M/S. GOVIND STONE PRIVATE LIMITED ,HAMIRPUR vs. INCOME TAX OFFICER -5(4), BANDA

PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal, filed by assessee, being ITA No.258/Alld./2018, is directed against an appellate order dated 17.04.2018in Appeal No. CIT(A)- 1/Knp/10070/2017-18/417,passed by learned Commissioner of Income Tax (Appeals)-I, Kanpur(hereinafter called "the CIT(A)"),for assessment year(ay):2013-14, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 28th March, 2016 passed by learned Assessing Officer (hereinafter called "the AO") under Section 143(3)of the Income-tax Act,1961(hereinafter called “ the Act”) . 1

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 2. The assessee has raised following Revised Grounds of Appeal with Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, U.P. (hereinafter called “ the tribunal”), in ITA no. 258/Alld./2018 for ay; 2013-14:- 1. That in any view of the matter assessment as framed on income of Rs.2,61,36,540/- by order dated 28.03.2016 passed u/s 143(3) is bad both on the facts and in law. 2. That in any view of the matter no notice u/s 143 (2) was served on the assessee nor the assessee is aware about service of notice hence the assessment framed in absence of proper issue and service of notice u/s 143 (2) is void abinitio. 3. That in any view of the matter addition of Rs.1,10,00,700/- as made by the assessing officer u/s 56 (2) (viib) of the Act, and confirmed by CIT appeal is highly unjustified. 4. That in any view of the matter the addition of Rs.1,10,00,700/- as made by the assessing officer on account of difference in share premium amount are infact capital receipts and cannot be considered as income hence simply on presumption basis addition made is highly unjustified. simply on. 5 That in any view of matter the value of shares as determined by the assessing officer as per rule 11 UA of the I.T. rules at Rs.25.29/- per share was on the basis of self working as determined by assessing officer without mentioning the method of valuation and without giving any details/working of said value hence the value as taken is nothing but artificial value adopted by the assessing officer. 5. That in any view of the matter addition of Rs.1,51,20,000/- u/s 68 as made by the assessing officer and confirmed by CIT appeal is highly unjustified. 6. That in any view of the matter addition of Rs.1,51,20,000/- as added u/s 68 of the Act from various companies are not correct in so far as the amount was provided by the companies through banking channel, they are income tax assessee, filing return and audited accounts, amount provided by them from definite sources hence addition made simply on presumption by the assessing officer and his action as confirmed by CIT appeal is highly unjustified. 2

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 7. That in any view of the matter the assessing officer was wrong in applying both the provisions i.e. u/s 56 (2) (viib) and section 68 of the Act in respect same transaction which leads to double addition which is against the principle of natural justice. 8. That in any view of the matter the finding and observation of the assessing officer with regard to addition of Rs.1,10,00,700/- and Rs.1,51,20,000/- as per para 8 and 18 of the assessment order are incorrect and contrary to the actual facts of the case. 9. That in any view of the matter the appellant reserve his right to take any fresh ground of appeal before hearing of appeal. 3. The brief facts of the case are that the assessee is engaged in the business of suppliers and Commission Agent of Stone Grit and Bolder. The case of the assessee was selected by Revenue through CASS for framing scrutiny assessment under Section 143(2) read with Section 143(3) of the Act .Statuary notices were issued by AO to the assessee, from time to time as recorded in assessment order, which were claimed by AO to have been served. On perusal of Balance Sheet of the assessee company , the AO observed that the assessee has raised share capital amounting to Rs. 1,53,00,000/- during the impugned assessment year, which was raised at a share premium of Rs. 90/- (sic. Rs. 80) per equity share as against face value of Rs. 10/- per equity share. The AO asked assessee to furnish requisite details of share applicants and also to justify the charging of share premium taken by it especially in the light of the fact that no business activity had been carried out by assessee company during the year under consideration. The assessee company did not furnish any reply or explanation to justify the charging of share premium on the equity shares issued by it. The assessee submitted position of equity shares held as on 31st March, 2012 as well as 31st March, 2013, and from perusal of the same., the AO observed that outstanding shares as on 31st March, 2012 was 62000 equity shares , which increased to Rs. 2,32,000/- as on 31st March, 2013. The AO gave fresh opportunity to the assessee to give requisite details of the amount 3

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda received as premium on the equity shares issued and also to justify the same. The assesse in reply submitted that 1,70,000 equity shares have been issued during the year to 13 persons @ Rs. 90/- per equity share inclusive of premium of Rs. 80/- per equity share, totaling to Rs. 1,53,00,000/-. The assessee did not furnish any further details. As regards , justification on charging of share premium, the assessee submitted as under: “ISSUE OF FRESH SHARE CAPITAL During the A.Y. 2013-14 relevant to F.Y.2012-13 we have issued 170000 fresh equity shares of Rs. 10/- at a premium of Rs. 80/- per share i.e. Rs. 90/- per share , the details of which are as under: S. Name and Address Nos. of shares Mode of Date of Amount No. of Shareholders issued payment payment Received (Rs.) 1 Champion Vintrade 40000 Bank RTGS 09.06.2012 36,00,000 Private Limited 50-2, Cabin Road, Golghar Ward No. 15, Jagaddal, Kolkata-743125 2 AprajitaVanijya 28000 Bank RTGS 12.05.2012 25,20,000 Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 3 Zigzag Vanijya 28000 Bank RTGS 12.05.2012 25,20,000 Private Limited Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 4 ShradhaVintrade 28000 Bank RTGS 22.05.2012 25,20,000 Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 5 Sandal Wood 44000 Bank RTGS 21.05.2012 25,20,000 Commercial Pvt. 09.06.2012 14,40,000 4

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Ltd. Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 6 Ambika Prasad 200 Cash 20.05.2012 18,000 Tiwari S/o Ram PhalTiwari Gram Post- Kamokhar, Distt- Hamirpur 7 Santosh Kumar S/o 200 Cash 20.05.2012 18,000 Mahadev Prasad, Gram Post-Imilia, Distt. Hamirpur 8 Brajesh Kumar S/o 200 Cash 20.05.2012 18,000 Shiv Narain Gram Post- Imilia Distt- Hamirpur 9 Suresh Kumar S/o 200 Cash 20.05.2012 18,000 Diwakar, Gram Post- Kamokhar, Distt- Hamirpur 10 Smt. Priti Mishra 400 Cash 20.05.2012 18,000 D/o Suresh Kumar 20.06.2012 18,000 Mishra, 123/34, K- Block, Kidwai Nagar, Kanpur 11 Divakar S/o Ram 200 Cash 20.05.2012 18,000 Shankar, Gram Post- Kamokhar, Distt- Hamirpur 12 Anupam S/o Suresh 200 Cash 20.05.2012 18,000 Kumar, Gram post- Imilia Distt- Hamirpur 13 Smt. Pushpa D/o 400 Cash 20.05.2012 18,000 Shiv Shankar 20.06.2012 18,000 Gram Post- Imilia Distt-Hamirpur Total 170000 1,53,00,000/-

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Further copy of share application money form, copy of ITR and Balance Sheet, copy of MOA & AOA, copy of bank statement and source of payment enclosed in all shareholders, which is sufficient proof of genuineness of transaction. JUSTIFICATION OF CHARGE OF SHARE PREMIUM ON ISSUE OF SHARES ISSUE HIGHLIGHTS Issued Capital 170000 Equity shares Face Value Rs. 10/- per share Share Premium Rs. 80/- per share Total inflow of Capital Rs. 1,53,00,000/-

APPLICABILITY OF SECTION 56(2)(viib) of the Income Tax Act 1961 The Finance Act 2012 inserted clause (viib) in section 56(2) of the Income Tax Act, 1961 ("Act") with effect from April 1, 2012 to bring within the purview of taxation the premium received by a company (other than a company in which public are substantially interested" [1]), on the issue of its shares in excess of the "Fair Market Value" (FMV") of such shares. The FMV was to be the price (a) Arrived at as per the prescribed method OR (b) as may be substantiated to the assessing officer based on the value of the company at the time of issue of the shares. Also, as per the existing clause (viia) of section 56(2), if the consideration paid for the acquisition of shares (of a closely held company) is lower than the FMV of the shares, the delta is treated as income of the company or firm that acquires such shares. Rule 11U and Rule11UA of the Income-Tax Rules, 1962(‘IT Rules'), amongst other things, prescribed the Net Asset Value Method (based on Balance Sheet values) for arriving at the FMV for the purpose of this clause (viia). NET ASSET VALUE OF SHARES OF COMPANY AS ON 31.03.2012 (BASED ON AUDITED BALANCE SHEET AS ON 31.03.2012) Nos. of shares Amount(Rs.) Net worth of company As on 31.03.2012 As on 31.03.2012 Issued share capital 62000 620000 Reserve& Surplus 4761129 Total 5381129 N.A.V. per share 86.79 OR SAY 87.00 per share The AO observed from reply filed by assessee, that instead of following method of Fair Market Value of shares as prescribed under Rule 11UA of the Income Tax Rules, 1962, the assessee has worked out the value of shares based on the NAV method. The AO observed that NAV method of valuation of shares is not 6

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda prescribed under the Income Tax Rules, 1962 and has no application in the present case. The AO observed that the assessee has not furnished any explanation as to justification for charging share premium or at best an incorrect justification for charging of share premium on issue of equity shares have been furnished by the assessee company. The AO observed that Rule 11UA of 1962 Rules prescribed a definitive method to arrive at Fair Market Value of the shares based on a mathematical formula, which has also not done by the assessee. The AO came to conclusion that the Fair Market Value of the shares of the assessee company at the time of issue of equity shares was Rs. 25.29 per share, and as against this the assessee company had issued equity shares at Rs. 90 per share . The AO observed that hence the consideration received for issue of equity shares by assessee exceeds FMV of the shares by Rs. 64.71 per share. The AO referred to provision of Section 56(2)(viib) which was inserted by Finance Act, 2012 as applicable from 01.04.2013 i.e. assessment year 2013-14.Thus, keeping in view provision of Section 56(2)(viib)read with Rule 11UA of the 1962 Rules, the AO came to the conclusion that the assessee has charged excess share premium while issuing equity shares. The AO also observed from financial statements and business operations of the assessee company, that it did not have a good financial health to justify charging of such share premium for issue of equity shares. The AO thus held that in accordance with provisions of Section 56(2)(viib) of the 1961 Act, the sum of Rs. 1,10,00,700/- representing the excess of premium charged over the Fair Market Value of the equity shares is chargeable to tax which stood added by AO to the income of the assessee under the Head “Income from other Sources”. 3b. The AO issued notices under Section 136(6) to following companies who have subscribed to the share capital for the assessee company, for establishing creditworthiness of the shareholders as well as genuineness of the transaction, as under: Sr. No. Name of the Companies Address as submitted by the 7

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda assesseecompany 1 AprajitaVanijya Private Chunaraipara Colony, Post-Nawabganj, Limited Kolkata-743144 2 Sandal Wood Commercial Chunaraipara Colony, Post- Nawabganj, Pvt. Ltd. Kolkata-743144 3 Zigzag Vanijya Private Chunaraipara Colony, Post- Nawabganj, Limited Kolkata-743144 4 ShradhaVintrade Private Chunaraipara Colony, Post- Nawabganj, Limited, Kolkata-743144 5 Champion Vintrade 50-2, Cabin Road, Golghar Ward No. 15, Private Limited Jagaddal, Kolkata-743125

The AO observed that all the aforesaid notices came back undelivered with remarks ‘Not Known’ from the postal authorities. The assessee was confronted by AO with the envelops coming back from postal authorities. The AO requested assessee to produce Directors of the said investing companies .In response , the assessee submitted that these notices came back due to change of address of registered offices of these company, and the assesse furnished new addresses of the said companies as per MCA portal master data,as under: Sr. No. Name of the Companies Address as provided by the assessee company 1 Champion Vintrade Private HMP house, 4 Fairle Place, 2nd Floor, Limited Kolkata-700001 2 Aprajita Vanijya Private 7A, Bentinck Street, Kolkata-700001 Limited 3 Zigzag Vanijya Private 146/2, Old China Bazar, Kolkata-700001 Limited 4 Shradha Vintrade Private 9/12, Lal Bazar, 2nd Floor, Kolkata- Limited 700001 5 Sandal Wood Commercial Pvt. 8, Amartalla Lane, Kolkata-700001 Ltd.

