that ld. AO has not made proper enquiries with regard to the transaction of share application money received by the company, which however, is not the fact of the instant case where the issue relates to assessment proceedings carried out u/s 143(3) of the Act and complete and detailed enquiry has been conducted by ld. AO. In the assessment order, ld. AO has not brought any adverse material which could have remotely suggested that the unaccounted income of the assessee was brought in disguise of the share capital. Therefore, the decision of Bisakha Sales Pvt. Ltd. (supra) is not applicable on the present case.
14. So far as merits of the case are concerned, we find that the assessee has successfully discharged its onus by filing complete details of the share subscriber companies including their bank statement, audited financial statements, Form no. 18 in support of registered office address, source and utilization of funds, copies of ITRs, copies of all relevant company returns. Even the photo identity, address proof of the Directors of the assessee company and the subscriber companies have been filed directly by these Directors to ld. AO. On the basis of these facts undoubtedly the assessee has successfully discharged the onus which lay upon it by producing all the evidences for proving the identity and creditworthiness of the investors and the genuineness of the transaction. Merely non- appearance of the Directors cannot be a basis for treating the share application money as unexplained or non-genuine. We find support from the judgment of Hon'ble Gujarat High Court in the case of Rohini Builders (supra) relying on the judgment of Hon'ble Apex Court in the case of Orissa Corporation Pvt. Ltd. (supra) (relevant extract: “Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those Page 27 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation (1986) 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non- compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. in the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would ^have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.”
15. Our view is supported by Tradelink Carrying (P.) Ltd. vs ITO pronounced on 20.12.2019 reported in [2020] 113 taxmann.com 520 (Kolkata-Trib.), wherein the Hon’ble jurisdictional ITAT held that: “34. 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 allow the appeal of the assessee.
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 acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. Page 28 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. 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 delete the addition of Rs 5,60,000/- and consequently the appeal of assessee is allowed.
In the result, the appeal of the assessee is allowed.”
Similar view also taken in the case of Satyam Smertex (P.) Ltd vs DCIT reported in [2020] 117 taxmann.com (Kolkata - Trib.) pronounced on 29-05-2020 where the Hon’ble jurisdictional ITAT held that: “30. 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, it 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 acknowledgments were placed on AO's record, including that of the directors and share holders of share subscribing entities as discussed supra. 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 and confirmed by Ld. CIT(A) are based on conjectures and surmises, so their impugned action 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 do allow the appeal of assessee and direct deletion of addition of Rs 16 cr under section 68 of the Act.”
From the above decision, we note that it has been held again and again by the jurisdictional ITAT, Kolkata that in a case, where the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, the onus shifts on ld. AO to disprove the documents furnished by assessee so as to draw adverse view and in the absence of any investigation, much less gathering of evidence by ld. AO, additions cannot be I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. sustained merely based on inferences drawn by circumstance or made on surmises and conjectures.
Therefore, after going through the various details and documents placed before us, we find that assessee has successfully discharged primary onus casted upon it to explain the source of alleged share capital and share premium. Ld. AO did not find any fault or any shortcoming in the compliances made by the appellant company. It is also an evident fact that the only basis for making the alleged addition by ld. AO was non-appearance of the Directors of the share allotted company but as claimed by ld. Counsel for the assessee, the time allowed for compliance was too short and the assessee filed all the confirmations in respect of such share subscribers which were not doubted by ld. AO. Facts are brought to our notice out of the eight shareholders five have been assessed for the same assessment year u/s 143(3) of the Act and complete details of their financials and bank transactions have been examined by ld. AO in the scrutiny proceedings. This is also an admitted fact that each of the shareholders were duly served notice u/s 133(6) of the Act which is sufficient to prove the identity of such shareholders. As far as the genuineness of the transaction is concerned, the same have taken place through banking channel which is traceable from the origin to the destination of such payments and further confirmed from the documents furnished before us. All these transactions are duly recorded in the respective balance sheets of the shareholder companies. Creditworthiness of the transaction is also proved from the fact that all the shareholder companies were having more than sufficient share capital and reserve and surplus fund for giving share application money. Even otherwise ld. AO has not made the addition for charging of higher share premium and has made the addition of unexplained cash credit but still charging of share premium is a commercial decision and the same can be challenged only with sufficient documentary evidence. It thus brings to a conclusion that since the assessee filed complete details of identity and creditworthiness of the share subscribers and genuineness of the transaction before ld. AO, the onus shifted to ld. AO to disprove the material placed before him and without doing so the additions made by ld. AO are based on conjectures and surmises and the impugned additions cannot be justified and therefore, the impugned action of ld. AO cannot be held to be justified.