The AO issued fresh notices under Section 133(6) to these companies at their new addresses , with a view to establish creditworthiness as well as genuineness of the transaction. The Notices under Section 133(6) were either served or came back unserved due to insufficient address ,asdetailed hereunder: 8

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Sr. Name of the Address as provided by Service Status of the No. Companies the assessee company companies 1 Champion Vintrade HMP house, 4 Faile Place, Notice Served Private Limited 2nd Floor, Kolkata-700001 2 AprajitaVanijya 7A, Bentinck Street, Insufficient address, Private Limited Kolkata-700001 hence returned to sender Zigzag Vanijya 146/2, Old China Bazar, No mention floor 3 Private Limited Kolkata-700001 R/No. hence R. to sender 4 ShradhaVintrade 9/12, Lal Bazar, 2nd Floor, Insufficient address, Private Limited Kolkata-700001 hence returned to sender 5 Sandal Wood 8, Amartalla Lane, Notice served Commercial Pvt. Ltd. Kolkata-700001

On 24.02.2016 ,the AO issued summons under Section 131 to Shri Dinesh Kumar Mishra, Director of the assessee, and directed him to be present for personal attendance on 3rd March, 2016, but the said Shri Dinesh Kumar Mishra did not attended on the appointed date rather his AR appeared and sought extension which was granted by AO. Again ,Mr. Dinesh Kumar Mishra did not appeared before AO on appointed dates and time was extended by AO from time to time on his request. The AO issued summons u/s 131 to Mr. Dinesh Kumar Mishra, and finally on 16th March, 2016 said Mr. Dinesh Kumar Mishra, Director of the assessee appeared before AO, and his statement on oath was recorded by AO , gist of which is as under :

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

The AO observed that the assessee has brought in share capital in the name of different companies purportedly, based at Kolkata and that too at significantly high premium which is neither justified nor in accordance with its Fair Market Value, despite the fact that the assessee has not been conducting any business activity as is evident from its Profit & Loss Account which shows total revenue from running of Gitti business at Rs. 2,75,500/-. The AO observed that notices sent to the investing companies have been returned back undelivered . The AO observed that on being confronted , the assessee came up with new addresses of 16

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda these investing companies, and out of 5 notices sent at new addresses furnished by assessee, two notices have been served while the balance three notices have been received back undelivered. The AO observed that this is despite the fact that Director of the assessee company in his sworn statement has claimed that these investing companies were aware of the assessee’s business and had met him personally at Kanpur at least on two occasions, one during 2012 and other in the year 2015. The AO observed that in spite of his close acquaintances it was surprising to note that these companies did not come to the help of the assessee company by furnishing information in respect of their alleged investment in the assessee company. The AO observed that even the Director of the assessee company could not throw any light on the whereabouts or business details of these company except for stating from the title of one of the companies namely Sandal Wood Private Limited as being engaged in the business as per title. The AO observed that the assessee company is in the practice of receiving significant amount of share capital at premium and that too from Kolkata based companies even in the past also without having any financial health which could justify the charge of premium. The AO observed that the assessee had raised share capital from one M/s. Bajrangbali Vincom Pvt. Ltd. , which held 24.19% of its share capital and which company has been struck off from the register of ROC. The AO observed that assessee company raised share capital from this company during assessment year 2010-11 at a premium of Rs. 65/- per share without having any net worth. The AO observed that similar is the case of another investor company namely M/s.Vrindavan Commodity Pvt. Ltd. which subscribed in assessee company to the tune of 40.32% of its share capital, which investing company too has now gone without trace. It was further observed by AO that in reply dated 21.12.2015 filed by the assessee before AO , the assessee has not shown any shareholding in the name of these companies i.e. M/s. Bajrangbali Vincom Pvt. Ltd. and M/s. Vrindavan Commodity Pvt. Ltd. The AO observed that it is very clear that the assessee

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda company is in a habit of raising share capital at a significant premium from Kolkata based companies which companies disappeared without trace after subscribing to its share capital at a premium , and then this is followed by another round of funding after few years, again at premium, from companies, which on investigation are untraceable. . The AO further observed that even in the case of the investing companies who responded to notices u/s 133(6), the total income is not commensurate with the level of investment made with the assessee company. The AO observed that M/s Champion Vintrade Pvt. Ltd. which has invested Rs. 36,00,000/- in the shares of assessee company, the total income from operations is only Rs. 1,16,611/- and profit before tax is Rs. 10,535/- , and thus no case is made out by assessee company which could explain the capacity of these companies to invest in its shares. The AO also observed that the confirmation letter given by the said company is unsigned , and even the Director of the assessee company in his statement could not identify the name of the Director of the said company and stated that the Director of the investing company was not known to him. The AO further observed that the copy of the bank account statement shows regular flow of funds in the form of transfer entries with each debit preceded by corresponding credit entry or through transfer entries from one company to the other. The AO also observed that in the Director Report of the said investing company , it is stated that its performance is not satisfactory .Further, the Auditor has stated in its report that the company has incurred cash loss of Rs. 7,844/- and accumulated loss was Rs. 15,364/- . Thus, the AO observed that essential’s of creditworthiness of the investors have not been established putting genuineness of transactions with it in doubt. The AO observed that similar is the case of Sandal Wood Commercial Private Limited , which too has not furnished its ITR for ay: 2013-14 , and even the copy of ITR for ay: 2011-12 which was furnished shows that it incurred a loss of Rs. 16,192/- . The AO observed that said company submitted Balance Sheet and Profit and Loss account for financial 2010-11, which is not

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda relevant and it showed income of operations to Rs. Nil. The copy of bank account shows similar trail of transactions as in Champion Vintrade Private limited, where entries from one company to other have been used to layer in the investment in the shares of the assessee company. The AO observed that the assessee is not able to establish genuineness of the transactions by these two companies, and so far as other three investing companies , even the identity of these three companies could not be proved as even notices returned back twice. The AO observed that the onus was on the assessee to satisfactorily explain the same. The AO referred to amended provisions of Section 68, which came into effect from assessment year 2013-14. The AO observed that the sum of Rs. 1,51,20,000/- as credited by the assessee company in the garb of share capital in its books in the year under consideration represents unexplained income of the assessee company which was added to the income of the assessee by the AO and brought to tax under Section 68 read with Section 115BBE of the 1961 Act, without allowing any deduction or allowances, vide assessment order dated 28.03.2016 passed u/s 143(3) of the 1961 Act by the AO . It is pertinent to mention that the AO made addition to the tune of Rs. 1,10,00,700/- u/s 56(2)(viib) as well addition of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE, aggregating to Rs. 2,61,20,700/- by following literal interpretation of Section 56(2)(viib) and Section 68, although the total share capital including share premium raised by the assessee during the year was Rs. 1,53,00,000/- from 13 persons, while the total share capital including share premium raised by the assessee during the year was Rs. 1,51,20,000/- from 8 corporate entities. 4. Being aggrieved by assessment order passed by AO, the assessee filed first appeal with ld. CIT(A). The assessee and/or its counsel did not appear before ld. CIT(A), but however, the assessee made following submissions, as detailed hereunder : “Submissions 19

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda "One of the several issues involved in the present appeal relate to addition of share capital of Rs.1,51,20,000/- inclusive of premium charged u/s. 68 of the Act 1961 and also addition of the premium charged Rs. 1,10,00,700/- separately u/s.56(2)(vii). The AO has added a sum of Rs. 1,51,20,000/- u/s.68 which is inclusive of premium charged and Rs. 1,10,00,700/- again received as premium separately. Thus there is double addition to the extent of Rs. 1,08,71,280/- one added u/s. 68 as part of share capital of Rs. 1,51,20,000/- and then again added separately u/s 56(2). Against the total amount received Rs. 1,53,00,000/- addition has been made of Rs. 2,61,20,700/-. "It is submitted at the very outset that the double addition made is contrary to the provisions of law. On the face of it the addition of Rs.1,10,00,700/- made u/s. 56(2)(iii) should be deleted. "The company had issued 1,70,000 equity shares of FV of Rs.10/- each at a premium of Rs.80/- per share. Thus the total amount received by the company inclusive of share premium is Rs.1,53,00,000/- from as many as 13 share applicants. "The total amount received by the company towards share capital and premium is only Rs.1,53,00,000/-. Consisting of Rs.17,00,000/- towards share capital and Rs.1,36,00,000/- as share premium. The AO has treated Rs.25.29 out of Rs.80.00 per share as reasonable value of the premium charged and has treated Rs.54.71 as excessive premium. The AO has accordingly added a sum of Rs.1,10,00,700/- being the excess premium on the entire number of shares of 1,70,000 and has added the same u/s.56(2)(vii) of the Act 1961. "The fact remains that the total amount received by the assessee company towards share capital is Rs. 1,53,00,000/- consisting of Rs.17,00,000/- as face value of share capital and Rs. 1,36,00,000/- towards share premium. Against the total receipt of Rs. 1,53,00,000/- the AO has added a sum of Rs. 1,51,20,000/- as unexplained shares capital which is inclusive of the share premium amount. Once when the share premium amount from part of the unexplained capital of Rs. 1,51,20,000/- then separate addition of Rs. 1,10,00,700/- cannot be made in respect of the premium received.

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda "In view of the above, it is prayed that the addition made by the A.O. be deleted.” 4b. The Ld. CIT(A) confirmed the aforesaid additions and dismissed the appeal filed by the assessee. With respect to first addition being made by the AO by invoking Section 56(2)(viib), the ld. CIT(A) upheld the addition and dismissed the appeal filed by the assessee, by holding as under: “Decision: I have gone through the facts and the written submissions filed along with the details enclose therein. There is no dispute that the appellant had issued 1,70,000 equity shares of FV of Rs.10/- each at a premium of Rs.80/- per share. The total amount received by the company inclusive of share premium is Rs.1,53,00,000/- from as many as 13 share applicants. AO held that since the assessee had not followed the method of Fair Market Value of shares as prescribed under rule 11UA of the Income Tax Rules, 1962, but has worked out the value of shares based on the NAV method. Since NAV Method of valuation of shares is not prescribed under the Income Tax Rules 1962 therefore, cannot be used for arriving at the value for the S. 56(2)(vii) of the Act 1961. It is a fact that no explanation for charge of premium on issue of shares has been furnished by the assessee company either before AO or during the appellate proceedings. Rule 11UA of the Income Tax Rules, 1962 prescribes a definitive method to arrive at Fair Market Value of the shares based on a mathematical formula. This has not been followed by the appellant. AO worked out the FMV of the shares of the assessee company under Rule 11UA at the time of issue of shares as only Rs. 25.29 per share. As against this, the assessee company had issued shares at Rs. 90 per share. In other words, the assessee company has received consideration for issue of shares which exceeds FMV of the shares by Rs. 64.71 per share. Rule 11UA of the Income Tax Rules specifies the method of calculating fair market value. The FMV of unquoted shares and securities other than unquoted equity shares shall be estimated to be the price it would fetch if sold in the open 21

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda market on the valuation date and the assessee obtains a report from a Category I merchant banker or a Chartered Accountant in respect of such valuation. Thus, for valuation of unquoted shares and securities, other than equity shares there are no prescribed methods, which are laid down. This is left to the professional judgment of the valuer. As evident from the reply of the appellant submitted during the appellate proceedings, AR has failed to rebut the findings of AO given in the assessment order, it is held that AO has correctly held that the assessee company has brought in share capital in the name of different companies, purportedly, based at Kolkata that too at a significant premium without any justification for the reason that the assessee has neither conducting any major business activity as is evident from its Profit & Loss A/c which shows the total revenue from running of Gitti business at Rs. 2,75,500/- and correctly invoked the provisions of Section 56(2)(viib) of the Income Tax Act, 1961, and added the sum of Rs. 1,51,20,000/- received by the company as premium on shares during the year under consideration. Therefore addition made by AO is confirmed. These grounds are dismissed. 4c. On the second addition being made by the AO of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE, the assessee and/or its counsel did not appear before ld. CIT(A), but following written submissions were filed before ld. CIT(A), as under: “Submissions: Complete list of persons from whom the share capital amount has been received has been incorporated in the assessment order. There are in total 12 applicants, of which 05 are corporate/body corporate, while the remaining 08 are individuals. Complete details of share applicants with name, address number of shares applied for with details of bank account, mode of receipt of amount with PAN has been filed and is

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda attached. The AO made independent inquiries from the DDIT (Kolkata) with respect to the corporate applicants. The DDIT (Kolkata) vide his letter dt. 07.03.2016, informed the JCIT/AO of the details of the corporate applicants, The DDIT Kolkata, has mailed the requisite details as received by him from all the five parties to ITO- 6(2), Kanpur vide speed post no.EW924944772 dt. 07.03.2016. The corporate to whom the shares have been allotted have all accepted and confirmed therein share application. The letter and details as received from DDIT-Kolkata is self-explanatory. The AO has chosen to completely ignore the same. The record file may kindly be called for, examined it would be find that the same is explained. As regards the non- corporate applicants the same has not been disputed by the AO however while making the addition in respect of the share capital the AO has again added the premium amount received as unexplained. The AO accepts the premium of Rs.25.29 as reasonable and treats Rs.54.71 per share as excessive. Thus the addition of Rs.1,51,20,000/- consists of two parts namely the unexplained share capital of Rs.16,80,000/- (Rs. 17,00,000/- - 20,000/-) and the remaining amount of Rs.13,44,000 out of share premium amount of Rs. 1,36,00,000/-. Confirmation from individual applicant has been filed. In view of the above, it is submitted, that the addition made by the AO may kindly be deleted. The appeal may kindly be allowed.” 4d. The ld. CIT(A) dismissed the appeal of the assessee and confirmed the additions as was made by the AO to the income of the assessee, by holding as under: “Decision: ”I have gone through the facts and the written submissions filed along with the details filed enclose therein. Appellant has taken share capital from 12 applicants, of which 05 are corporate, while the remaining 08 are individuals. Appellant submitted details of share applicants with name, address, number of shares applied for, with details of bank account, certificate of mode of payment of amount, PAN, Share application form, ITR, Final accounts of share applicants before the AO. A perusal of 23

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda the paper book and submission of the appellant reveals that appellant did file enough evidence in order to discharge the initial burden of proof cast upon the appellant company u/s 68 of IT Act but did not file Form PAS-3 including list of allotee duly filed with ROC evidencing intimation of allotment thereof; Valuation report of Merchant Banker evidencing valuation of shares of appellant company; CA Certificate for valuation of shares, etc.. The AO made independent inquiries with respect to the corporate applicants as given in detail in assessment order. All the notices u/s 133(6) issued came back undelivered with remarks 'Not Known' from the postal authorities. Appellant gave new addresses where also the notices u/s 133(6) were sent to these companies as provided by the assessee company for the establishing creditworthiness of the shareholders as well as the genuineness of thetransaction. These notices also could not be served due to incomplete addresses except in the case of M/s Champion Vintrade Private Limited and M/s Sandal Wood Commercial Pvt. Limited. This is in face of the fact that the assessee company has claimed through its Director in a sworn statement dated 16.03.2016 that these investing companies were aware of the assessee's business and had met him personally at Kanpur on at least two occasions, one during 2012 and other as recently as 2015. In spite of these close acquaintances, it is surprising to note that these companies did not come to the help of the assessee company by furnishing information in respect of their alleged investment in the assessee company. Even the director of the assessee company, as his statement dated 16.03.2016 would show, could not throw any light on the whereabouts or business details of these company except for stating from the title of one of the companies as being engaged in the business as per title (Reference: Reply to question No. 46 of statement dated 16.03.2016 where in reply to query about the business of M/s Sandal Wood Private Limited the Director only stated that it is engaged in the business of Wood.). AO has noticed that the assessee company is in the practice of receiving significant amount of capital at a premium from Kolkata based companies even in the past also without having any financial health which raises serious doubts over the conduct of the appellant, which is best known to them. A case in the point is raising of capital

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda from one M/s. Bajrangbali Vincom Pvt. Ltd., which held 24.19% of its share capital and which has since been struck of from the register of ROC. It is from this company that the assessee company raised share capital during A.Y. 2010-11 at a premium of Rs. 65/- per share without having any net worth. Similar is the case of another investor company, M/s. Vrindavan Commodity Pvt. Ltd. which subscribed to 40.32% of shares of the assessee company which too has now gone without trace. In contrast to this, it is pertinent to note that in its reply dated 21.12.2015; the assessee company has not shown any shareholding in the name of these companies i.e. M/s. Bajrangbali Vincom Pvt. Ltd. and M/s. Vrindavan Commodity Pvt. Ltd. It is very clear that the assessee company is in a habit of raising capital at a significant premium from Kolkata based companies which disappear without trace after subscribing to its share capital at a premium. This is followed by another round of funding after a few years, again at a premium, from companies, which on investigation is untraceable. Even in respect of the companies which have responded to the notices u/s 133(6), it is seen that the total income for the year under consideration is not commensurate with the level of investment made with the assessee company. For example, in the case of one M/s. Champion Vintrade Private Limited which has shown to have invested Rs.36,00,000/- in the shares of the assessee company, the total income from operation is only Rs. 1,16,611/- and the profit before tax is Rs. 10,535/-, no case has been made out by the assessee company which could explain the capacity of these companies to invest in its shares. Infact, the confirmation letter given by the said company unsigned, even the director of the assessee company in his statement could not identify the name of the director of the said company and stated that the director of the investing company was not known to him. Not only this, the copy of Bank Account shows regular flow of funds in the form of transfer entries with each debit preceded by corresponding credit entry or through transfer entries from one company to the other. In fact, in the Director's Report of the said company for the year in which it has claimed investment in the shares of the assessee company has been made, it has been stated by the Directors that its performances are not satisfactory. The Auditor's Report further certified that the company had incurred a

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda cash loss of Rs. 7,844/- and the accumulated loss was Rs. 15,364/-. Thus, the essential ingredient of creditworthiness of the investors has not been established putting the genuineness of transactions with it in doubt. Similar is the case of M/s. Sandal Wood Commercial Private Limited which too has not furnished its ITR for A.Y. 2013-14, the year under consideration, even the copy of ITR for A.Y. 2011-12, which was furnished shows it had incurred a loss of Rs. 16,192/- during that year. In fact the assessee company has furnished the Balance Sheet and Profit & Loss A/c for F.Y. 2010-11 only which is not relevant to the year under consideration and shows NIL income from operations. The copy of Bank A/c furnished shows similar trail of transactions as in the case of M/s. Champion Vintrade Private Limited where entries from one company to other have been used to layer in the investment in the shares of the assessee company. The facts above, as relied upon by AO clearly show that the identity & genuineness of these transactions has not been established in these cases whereas in the other three companies the identity itself has been left to be proved as evident by the return of notices, not once but twice from the addresses given by the assessee company. The onus is on the assessee company to furnish a satisfactory explanation for the same, which he has failed to do so. This onus has become even more vigorous following the insertion of proviso to Section 68 of the Income Tax Act, 1961 which has come into effect by the Finance Act 2012 w.e.f. 01.04.2013 i.e. A.Y. 2013- 14, the year under consideration which is cited above. Appellant has simply submitted during the appellate proceedings that the report received from DDIT-Kolkata is self-explanatory, which the AO has chosen to completely ignore and therefore the record file may kindly be called for, examined it would be find that the same is explained. I have gone through the report and find no anomaly with the inference drawn by the AO. This shows that the appellant has nothing to submit in the form of written submissions or any paper book in support of his contention. As held in the case of R. B. Mittal v. CIT 246 ITR 283 (AP) in an enquiry u/s 68,the rule of audi alteram partem has to be observed and the assessee must be given a fair 26

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda and reasonable hearing to discharge the burden cast on him u/s 68of the Act. Further, it is settled law that in the matter of cash credit, the initial onus lies on the assessee to prove the genuineness of the transaction along with the identity of the lender/investor and his creditworthiness. The appellant in the instant case did discharge the initial onus cast upon it, partially by filing the required set of documents giving part details. No application under Rule 46A has been filed during the appellate proceedings to submit any further evidence in its support by appellant. The basic precondition for the Section 68 is that the assessee should file a valid confirmation. Valid confirmation has no specific format but it must contain name, complete address of the lender and PAN of the lender. The confirmation so filed must indicate complete details of transactions (like mode- cash or cheque, with number date of cheque with bank details). The appellant must submit the copy of bank account of the lender evidencing such transactions and the same needs to be filed. As far as the creditworthiness or financial strength of the creditor is concerned, that can be proved by producing the bank statement of the creditors showing that it had sufficient balance in its accounts to enable it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharged the onus cast upon him. Thereafter, it is for the Assessing Officer to scrutinize the same and in case he nurtures any doubt about the veracity of these documents, to probe the matter further. However, to discredit the documents produced by the assessee on the aforesaid aspects, there has to be some cogent reasons and materials for the Assessing Officer and he cannot go into the realm of suspicion. Thus element of credit worthiness and satisfaction of AO thereafter is subjective and requires more efforts/inquiry on the part of the AO to give a finding in the order that lender is not genuine or is not credit worthy. AO conducted enquiries and found that these share applicants are not existing at the addresses given in the papers submitted by them through post before AO, Hence the onus was shifted back to appellant for proving the ingredients of S. 68 as being fulfilled in these transactions. Appellant provided the new address of the lenders, shifting the onus back to AO who took the investigation further on these addresses also, but could not locate these share applicants, again

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda shifting back the onus to appellant. Appellant has failed to shift back the onus on AO by failing to give the current addresses of the various companies. Where the assessee does not furnish the new or current correct addresses, there is no duty on AO to bring any facts on record to show that conditions required u/s 68 are not satisfied but where appellant does, then AO need to bring more facts on record to show that conditions required u/s 68 are not satisfied as HELD in Sri Jagdish Saran Shuklavs Commissioner Of Income- Tax 1988 171 ITR 694 (All). In this case appellant has failed to prove the identity of the companies and genuineness of transactions and creditworthiness as required u/s 68 of the Act. As per the provisions of Section 68 of the Income Tax Act, 1961, an assessee has to discharge his onus of proof by proving three things: a) Identity of lender: b) Genuineness of transaction: and c) Credit worthiness of shareholder/lender. And till the assessee proves all three things, his onus is not discharged. In light of the above facts, the addition made by the AO on this account is sustainable. However, before proceeding ahead, appellant has raised an argument in the light of addition of Rs. 1,10,00,700/- made on account of share premium under Section 56[2][viib] of the Income Tax Act, 1961 and that made u/s 68 read with its proviso, amounting to Rs. 1,51,20,000/- on account unexplained cash credits in the form of share capital that the same would tantamount to double addition on the same set of transactions. AO has answered this question very well in assessment order in Para 19. It is also true that in terms of the principles of statutory interpretation, a taxing statute is to be strictly construed. To paraphrase Lord Halsbury, a subject needs to be taxed where clear words exist for that purpose. In the instant case, the provisions of Section 56[2][viib] and Section 68, read with its proviso, and both brought into effect w.e.f. A.Y. 2013-14 only, expressly provide for the same and work in mutual exclusion and independent of each other. In other words, application of one provision does not