Our view is further supported by following judicial pronouncements:
I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. “i) CIT vs. Gagandeep Infrastructure (P) Ltd. 80 taxmann.com 272 (Bombay) wherein it was held by High Court 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 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. ii) PCIT vs. Chain House International (P) Ltd. 98 taxmann.com 47 wherein Madhya Pradesh High Court held that “The question raised by the revenue in regard to issuing the share at a premium is purely a question of fact. It is a 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 to shares at such a premium or not and moreover the section 68 does not envisages any law on share premium it only requirement is to identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants which same has been discharged by the respondent authority and the HIGH COURT OF M.P. BENCH AT INDORE Pg. No.--58-- (ITA No.112/2018 & Other connected matters) same has been accepted by the appellate authorities thus, the same cannot be reconsidered in these appeals as it is a pure question of fact.” SLP preferred by revenue was dismissed by Hon’ble Supreme Court and the same is reported in 103 taxmann.com 435(SC). iii) CIT vs. Kamdhenu Steel & Alloys Limited [ITA No.972 of 2009] dated 23.12.2011 wherein the Delhi High Court in a batch of 11 appeals was required to adjudicate on the very issue of addition made by the A.O u/s 68 in respect of share application monies received by the assessees as alleged unexplained cash credit. In all these cases, the Department had alleged that the share application monies were received from persons who were ‘entry operators’ and the monies received by way of share application was nothing but was routing of unaccounted money of assessee in the form of subscription Page 31 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. to share capital. However, in the assessments made the A.Os had not brought on record any material or evidence to substantiate such finding. Accordingly, on appeal the appellate authorities had deleted the additions made u/s 68 of the Act. iv) CIT vs. Orissa Corpn (P) Ltd. 159 ITR 78 where the Court held that “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 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 had 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.”
We, therefore, respectfully following the judgments referred herein above by the Hon’ble Courts and also considering the facts and circumstances of the case, are of the considered view that since the assessee has placed sufficient documents and materials on record to prove the identity and creditworthiness of the shareholders and the genuineness of the transaction of receiving share capital and share premium, invoking the provisions of Section 68 of the Act was not justified in the instant case. We, therefore, reverse the finding of the CIT(A) and delete the addition of Rs. Rs.1.40 Cr made u/s 68 of the Act and allow all the grounds raised
by the assessee.
21. In the result, the appeal filed by the assessee is allowed.”
13. Our view is further supported by the judgment of the Hon’ble Jurisdictional Calcutta High Court in the case of Principal CIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Cal) wherein Hon’ble Court held as follows: “Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that 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 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. 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. The crucial words in the provision are “the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their confirmations, the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation concerning the cash credit, the Assessing Officer should consider it objectively before he decides to accept or reject it. Where the assessee furnishes full details regarding the creditors, it is up to the Department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee’s transaction. Held, dismissing the appeal, that the allegations against the assessee were in respect of thirteen transactions. The Assessing Officer issued a show-cause notice only in respect of one of the lenders. The assessee responded to the show-cause notice and submitted the reply. The documents annexed to the reply were classified under three categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer had brushed aside these documents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burden shifted onto the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression "money laundering". Such usage was uncalled for as the allegation of money laundering is a very serious allegation and the effect of a case of money laundering Page 33 of 36 I.T.A. No.: 1158/KOL/2023 Assessment Year: 2012-13 True-Man Consultants Pvt. Ltd. under the relevant Act is markedly different. The order passed by the Assessing Officer was utterly perverse and had been rightly set aside by the Commissioner (Appeals). The Tribunal had rightly deleted the additions under section 68.”
We, therefore, respectfully following the ratio laid down in the above case laws and consistent with the view taken in the above referred decision of this Tribunal and also observing the fact that since the assessee has successfully proved the three necessary ingredients i.e., identity and creditworthiness of the share applicants and genuineness of the transactions as provided u/s 68 of the Act, are of the view that no interference is called for in the order of the ld. CIT(A) deleting the addition made by the Assessing Officer u/s 68 of the Act and the same is upheld.
In the result, appeal of the revenue is dismissed.”
10. Considering the ratio laid down by the Co-ordinate Bench of this Tribunal in the case of Narsingh Ispat Limited (supra), we are satisfied that the same is squarely applicable on the facts of the instant case as before us, assessee has filed complete documentary evidence to explain the identity and creditworthiness of the share applicants and genuineness of the share transactions. We thus set aside the findings of the ld. CIT(A) and delete the impugned addition of Rs.3,59,00,000/- made u/s 68 of the Act and allow the effective grounds of appeal
raised by the assessee.
11. In the result, appeal of the assessee is allowed.”
11. Similar view was also taken by this Tribunal in the case of (a) Orthy Impex Pvt. Ltd. Vs. ITO, in dated on 06.11.2023 and (b) Ivy Build Real Pvt. Ltd. Vs. ITO ITA No. 857/KOL/2023 dated 06.11.2023.
12. Respectfully following the above referred judgments and decisions and also considering the facts and circumstances of the case, we find that the assessee carried out a genuine transactions of receiving share capital and share premium duly authorized by its Board of Directors and also proved the identity and creditworthiness and genuineness of the transaction carried out Page 34 of 36