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda preclude the operation of the other. Had it been the intention of the Legislature, it would, in its wisdom, have inserted a suitable clause in Section 56[2][viib] excluding the amount already brought within the ambit of taxation by proviso to Section 68. However, it has not done so, signifying its intent of taxing the transaction under the two sections separately. Even otherwise, it is a settled principle that if a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. As Justice Rowlatt so presciently observed, "In a taxing Act one has to look merely at what is clearly said. There is no room for intendment there is no equity about a tax." In taxing a transaction, no regard can be paid to 'substance or spirit or inference or analogy' when clear words exist to tax it. All that is required to be proved is that the transaction being taxed falls within the ambit of the charging section, however pedestrian an interpretation the same might be. It can be said that the maximum addition made in combination of both sections should not be more than the total share capital received. We can leave this question of law for the higher legal forums to decide as the law is yet to evolve on this point. But in such cases even if the receipt is found not taxable u/s 56[2][viib] for the reason that the FMV of the shares justifies the share premium being taken bythe appellant, the same amount received can be taxed u/s 68 if the statutory requirements of S. 68 are not fulfilled like identity, genuineness and creditworthiness of the share applicant and vice versa i.e. if a receipt is not found taxable u/s 68 for the reason that the identity, genuineness and creditworthiness of the share applicant is proved but if the FMV of the shares did not justifies the share premium being taken by the appellant, the same amount received can be taxed u/s 56[2][viib]. These are deeming provisions to tax income though normally it may not have been taxed as capital receipt, where double addition is possible. In the light of above narration and express legal provisions, I hold that the sum of Rs. 1,51,20,000/- as credited by the assessee company in the garb of share capital in its books in the year under consideration represents the unexplained income of the assessee company and is liable to be brought to tax u/s 68 of the Income Tax Act, 29

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 1961 for the reason that the appellant has failed to satisfy the identity, genuineness and creditworthiness of the share applicant. Hence addition made by AO is confirmed. The grounds are dismissed The appeal is dismissed.” 5. Still aggrieved ,the assessee has filed second appeal before tribunal. The Ld. Counsel for the assessee opened arguments before the Bench, and submitted that there are two grounds on which additions have been made. Firstly, under Section 56(2)(viib) and secondly under Section 68 of the Act. 5b.The Ld. Counsel for the assessee submitted at the outset that so far as the grounds of appeal number 2 concerning non issuance of notice under Section 143(2) of the Act , the said ground of appeal is not pressed and prayer were made by ld. Counsel for the assessee to dismiss ground No. 2 . The Ld. DR did not raise any objection if Ground No. 2 is dismissed by tribunal. After hearing both the parties , we dismiss Ground of Appeal No. 2 as not been pressed. We order accordingly. 5c. So far as Ground Nos. 1 and 9 are concerned, they being general in nature does not require separate adjudication.Thus, Ground No. 1 and 9 are also dismissed. We order accordingly. 5d. Proceeding further, the Ld. Counsel for the assessee submitted that the assessee is a Private limited Company . It was submitted that ld.CIT(A) dismissed the appeal of the assessee and confirmed the assessment order passed by the AO under Section 143(2) of the Act , dated 28th March, 2016. It was submitted that addition of Rs. 1,10,00,700/- was made by AO under Section 56(2)(viib) of the Act which was confirmed by ld. CIT(A). It was also submitted that the second addition of Rs. 1,51,20,000/- was made by AO under Section 68 read with Section 115BBE of the Act ,which was also confirmed by ld. CIT(A). It was submitted by ld. Counsel 30

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda for the assessee that the assessee had issued 1700000 equity shares of Rs. 10 each face value to 13 investors @ Rs. 90/- per share inclusive of share premium of Rs. 80/- per equity share, totaling to Rs. 1,53,00,000/-.Our attention was drawn by ld. Counsel for the assessee to assessment order. It was submitted that assessee followed NAV(Net Asset Value) method to determine Fair Market Value(FMV) of the equity shares. It was submitted that as per NAV method, FMV of shares comes to Rs. 87 per equity share , while issue price was Rs. 90 per share. It was submitted that the AO did not gave any working as to how FMV of Rs. 25.29 per share was arrived at by him. The ld. Counsel for the assessee submitted that as per Rule 11UA , the FMV of equity shares was Rs. 87.00 per share . Our attention was drawn to the Page No. 3 of the paper book ,where working of Fair Market value(FMV) of equity share is provided , which is reproduced hereunder: Working: Particulars Amount (Rs.) Total Value of Assets as per Balance sheet as on 31st March, 2,04,44,467 2012 Less: Unamortised amount of deferred expenditure (shown in 21,910 schedule 11: Other non-current Assets of the ABS- placed at (Page No. 21 of the Paper-book) Less: Amount of Advances Income Tax Shown in schedule 16: 27,130 Short term loans and advances of ABS placed atPage NO. 22 of the Paper Book Book Value of Assets-‘A’ 2,03,95,427 L= book value of liabilities shown in the balance-sheet Working Particulars Amount (Rs.) Total Value of Liabilities as on 31st march, 2012 2,04,44,467 Less: Share Capital (as per Schedule 1 of ABS-placed at Page No. 6,20,000 18 of the Paper-book) Less: Reserves and Surplus (as per Schedule 2 of ABS- Placed at 47,61,129 Page No. 18 of the paper Book. Less: amount representing provision for taxation (as per 31,938 Schedule 7: Short term provisions of ABS – Page No. 19 of the Paper Book. Book Value of Liabilities – ‘L’ 1,50,31,400 31

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda FMV=RS(2,03,95,427-1,50,31,400) X 10/share 6,20,000 =Rs. 53,46,027 X10 = Rs. 86.52/share (approx.. Rs. 87/share 6,20,000 Our attention was also drawn to the page no. 9-24 of the paper-book where the audited financial statements of the assessee company is placed . Our attention was also drawn to Rule 11UA(2) . It was submitted that the AO did not gave any working to compute FMV , while adopting FMV of Rs. 25.29 per equity share. It was submitted that Fair Market Value of equity share was Rs. 87 per share. It was submitted that no valuation report issued by Merchant Bankers was filed by the assessee. It was submitted that infact no valuation report of Merchant Banker is required. The assessee relied upon the order of Delhi-tribunal in the case of Cinestaan Entertainment Private Limited v. ITO Ward 6(2) Delhi, in ITA no. 8113/Del/2018, and our attention was drawn to page 84 of case law paper book, and it was submitted that the assessee adopted NAV Method by which FMV of equity shares comes to Rs. 87 per equity share. It was submitted that the assessee did not applied DCF method to compute FMV. The assessee relied upon judgment and order of Hon’ble Madras High Court in the case of CIT v. VVA Hotels Private Limited, reported in 429 ITR 69(Mad. HC), and our attention was drawn to page 120 of case law paper book filed by the assessee. The ld. Counsel for the assessee submitted that ld. CIT(A) confirmed the additions . It was submitted that no valuation report was filed by the assessee to determine the Fair Market Value. It was submitted that as per assessee Rule 11UA(2) is applicable for computing FMV under Section 56(2)(viib). It was submitted that NAV is taken at book value, and if present value is taken, then FMV will be higher. It was also submitted that the AO made additions w.r.t. 168000 equity share while making addition u/s 68 read with Section 115BBE, while the assessee issued 170000 equity shares during the year. It was submitted that so far as 2000 equity shares issued by assessee company to individuals is concerned, the same were accepted by the AO, and no additions were made so far as additions made u/s 68 read with Section 115BBE is 32

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda concerned. While so far as additions made u/s 56(2)(viib), the additions wrt entire 170000 equity shares issued by the assessee were made by the AO. Our attention was drawn to Page no 29 of the paper book ,where the details of the equity shares issued by the assessee company to the tune of 168000 equity shares to 5 companies all based in Kolkatta are placed , and also to page 29-30/paper book where the details of 2000 equity shares to 8 individuals are placed. Thus, total equity shares aggregating to 170000 were issued by the assessee company during the year under consideration to 13 persons, out of which 168000 equity shares were issued to 5 Kolkatta based companies, while 2000 equity shares were issued to 8 individuals, all equity shares issued at a price of Rs. 90/- per equity share comprising face value of Rs. 10 per equity share and share premium of Rs. 80 per equity share, aggregating to total amount raised to the tune of Rs. 1,53,00,000/- . The additions u/s 68 read with Section 158BBE is made wrt 168000 equity shares issued to 5 corporate entities, while additions u/s 56(2)(viib) were made wrt to 170000 equity shares issued to all 13 investors i.e. 5 companies and 8 individuals. 5e. The Ld. Sr. DR submitted at this stage submitted that Rule 11UA was amended and it is only pre-amended rule which prescribed Fair Market Value method which shall be applicable , as the transactions happened in May/June 2012, and AO rightly applied the method prescribed under Section 56(2)(viib). It was submitted the Rule 11UA was amended effective from 28.11.2012. 5f. The Ld. Counsel for the assessee submitted that the consideration was received in May/June 2012, which are the relevant dates for the purposes of Section 56(2)(viib). It was submitted that amounts as are reflected in preceding year audited financial statements were adopted to compute the FMV . It was submitted that date of allotment of shares is not available .It was submitted that the law as applicable on the first date of assessment year will be applicable i.e. law as was applicable on 01.04.2013 shall be applied. The Ld. Counsel for the assessee submitted that the AO cannot take plea that law was amended and the old rule will 33

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda apply. So far as addition under Section 68 of the Act is concerned , the ld. Counsel submitted that the entire additions of Rs. 1,51,20,000/- was made with respect to 5 corporate entities who subscribed to the shares of the assessee company. Our attention was drawn to the assessment order. It was submitted that details were furnished before the AO as to sources of raising share capital. It was submitted that in the earlier years, shares was issued to Kolkata based Companies and that too at premium. It was submitted that these companies are not traceable to whom shares were issued. Our attention was drawn to page 86 of paper book filed by department, and it was submitted that this is the list of shareholders, as at 31.03.2011 , 31.03.2012 and 31.03.2013,filed by assessee with department vide reply dated 21.12.2015. It was submitted by ld. Counsel for the assessee that jurisdiction of the assessee was transferred from ITO Kanpur to ITO Banda , and our attention was drawn to order passed u/s 127, dated 24.11.2015 placed in paper book filed by Department/page 76. Our attention was drawn to paper book filed by department/page 80-84 , which is a notice dated 11.12.2015 issued u/s 142(1). Our attention was drawn to page 85-90 of the paper book filed by department, wherein reply dated 21.12.2015 was filed by the assessee in response to aforesaid notice u/s 142(1) is placed , and in this reply the list of shareholders to whom shares were issued in the year under consideration as well earlier years were placed. Our attention was also drawn to page No. 193 of the paper-book filed by the Department., wherein information supplied by Champion Vintrade Pvt. Ltd. to department is placed. Our attention was also drawn to Page No. 194 of the paper-book filed by department,wherein certificate issued by Champion Vintrade Pvt. Ltd.(which is unsigned) is placed, explaining source of making investment in the assessee company. Our attention was also drawn to Page No. 195 of the paper book filed by department, wherein the bank statement of Champion Vintrade Pvt. Ltd. is placed ,and it was submitted that the funds to the tune of Rs. 36 lacs were transferred from the bank account of Champion Vintrade Private Limited

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda maintained with Indusind Bank. Our attention was also drawn by ld. Counsel for the assessee to page no. 103& 106 of the paper book filed by the Department ,wherein Director Report of the Champion Vintrade Private Limited is placed , as per which the profit for financial year was Rs. 7274.57 as against total income from operations of Rs. 1,16,611/- ,as against loss of Rs. 7874.51 in the financial year 2011-12 while total income from operations was Rs. Nil. Our attention was also drawn to Page No. 105 and 109 of the paper-book filed by department, and it was submitted that share capital of Champion Vintrade Private Limited was Rs. 12,46,500/- and Reserves and Surplus was Rs. 22,81,07,256.06 . It was submitted that three investing companies did not gave any reply , but two companies duly replied. Reference was made by ld. Counsel for the assessee to the decision of Hon’ble Supreme Court in the case of CIT v. P Mahonkala , reported in (2007) 291 ITR 278 (SC) 721. It was also submitted that Section 68 was amended from assessment year 2013-14, and it was submitted that even after amendment law is same u/s 68. . The ld. Counsel for the assessee submitted that the assessee has explained the sources of the share capital. Reference was made by ld. Counsel for the assessee on the decision of Hon’ble Supreme Court in the case of PCIT v. NRA Iron & Steel Private Limited , reported in (2019) 412ITR 161(SC).It was submitted that the department ought to have conducted the enquiry. Our attention was drawn to assessment order as well appellate order passed by ld. CIT(A) , and it was submitted that ld. DDIT(Inv.) Kolkata submitted the report. Our attention was also drawn to the appellate order passed by ITAT Mumbai in the case of Royal Rich Developers Private Limited v. DCIT( in which one of us namely the Accountant Member was part of DB that pronounced the said order) in ITA No. 1835- 1836/Mum/2014, dated 24,08.2016 , which order of tribunal was affirmed by Hon’ble Bombay High Court in (2019) 265 Taxman 99(Bom.). Our attention was also drawn to page no. 476 of the paper-book filed by department, wherein decision of Chennai-tribunal in the case of Shantananda Steels Private Limited v.

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda ITO , reported in (2020)116 taxmann.com335(Chennai-trib.)in stay petition is placed ,In which one of us namely Accountant Member was part of DB that pronounced the order . Our attention was also drawn to the decision of Mumbai- tribunalin the case of Pratik Syntex Private Limired v. ITO, reported in (2018) 94 taxmann.com 12(Mum-tribunal) in which one of us being Accountant Member was part of the Division Bench that pronounced the order , and it was submitted that merely because return of allotment filed with ROC/MCA is not filed before the authorities below, will not make these share investment as non genuine, as filing of return of allotment is merely administrative/ministerial work. It was submitted that additions u/s 68 read with Section 115BBE is made w.r.t. 5 corporate entities who invested in assessee company, while additions u/s 56(2)(viib) was made with respect to all the thirteen investing persons , viz. 5 corporate entities and 8 individuals. It was also submitted that double additions are not possible . The ld. Counsel for the assessee relied upon decision of Hon’ble Kerala High Court in the case of Sunrise Academy of Medical Specialties India Private Limited , reported in (2018) 409 ITR 109(Kerala HC) , and it was submitted that double addition is not possible. It was also submitted that only one addition can be sustained , if it is proved that transaction is genuine than only Section 56(2)(viib) will come into play , but if Section 68 gets attracted as the tax-payer is not able to satisfactorily explain the source of capital investment including share premium, the entire amount will get added u/s 68, and then in that scenario Section 56(2)(viib) will not get attracted , and it is only when explanation u/s 68 is satisfactory, the amount of sale consideration in excess of FMV in the case of company in which public is not substantially interested , will get added u/s 56(2)(viib) . 5g. The Ld. Sr. DR on the other hand, submitted that the additions have been made of Rs. 1,51,20,000/- under Section 68 of the 1961 Act. It was submitted that the AO has applied proviso to Section 68 of the 1961 Act, which was inserted w.e.f. 2013-14. It was submitted by ld. Sr. DR that the assessee has to explain source of 36

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda sources for raising share capital. It was submitted by ld. Sr. DR that the assessee filed some details in support of the credit entries, but what is important is that the AO must be satisfied with the details submitted as to the creditworthiness and genuineness of the transactions , and the assessee is required to explain source of source in of investment in shares in the hands of the invested company i.e. the assessee. Our attention was also drawn by ld. Sr. DR to page no. 96 of the paper- book filed by Department , and it was submitted that M/s Champion Vintrade Private Limited , income as per ITR filed with department for ay: 2013-14 is meager Rs. 10540/- . Our attention was drawn to page 97/paper book filed by Department, and it was submitted it is copy of bank statement of Champion Vintrade Private Limited wherein bank entry of investment of Rs. 36,00,000/- by M/s Champion Vintrade Private Limited in the assessee company on 09th June , 2012 is reflected. This entry is preceded by a credit of Rs. 36,00,000/- on the same day in the bank account, which stood transferred to assessee company. The balance in the account was meager Rs. 19976/- . It was submitted that all other four investing companies were also shell companies based in Kolkatta , which are used to launder money. Our attention was drawn to page 146-151/paper book filed by department, and it was submitted that the AO made necessary enquiries, with respect to all the five investing companies. Our attention was also drawn by ld. Sr. DR to page 160 /paper book filed by department and it was submitted that when the letters issued u/s 133(6) to these investing companies returned undelivered by the postal authorities, the assessee furnished new addresses and explained that registered offices of these companies changed, and new address as per MCA portal was furnished by assessee.Our attention was drawn to page 179- 189 of paper book filed by department, and it was submitted by ld. Sr. DR that the AO sent fresh notices u/s 133(6) to all the five investing companies, and out of five fresh notices, three notices returned undelivered/unserved by postal authorities, while 2 companies to whom notices u/s 133(6) were issued duly responded. Our

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda attention was drawn to page 187-189 of paper book filed by department, and it was submitted that these are the copies of envelop showing return by postal authorities in case of Aparajita Vanijya Private Limited, Zigzag Vanijya Private Limited and ShradhaVintrade Private Limited, wherein envelop’s containing notices u/s 133(6) returned, while notices u/s 133(6) were served in the case of two investing companies namely M/s Champion Vintrade Private Limited and M/sSandal Wood Commercial Private Limited. Our attention was drawn to page 190-212 of the paper book filed by department, and it was submitted that replies filed by these 2 companies namely Champion Vintrade Private Limited and Sandal Wood Commercial Private Limited are placed. Our attention was drawn to page 169-170 of paper book, and it was submitted by ld. Sr. DR that the assessee has claimed tha tZigzag Vanijya Private Limited and ShradhaVintrade Private Limited, also filed reply before AO through speed post, but the said replies are not in the file of the AO. It was also submitted that the two investing companies which replied, their replies are identical. It was submitted by referring to page 168-170 of the paper book , that the Director who signed the letters in the case of Sandal Wood Commercial Private Limited , ShradhaVintrade Private Limited and Zigzag Vanijya Private Limited , is same. Our attention was drawn to page 419-421/paper book filed by department, and it was submitted that the names of the investing companies, namely Aparajita Vanijya Private Limited, Zigzag Vanijya Private Limited and ShradhaVintrade Private Limited, were ‘struck off’ from register of MCA. It was submitted by referring to page 419-423 of the paper book filed by department, that these five investing companies namely AparajitaVanijya Private Limited, Zigzag Vanijya Private Limited , Champion Vintrade Private Limited ,Sandal Wood Commercial Private Limited and ShradhaVintrade Private Limited , have common Directors, namely Mr. Aditya Pathak and Mr Jayanto Roy as per master data downloaded from MCA. Our attention was also drawn by ld. Sr. DR to page 425/paper book-II filed by department, and our attention was drawn to

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda comparative details of income of the assessee , since ay’s: 2009-10 to 2019-20, to contend that the assessee was having meager income and by no stretch of imagination, the chargeability of huge share premium of Rs. 80 per equity share as against face value of Rs. 10 per equity share, is justified. It was submitted that there was no business activities of the assessee since its incorporation in 2009 until financial year 2015-16. Our attention was drawn by ld. Sr. DR to the detailed comparative chart of all these five investing companies which is placed in page 426/paper book filed by department , which included their registration number with MCA, date of incorporation, their share capital, share premium reserves, investments made by these company , bank details as on 31.03.2014. It was also submitted that they have nil turnover and nil income , except Champion Vintrade Private Limited which has meager gross income of Rs. 1,16,611/- and taxable income of Rs. 10,540/- . Our attention was drawn to investment made by these companies in the assessee company. The detail of Director of these companies on the date when investment was made in the assessee by these companies, wherein Mr. Arvind Pandit was Director in the four companies, except in Champion Vintrade Private Limited, while presently Mr. Aditya Pathak and Mr. Jayanto Roy are Directors in all these five investing companies. It was submitted that all these five companies are deactivated by MCA, while four companies except Champion Vintrade Private Limited were struck off by MCA. 5h. The ld. Counsel for the assessee at this stage raised preliminary objection under Rule 27 & 29 of ITAT Rules, 1963, with respect to filing of details by way of additional evidences by the department in page 425-426 of paper book. 5i. The ld. Sr. DR submitted that the assessee do not have any business activities , apart from raising share capital from these companies based at Kolkatta at huge share premium. The learned Sr. DR submitted that the assessee is engaged in money laundering activities , and there is no real business of the assessee company. It was submitted that all these investing companies were incorporated 39

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda in the year 2010 and all the five investing companies have common Directors(page 419-423/paper book filed by department). Reference was drawn to page 426/paper book filed by department , and it was submitted by ld. Sr. DR that all these companies have meager paid up share capital while they raised huge share premium to issue their shares, while their income is very meagre. It was submitted that Aparajita Vanijya Private Limited had paid up share capital of Rs. 19,53,750/- , while Securities Premium Reserve was to the tune of Rs. 36,88,96,250/- , as at 31.03.2014. It has made investment of Rs. 25.22 lacs in assessee company, while its Gross Turnover and taxable income was Rs. Nil .It was submitted that all the five investing companies have similar position, and their Balance Sheet/ITR will speak of their financial health , and it could be easily concluded that these five investing companies were involved in money laundering business. It was submitted that proper enquiry was conducted by AO, and our attention was drawn to page 68/paper book, wherein the ITO, 6(2) , Kanpur issued commission to ADIT(inv.) , Kolkatta to conduct necessary enquiries , with respect to these five investing companies. It was submitted while referring to page 579A-paper book filed by department, that ITO, Kanpur issued commission to ADIT(Inv.), Kolkatta on 27.10.2015, which was not replied by ADIT(Inv.), Kolkatta. Our attention was drawn to page 579C , wherein ld. Sr. DR has written letter F.No. Addl.CIT/Sr. DR/ITAT/Govind Stone/2022-23/193 dated 01.09.2022 to ADIT(Inv.) HQ, Kolkatta asking for details of all these five investing companies which are based at Kolkatta. It was submitted by ld. Sr. DR that ld.ADIT(Inv.), Kolkatta replied vide reply dated 20.09.2022, which is placed in paper book at page 579E to 579L. It was submitted that these are additional evidences filed by department, and as per the enquiry conducted by ADIT(Inv.) Kolkatta , these companies are not existing as of September, 2022 , and in any case the assessee failed to prove creditworthiness of these investing companies and genuineness of the transaction of raising of share capital at huge share premium, in aggregate to Rs. 1,51,20,000/- . It was submitted

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda that the assessee failed to satisfactorily explain the source of source of raising share capital at a huge share premium and proviso to Section 68 is applicable , and hence the AO has rightly made additions by invoking provisions of Section 68 read with Section 115BBE. Alternatively, it was submitted that the AO also invoked provisions of Section 56(2)(viib). The ld. Sr. DR has filed paper book containing case laws, and reliance was placed on following decisions: a) PCIT v. NRA Iron & Steel Private Limited , reported in (2019) 412 ITR 161(SC) b) PCIT v. NDR Promoters Private Limited, reported in (2019) 410 ITR 379(Del HC) c) NDR Promoters Private Limited v. PCIT, reported in (2019) 266 Taxman 93(SC) d) CIT v. Midas Golden Distilleries Private Limited , reported in (2021) 283 Taxman 395(Mad. HC) e) CIT v. Sadiq Sheikh (2021) 429 ITR 163(Bom. HC) f) Royal Rich Developers Private Limited v. PCIT , reported in (2019) 265 Taxman 99(Bom.) g) CIT v. Globus Securities & Finance Private Limited, reported in (2014) 264 CTR 481(Del) h) Shantananda Steels Private Limited v. ITO, reported in (2020) 182 ITD 434(Chennai-trib.) i) Pratik Syntex Private Limited v. ITO, reported in (2018) 94 taxmann.com 12(Mum-trib.) j) DCIT v. Lotus Logistics & Developers Limited , reported in (2022) 195 ITD 24(Mum-trib.) k) ITO v. Parsoli Motor Works Private Limited, reported in (2022) 193 ITD 585(Ahd.-trib)

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda l) M.A. Projects Private Limited v. DCIT, reported in (2019) 109 taxmann.com 173(Del-trib.) m) ITO v. Synergy Finlease Private Limited, reported in (2019) 177 ITD 160(Del-trib.) n) Ayaana Comtrade Private Limited v. ITO, reported in (2019) 176 ITD 6 (Ahd.-trib.) o) ACIT v. Nakoda Fashion Private Limited, reported in (2018) 92 taxmann.com 46(Ahd.-trib.) p) ITO v. Blessings Commercial Private Limited, reported in (2018) 91 taxmann.com 176(kolkatta-trib.) q) B.R.Petrochem Private Limited v. ITO, (2018) 407 ITR 87 (Mad. HC) r) Gayathri Associates v. ITO, reported in (2014) 221 Taxman 143(AP) s) CIT v. Navodaya Castles Private Limited, reported in (2014) 367 ITR 306(Del) t) Vishwanath Clorinate & Chemicals Private Limited v. ITO , reported in (2011) 130 ITD 358(Ahd-trib.) u) Dhingra Global Credence Private Limited v. ITO , reported in (2010) 1 ITR(T) 529(Del-trib.) v) Amtrac Automotive India Private Limited v. ACIT, reported in (2010) 2 ITR(T) 649(Del-trib) w) Anandtex International Private Limited v. ACIT, reported in (2022) 194 ITD 320(Del-trib) x) Sunrise Academy of Medical Specialities India Private Limited v. ITO, reported in (2018) 409 ITR 109(Ker.HC) 5j. The ld. Counsel for the assessee submitted in rejoinder that the department has not filed any appeal against the appellate order passed by ld. CIT(A) nor any Cross objections(C.O.) were filed by department. Reference was made to provisions of Section 253(2) and 253(4) of the 1961 Act. It was submitted that department is 42

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda now filing additional evidences. Our attention was drawn to Rule 27 and 29 of Income Tax (Appellate Tribunal) Rules, 1963. It was submitted that records of the assessee was transferred from ITO, Kanpur to ITO, Banda, and our attention was drawn to page 76/paper book filed by department, wherein the order u/s 127(1) r.w.s. 127(3) for transfer of jurisdiction is placed. It was submitted that ITO, Kanpur issued notices u/s 133(6) , and information was sent by these investing companies to ITO, Kanpur , and in between there was transfer of jurisdiction , and if the department had not received the letters sent by investing companies, the assessee cannot be blamed. Our attention was drawn by ld. Counsel for the assessee to page 53-62/paper book filed by department, wherein information u/s 133(6) were called by ITO, Kanpur from these five investing companies, vide letter dated 28.09.2015 and 05.10.2015. It was submitted that replies were duly filed by these investing companies on 20.11.2015, to ITO, Kanpur(page 167-170/paper book filed by department), which was sent by speed post. Our attention was drawn to page 74-76/paper book filed by department, and it was submitted that these are orders passed u/s 127(1) and 127(3) by ld. PCIT for transfer of jurisdiction in the case of the assessee, from ITO, Kanpur to ITO, Banda. The ld. counsel for the assessee submitted that there is no such requirement of explaining source of source of investment in share capital. The ld. Counsel for the assessee relied upon the judgment and order of Hon’ble Calcutta High Court in the case of PCIT v. Sreeleathers , reported in (2022) 448 ITR 332(Cal. HC). The ld. Counsel for the assessee has relied upon following decisions: a) Royal Rich Developers Private Limited v. DCIT , in ITA No. 1835 & 1836/Mum/2014, order dated 24.08.2016 b) Cinestaan Entertainment Private Limited v. ITO, in ITA no. 8113/Del/2018, order dated 27.05.2019 c) DCIT v. Archean Chemicals Industries Private Limited , in ITA no.1998 /Cheny/2019 & 723/Cheny/2020, order dated 22.06.2022 43

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda d) Hon’ble Madras High Court judgment and order in the case of CIT v. VVA Hotels Private Limited, (2020) 429 ITR 69(Mad. HC) e) Hon’ble Calcutta High Court judgment and order in the case of PCIT v. Sreeleathers , reported in (2022) 448 ITR 332(Cal. HC) f) Hon’ble Supreme Court judgment and order in the case of CIT v. P Mohanakala , reported in (2007) 291 ITR 0278(SC) 5k. The ld. Sr. DR submitted in rebuttal that jurisdiction of the assessee was transferred from ITO, Kanpur to ITO, Banda, at the request of the assessee. 6. We have considered rival contentions and perused the material on record including cited case laws. The assessee has raised as many as nine grounds of appeal vide Revised grounds of appeal filed with tribunal, and Ground No. 1, 2 and 9 already stood dismissed by us, vide para 5b and 5c of this order. The assessee is engaged in the business as supplier and commission agent of stone grits and bolders. The assessee filed return of income declaring income of Rs. 15,840/- . The case of the assessee was selected by Revenue under CASS for framing scrutiny assessment u/s 143(3) read with Section 143(2). Notice u/s 143(2), dated 08.09.2014 was issued by AO and served on the assessee. The jurisdiction of the assessee lied with ITO, Kanpur, but later at the request of the assessee, jurisdiction was shifted to ITO, Banda , vide orders dated 19.11.2015 u/s 127(1) and 127(3) passed by ld. PCIT, Kanpur(refer page 74-75/paper book filed by department). Statutory notices were issued by AO from time to time to assessee, and claimed by AO to have been duly served on the assessee. The assessee participated in the assessment proceedings. During assessment proceedings, the AO observed from Balance Sheet of the assessee company that the assessee has raised Rs. 1,53,00,000/- by way of share capital and share premium, wherein 170000 equity shares of Rs. 10 each of par/face value were issued by assessee at a share premium of Rs. 80 per equity shares, i.e. at issue price of Rs. 90 per equity share, during the year under consideration . The AO observed that the assessee has 44

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda raised share capital at consideration price of Rs. 90 per equity share including share premium of Rs. 80 per equity shares, from the following persons: S. Name and Address Nos. of shares Mode of Date of Amount No. of Shareholders issued payment payment Received (Rs.) 1 Champion Vintrade 40000 Bank RTGS 09.06.2012 36,00,000 Private Limited 50-2, Cabin Road, Golghar Ward No. 15, Jagaddal, Kolkata-743125 2 AprajitaVanijya 28000 Bank RTGS 12.05.2012 25,20,000 Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 3 Zigzag Vanijya 28000 Bank RTGS 12.05.2012 25,20,000 Private Limited Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 4 ShradhaVintrade 28000 Bank RTGS 22.05.2012 25,20,000 Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 5 Sandal Wood 44000 Bank RTGS 21.05.2012 25,20,000 Commercial Pvt. 09.06.2012 14,40,000 Ltd. Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 6 Ambika Prasad 200 Cash 20.05.2012 18,000 Tiwari S/o Ram PhalTiwari Gram Post- Kamokhar, Distt- Hamirpur 7 Santosh Kumar S/o 200 Cash 20.05.2012 18,000 Mahadev Prasad, Gram Post-Imilia, 45

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Distt. Hamirpur 8 Brajesh Kumar S/o 200 Cash 20.05.2012 18,000 Shiv Narain Gram Post- Imilia Distt- Hamirpur 9 Suresh Kumar S/o 200 Cash 20.05.2012 18,000 Diwakar, Gram Post- Kamokhar, Distt- Hamirpur 10 Smt. Priti Mishra 400 Cash 20.05.2012 18,000 D/o Suresh Kumar 20.06.2012 18,000 Mishra, 123/34, K- Block, Kidwai Nagar, Kanpur 11 Divakar S/o Ram 200 Cash 20.05.2012 18,000 Shankar, Gram Post- Kamokhar, Distt- Hamirpur 12 Anupam S/o Suresh 200 Cash 20.05.2012 18,000 Kumar, Gram post- Imilia Distt- Hamirpur 13 Smt. Pushpa D/o 400 Cash 20.05.2012 18,000 Shiv Shankar 20.06.2012 18,000 Gram Post- Imilia Distt-Hamirpur Total 170000 1,53,00,000/-

As could be seen from the above chart, the assessee had received Rs. 1,51,20,000/- towards share capital and share premium by issue of 168000 equity shares of face value of Rs. 10 each at a share premium of Rs. 80 per equity shares i.e. issue price of Rs. 90 per equity shares from five corporate entities listed at S.No. 1-5 in the above chart , and all the aforesaid five companies are based in Kolkatta. The assessee has also received Rs. 1,80,000/- towards share capital and share premium by issuing 2000 equity shares of face value of Rs. 10 each at a share premium of Rs. 80 per shares i.e. issue price of Rs. 90 per equity shares from eight individuals listed at S.No. 6-13 in the above chart. The AO made enquiries with the 46

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda aforesaid five investing companies, but not being satisfied , made addition of Rs. 1,51,20,000/- by invoking provision of Section 68 (after considering newly inserted proviso , which proviso was inserted w.e.f. assessment year 2013-14) read with Section 115BBE . However, the AO accepted the share capital inclusive of share premium raised by asssessee , from eight individuals listed at S.No. 6-13 in the above chart, and no additions were made by AO so far as Section 68 is concerned w.r.t. Rs. 1,80,000/- raised by assessee by issuing 2000 equity shares of Rs. 10 each at an issue price of Rs. 90 per equity share inclusive of share premium of Rs.80 per equity shares. The ld. CIT(A) affirmed the aforesaid additions as was made by the AO in the assessment order. The AO further made addition to the tune of Rs. 1,10,00,700/- by invoking provisions of Section 56(2)(viib) of the 1961 Act with respect to all the thirteen investing persons , being excess of consideration for issue of equity shares and the Fair Market value(FMV). This addition was also confirmed by ld. CIT(A). Thus, the AO made two additions aggregating to the tune of Rs. 2,61,20,700/- in the hands of the assessee, firstly by invoking provisions of Section 68 read with Section 115BBE to the tune of Rs. 1,51,20,000/- with respect to share money inclusive of share premium raised from 5 corporate entities based at Kolkatta and further second addition of Rs. 1,10,0700/- was made by invoking provisions of Section 56(2)(viib) with respect to share money inclusive of share premium raised from 13 persons which included 5 corporate entities as well 8 individuals , while the assessee only raised aggregate amount of Rs. 1,53,00,000/- during the year under consideration, from issue of 170000 equity shares of face value of Rs. 10 each , issued at total price of Rs. 90 per equity share including share premium of Rs. 80 per equity share to these thirteen persons viz. 5 corporate entities and 8 individuals . The ld. CIT(A) dismissed the appeal filed by the assessee, confirming both the additions . We have elaborately culled out proceedings which were conducted before the AO and ld. CIT(A) in the preceding para’s of this order.

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Before proceedings further , it will be profitable at this stage to reproduce the provisions of Section 68 and Section 56(2)(viib) as were applicable for relevant year under consideration. It is pertinent to mention that Section 68 was amended by Finance Act, 2012 w.e.f. 01.04.2013 wherein proviso was added to Section 68. Further Section 56(2)(viib) was inserted vide Finance Act, 2012 wef 01.04.2013 , which reads as under: “Cash credits. 68.Where any sum is found credited in the booksof an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : The following provisos shall be inserted in section 68 by the Finance Act, 2012, w.e.f. 1-4-2013 : 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.”

“Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— *** *** 48

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda (viib)where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received— (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.—For the purposes of this clause,— (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b)"venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b)and clause (c) of Explanation 1 to clause (23FB)of section 10;

It will be appropriate at this stage to refer to Memorandum and Notes on Clauses as is referred in Finance Bill, 2012, which reads as under: Memorandum SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME “Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources". It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head "Income from other sources". However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. 49

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value— (i) as may be determined in accordance with the method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets, including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.”

C. Measures to Prevent Generation and Circulation of Unaccounted Money CASH CREDITS UNDER SECTION 68 OF THE ACT “Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either (i) does not offer any explanation about nature and source of money; or (ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer, then, such amount can be taxed as income of the assessee. The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person. Certain judicial pronouncements have created doubts about the onus of proof and the requirements of this section, particularly, in cases where the sum which is credited as share capital, share premium etc. Judicial pronouncements, while recognizing that the pernicious practice of conversion of unaccounted money through masquerade of investment in the share capital of a company needs to be prevented, have advised a balance to be maintained regarding onus of proof to be placed on the company. The Courts have drawn a distinction and emphasized that in case of private placement of shares the legal regime should be different from that which is followed in case of a company seeking share capital from the public at large. In the case of closely held companies, investments are made by known persons. Therefore, a higher onus is required to be placed on such companies besides the general onus to establish identity and credit worthiness of creditor and genuineness of transaction. This additional onus, needs to be placed on such companies to also prove the source of money in the hands of such shareholder or persons making payment towards issue of shares before such sum is accepted as genuine credit. If the company fails to discharge the additional onus, the sum shall be treated as income of the company and added to its income. It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder. However, even in the case of 50

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI). This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years.” [Clause 22] TAXATION OF CASH CREDITS, UNEXPLAINED MONEY, INVESTMENTS ETC. Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee. In case of individuals, HUF, etc., no tax is levied up to the basic exemption limit. Therefore, in these cases, no tax can be levied on these deemed income if the amount of such deemed income is less than the amount of basic exemption limit and even if it is higher, it is levied at the lower slab rate. In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit, it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable). It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years. [Clause 45]

Notes On Clauses “It is proposed to insert a new clause (viib) in the aforesaid sub-section so as to provide that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head "Income from other sources". However, the said new clause shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. It is further proposed that the company receiving the consideration for issue of shares shall be provided an opportunity to substantiate its claim regarding the fair market value of the shares. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years.”

Clause 22 of the Bill seeks to amend section 68 of the Income-tax Act relating to cash credits. 51

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda “The existing provisions of the aforesaid section 68 provide 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 offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. It is proposed to insert two new provisos to the aforesaid section. The first proviso seeks to provide 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 Assessing Officer aforesaid has been found to be satisfactory. The second proviso seeks to provide 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. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years.”

Before , we proceed further, we have to see inter-play between Section 68 and 56(2)(viib). Section 68 is applicable to all the assessee and is an anti tax evasion measure, which act as a measures to prevent generation and circulation of unaccounted money. There was an amendment by Finance Act, 2012,wherein proviso is added to Section 68 , which stipulates that in case of closely held companies in which public is not substantially interested, the person in whose name credit is appearing in the books of the tax-payer with respect to share capital, share application money , share premium or by any other name called, shall also be required to explain the source of making such investment. While Section 56(2)(viib) deals with a class of companies in which public is not substantially interested , and sought to bring to tax excess of consideration received for issue of shares from any person resident in India and the Fair Market Value of the shares , which shall be brought to tax as income of the assessee vide Section 2(24)(xvi). In our considered view, Section 68 is an anti money laundering provisions as a measures to prevent generation and circulation of unaccounted

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda money. It is applicable to all the taxpayers be it individual, firms, companies , AOP etc. as are included under the definition of ‘person’ u/s 2(31) , where cash credit is found credited in the books of an taxpayer and the taxpayer offers no explanation or an explanation offered by taxpayer is found not satisfactory by the AO, then by deeming fiction , the said cash credit is brought to tax as deemed income u/s 68. However, by amendment made by Finance Act, 2012, as applicable from ay: 2013-14, a proviso is inserted in Section 68 which stipulates that in the case of closely held companies where public is not substantially interested and where the tax-payer has raised share capital, share application money, share premium etc., the taxpayers being closely held company are required to explain source of source of said raising of share capital, share application money, share premium etc. . We are presently concerned with assessment year 2013-14 and newly inserted proviso to Section 68 is applicable. Section 68 of the Act cast obligation on the tax-payer where any sum is found credited in the books of an tax-payer maintained for any previous year, and the taxpayer offers no explanation about the nature and source of credit thereof or the explanation offered by the taxpayer is found not satisfactory in the opinion of the AO, the entire sum so credited in books of the tax-payer may treated as income and charged to income-tax as income of the taxpayer of that previous year. The burden/onus is cast on the taxpayer and the taxpayer is required to explain to the satisfaction of the AO cumulatively about the identity and capacity/creditworthiness of the creditors along with the genuineness of the transaction to the satisfaction of the AO. All the constituents are required to be cumulatively satisfied. If one or more of them is absent, then the AO can make additions u/s. 68 of the Act as an income of the tax-payer. There are companies which are widely held companies in which public are substantially interested which comes out with an initial public offers(IPO) wherein shares are listed on stock exchanges and widely traded, wherein members of public make

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda subscriptions in pursuance to the Prospectus issued by the company. Issue of shares in these cases to general public in India as well abroad are approved, regulated and monitored by various authorities who are engaged in regulating and managing securities market such as Securities and Exchange Board of India (SEBI), Stock Exchanges, Government of India etc.. Those members of public who make subscription in Public issues of securities are widely scattered all over the country or even outside India as any person entitle to apply as per the conditions prescribed in the prospectus can place an application subscribing to the shares of the company by depositing duly filled in application along with application money with the designated authorized recipients of the company stipulated in the prospectus such as bankers, brokers, under-writers, merchant bankers, company offices etc. These shareholders who are member of public are un-known persons to the company issuing shares and the company issuing shares have no control/mechanism to verify their creditworthiness etc. and the burden of proof in such cases is different, but there is another class of companies which are closely held companies in which public are not substantially interested who are mostly family controlled closely held companies and they raise their share capital from their family members, relatives and friends and in these companies since share capital is received from the close knit circles who are mostly known to the company/promoters, the onus as required u/s. 68 of the Act is very heavy to prove identity and capacity of the shareholders and genuineness of the transaction. The onus of widely held company could be discharged on the submissions of all the information contained in the statutory share application documents and on not being satisfied the AO may proceed against the shareholders u/s. 69 of the Act instead of proceeding against the company, but in the closely held companies as in the instant case before us the share capital are mostly raised from family, close relatives and friends and the assessee is expected to know the share subscribers and the burden is very heavy on the assessee to satisfy cumulatively the

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda ingredients of Section 68 of the Act as to identity and establish the credit worthiness of the creditors and genuineness of the transaction to the satisfaction of the AO, otherwise the AO shall be free to proceed against the assessee company and make additions u/s. 68 of the Act as unexplained cash credit. With newly inserted proviso to Section 68, the burden is now more heavier to explain source of source of raising of share capital, share application money, share premium etc. . The use of the word 'any sum found credited in the books' in Section 68 indicates that it is widely worded and the AO can make enquiries as to the nature and source thereof. The AO can go to enquire/investigate into truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of accounts and in case the AO is not satisfied with the explanation of the assessee with respect to establishing identity and credit worthiness of the creditor and the genuineness of the transactions, the AO is empowered to make additions to the income of the assessee u/s. 68 of the Act as an unexplained credit in the hands of the assessee company raising the share capital because the AO is both an investigator and adjudicator. In our considered view, merely submission of the name and address of the creditor, income tax returns, Balance Sheet/statement of affairs of the creditor and bank statement of the creditor is not sufficient as the AO is to be satisfied as to their identity and creditworthiness as well as to the genuineness of the transaction entered into. Thus, if the taxpayer is not able to give satisfactory explanation as to nature and source of the credits in the books, the entire amount is liable to be added as income of the person in whose books the said sum stood credited by invoking provisions of Section 68. Now, with the newly inserted proviso by Finance Act, 2012 w.e.f. 01.04.2013, burden is more onerous in case of closely held companies raising share capital, share application money and share premium etc. are now even required to explain to the satisfaction of the AO as to the sources of investor making investment in such tax-payer company . If such tax-payer fails to offer explanation or explanation offered is not satisfactory

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda as per AO, then the entire amount which stood credited in the books of the tax- payer shall be added as income by invoking provision of Section 68 , and then one need not proceed to make additions u/s 56(2)(viib). It is only when the tax-payer passes the test of satisfaction by AO as stipulated u/s 68 read with newly inserted proviso to Section 68, then in the case of closely held companies in which public are not substantially interested , the tests as laid down u/s 56(2)(viib) with respect to consideration being received from residents towards issue of shares in excess of FMV, shall arise. In our considered view, Section 56(2)(viib) which was placed in statute by Finance Act, 2012 wef 01.04.2013, as against Section 68 which was in statute since 1961, could be invoked only when the tests and satisfaction u/s 68 stood complied with. Thus , there cannot be double addition both on account of Section 68 as well Section 56(2)(viib), as both are mutually exclusive. The ld. Counsel for the assessee rightly relied upon the judgment and order of Hon’ble Kerala High Court in the case of Sunrise Academy of Medical Specialities (India) Private Limited(supra),is reproduced hereunder: “9. Any premium received by a Company on sale of shares, in excess of its face value, if the Company is not one in which the public has substantial interest, would be treated as income from other sources, as seen from Section 56(2) (viib) of the Act, which we do not think can be controlled by the provisions of section 68 of the Act. Section 68 on the other hand, as substituted with the provisos, treats any credit in the books of accounts, even by way of allotment of shares; for which no satisfactory explanation is offered, to be liable to income-tax. Clause (viib) of Section 56(2) is triggered at the stage of computation of income itself when the share application money received, from a resident, by a Company, in which the public are not substantially interested; is above the face value. Then the aggregate consideration received for the shares as exceeds the fair market value will be included as income from other sources. However, when the resident investor is not able to explain the nature and source for the credit seen in the books of accounts of the Company or the explanation offered is not satisfactory then the entire credit would be charged to income tax for that previous year. That is the entire amounts credited in the books of accounts, styled as, for allotment of shares or application money, including the fair market value determined will be charged to tax. However if an explanation is offered and if it is satisfactory in the case of a Company in which the public are not substantially interested, then the charge to tax will only be to that portion exceeding the fair market value determined; which anyway has to occur under Section 56(2)(viib).

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 10. If Section 68 is applicable, and the proviso is not satisfied, then the entire amounts credited to the books would be treated as income. If satisfactory explanation is offered as to the source, then the premium paid as revealed from the books will be brought to tax as income from other sources. The contentions raised are to be negatived.: Reference is also drawn to the appellate order passed by Kolkatta-tribunal in the case of Subhlakshmi Vanijya Private Limited v. CIT, reported in (2015) 60 taxmann.com 60(Kol-trib.), wherein tribunal discussed the inter-play between Section 68 and 56(2)(viib), as under: “13.af. At this stage, we consider it appropriate to discuss the submission of the ld. AR that a simultaneous amendment to section 56(2) connected with the amendment to section 68, has also been made w.e.f. 1.4.2013 and hence section 68 amendment is also retrospective. Before appreciating this argument, we set out clause (viib) of section 56(2) as under : — "where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:" shall be considered as income from other sources. 13.ag. This provision mandates that where a closely held company receives any consideration for issue of shares in any previous year from any resident and the consideration received for issue of shares exceeds the face value of such shares, then the aggregate consideration received for such shares, as exceeds the fair market value of the shares, shall be chargeable to income-tax under the head "Income from other sources". A bare perusal of this provision makes it explicit that a new obligation has been put on the closely held companies which issue shares for a consideration greater than the fair market value of its shares. When the shares are so issued at a higher price, then such excess becomes income from other sources in the hands of the company. This amendment is obviously prospective as the position of law before such amendment was different. Such share premium was always considered as a capital receipt not chargeable to tax. Since this insertion has increased the ambit of income of such companies henceforth for the first time, which was not the position hitherto, it ceases to be clarificatory and hence cannot be construed as retrospective. 13.ah. We fail to find out any parallel between the amendments made to section 68 and section 56(2)(viib) except for the fact that these provisions have been added by the Finance Act, 2012. A conjoint reading of proviso to section 68 and section 56(2)(viib) divulges that where a closely held company receives, inter alia, some amount as share premium whose genuineness is not proved by the assessee company or its source etc. is not proved by the shareholder to the satisfaction of the AO, then the entire amount including the fair market value of the shares, is chargeable to tax u/s 68 of the Act. If however, the genuineness of the amount is proved and the shareholder also proves his source, then the hurdle of section 68 stands crossed and the share premium, to the 57

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda extent stipulated, is chargeable to tax u/s 56(2)(viib) of the Act. It shows that only when source of such share premium in the hands of a shareholder is properly explained to the satisfaction of the AO, that the provisions of section 56(2)(viib) gets triggered. Approaching this section pre-supposes that the assessee genuinely received share premium from the share-holder having satisfactorily explained the transaction. Thus it is evident that sections 68 and 56(2)(viib) can never simultaneously operate. The later excludes the former and vice versa.”

Thus, we hold that firstly, it is to be seen that the assessee passes the requirements as to offering of explanation to the satisfaction of AO as is provided u/s 68 with respect to the consideration received on issue of 1700000 equity shares of Rs. 10 face value , which were issued at Rs. 90 per equity share including share premium of Rs. 80 per equity share, and if not, then the entire amount of consideration received which could not be satisfactorily explained as per requirement of Section 68 shall be brought to tax. But, once the assessee satisfied to the satisfaction of the AO as to the ingredients of Section 68 and no addition is contemplated u/s 68 with respect to consideration received for issue of shares, then provisions of Section 56(2)(viib) shall get triggered, and the assessee being a closely held company in which the public is not substantially interested and having received consideration on issue of shares from residents, will be required to justify the consideration received on issue of shares vis-à-vis fair market value, and the excess shall be chargeable to tax. Thus, there cannot be double additions with respect to invocation of Section 68 and 56(2)(viib) simultaneously, as explained above. Coming back , now we will firstly see whether the assessee is able to satisfy the ingredients as are stipulated u/s 68. The AO has accepted issuance of 2000 equity shares of face value of Rs. 10 each , issued at Rs. 90 per equity shares inclusive of share premium of Rs. 80 per equity shares , aggregating to Rs. 1,80,000/- , issued by assessee to eight individuals and no addition were made by AO by invoking provisions of Section 68. The ld. CIT(A) also did not interfere with the assessment order passed by AO so far as 2000 equity shares issued by assessee to 8

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda individuals are concerned, and hence the same has attained finality . The dispute which is between the rival parties is as to additions of Rs. 1,51,20,000/- made by the AO w.r.t. 168000 equity shares of face value of Rs. 10 each issued by assessee to five corporate entities based at Kolkatta , at an issue price of Rs. 90 per equity shares inclusive of share premium of Rs. 80 per equity share, which stood added to the income of the assessee by AO by invoking provisions of Section 68 of the 1961 Act read with newly inserted proviso to Section 68. The ld. CIT(A) affirmed additions, as were made by AO. The assessee being aggrieved is before tribunal , wherein second appeal is filed. The details of the five corporate entities from whom the assessee raised Rs. 1,51,20,000/- by issuing 168000 equity shares of face value of Rs. 10 each , at an issue price of Rs. 90 per share inclusive of share premium of Rs. 80 per share , are as under: S. Name and Address Nos. of shares Mode of Date of Amount No. of Shareholders issued payment payment Received (Rs.) 1 Champion Vintrade 40000 Bank RTGS 09.06.2012 36,00,000 Private Limited 50-2, Cabin Road, Golghar Ward No. 15, Jagaddal, Kolkata-743125 2 AprajitaVanijya 28000 Bank RTGS 12.05.2012 25,20,000 Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 3 Zigzag Vanijya 28000 Bank RTGS 12.05.2012 25,20,000 Private Limited Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 4 ShradhaVintrade 28000 Bank RTGS 22.05.2012 25,20,000 Private Limited, Chunaraipara Colony, Post- Nawabganj, Kolkata-743144 59

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 5 Sandal Wood 44000 Bank RTGS 21.05.2012 25,20,000 Commercial Pvt. 09.06.2012 14,40,000 Ltd. Chunaraipara Colony, Post- Nawabganj, Kolkata-743144

Thus, as could be seen that these 5 investing companies are all Private Limited Companies , which are residents based at Kolkatta. The amounts have been invested in the month of May/June, 2012. During the course of assessment proceedings, the assessee recorded statement on oath of Director of the assessee company namely Mr. Dinesh Kumar Mishra u/s 131, on 16.03.2016. The gist of said statement is reproduced hereunder:

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda

As could be seen from the above statement given by Mr. Dinesh Kumar Mishra, Director of the assessee company, that he has given an evasive replies to various questions put to him by AO, with respect to investments to the tune of Rs. 1,51,20,000/- made by these 5 investing companies based at Kolkatta. He could not explain satisfactorily his knowledge about the affairs / business of these companies, as well Directors of these five investing companies. He could not explain as to even their current addresses and whereabouts of these five investing companies , all based at Kolkatta. It is incomprehensible that these 5 investing 66

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda companies who invested in the assessee company in the year 2012 by making substantial investments to the tune of Rs. 1,51,20,000/- by subscribing to the 168000 equity shares of face value of Rs. 10 each at share premium of Rs. 80 per shares, would not have taken keen interest in the working of the assessee company in which they had made substantial investment’s. These 5 investing companies held 168000 equity shares , while the total share capital post investments by all thirteen investors in May/June 2012, was to the tune of 232000 equity shares , and it is incomprehensible that these 5 companies who were holding 168000 equity shares , constituting 72.4% of equity shares being majority shareholders of the assessee company were not participating in the day to day affairs of the assessee company, and the existing Director of the assessee company namely Mr. Dinesh Kumar Mishra is not aware of the majority shareholders of the assessee company. It is the statement of Mr. Dinesh Kumar Mishra , Director that Mr. Arvind Pandit was the person who was controlling all these 5 investing companies, and these 5 investing companies were under the same management. The AO issued notices u/s 133(6) to these five companies, which returned unserved. The AO repeatedly issued notices u/s 133(6) even to new addresses supplied by the assessee, vide MCA Master Data, and finally two companies responded namely M/s. Champion Vintrade Private Limited and M/s. Sandal Wood Commercial Private Limited, while three companies namely M/s. Aparajita Vanijya Private Limited, M/s. Zigzag Vanijya Private Limited and M/s. Shradha Vintrade Private Limited did not responded. The AO asked the assessee to produce Directors of these five investing companies , but the assessee failed to produce the Directors of these five investing companies before the AO. Thus, the AO was prevented by the assessee from interrogating the Directors of these 5 investing companies and recording of their statements, to unravel truth. The AO is both the investigator and the adjudicator. The assessee has claimed that these three investing companies , namely Aparajita Vanijya Private Limited, Zigzag

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Vanijya Private Limited and Shradha Vintrade Private Limited, initially responded by sending information through speed post, to ITO, Kanpur who initially issued letters u/s 133(6), but in between jurisdiction of ITO Changed to ITO, Banda from ITO , Kanpur. The assessee has placed said documents sent by these three investing companies on record to substantiate that these investments are genuine and credit worthiness as well identities of these investing companies stood proved. It is pertinent to mention that the jurisdiction of the AO was changed from ITO, Kanpur to ITO, Banda, on the request of the assessee, as the assessee filed application requesting for transfer of jurisdiction as the assessee has shifted its business from Kanpur to Hamipur. Before Proceeding further, it is also pertinent to mention that the assessee company was incorporated on 23.06.2009. The assessee company audited accounts for the year under consideration , are placed on record by the assessee at page number 9-24 in the paper book filed by the assessee. The said accounts are having comparative figures for the preceding year also. On perusal of the audited accounts , it transpires that the assessee income from operations were Rs. 2,75,600/- during the year under consideration, while the same was Rs. Nil for the year ended 31.03.2012. The assessee has also earned interest income of Rs. 5,17,956/- during the year under consideration , which was Rs. 5,40,947/- during preceding year. The interest expenses outgo during the year under consideration was Rs. 3,44,528/- (preceding year Rs. Nil) . The assessee has declared profit before tax of Rs. 15,836/- during year under consideration, while in preceding year the profit before tax was Rs. 15,664/- . Thus, it could be seen that there are meager income earned by the assessee. On the other hand , the assessee has issued equity shares of Rs. 10 each at share premium of Rs. 80 per equity shares , at issue price of Rs. 90 per share wherein Rs. 1,53,00,000/- was raised by the assessee company from thirteen investors , while there was no worthwhile business of the assessee. The assessee has claimed that its NAV was Rs. 87 per share , while computing the same based on audited financial statements

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda for the year ended 31.03.2012. The assessee’s share capital as on 31.03.2012 was Rs. 6,20,000/- comprising of 62000 equity shares of Rs. 10 each , while Reserve and Surplus was Rs. 47,61,129/- , out of which Securities Premium amount as at 31.03.2012 was Rs. 46,80,000/- . It is pertinent to mention that it is an admitted position that in earlier year viz. in financial year 2009-10 (ay: 2010-11 ) , the assessee raised share capital from M/s Bajrangbali Vincom Private Limited , which held its 24.19% of its share capital and which has been struck off from the Register of ROC/MCA. The assessee raised the share capital from M/s Bajrangbali Vincom Private Limited, 9/12, Lal Bazar, Block E IInd Floor, Kolkatta by issuing equity shares of Rs. 10 each face value, at issue price of Rs. 75 inclusive of share premium of Rs. 65. Per share . Similarly, it is admitted position that the assessee company also raised in financial year 2009-10 share capital from M/s Vrindavan Commodity Private Limited , 2 , Lal Bazar, 1st Floor, Kolkatta which held its 40.32% of its share capital and which is also not traceable. Both these companies are based in Kolkatta. It is also interesting to note from the copy of ITR filed by the assessee itself with department for ay: 2010-11 (page 5/paper book filed by department), that additionally one more Kolkatta based company namely M/s Zodiac Dealcom Private Limited, 14-C, Maharashi Devendra Road, Kolkatta , also held 16.13% shares of the assessee company, as at 31.03.2010. Thus, as could be seen that as high as more than 80% of its shareholding were held by Kolkatta based companies as on 31.03.2010, from whom the assessee has raised share capital at premium , in the very first year of its incorporation i.e. financial year 2009-10, that is how share capital of Rs. 6,20,000 and share premium of Rs. 46,80,000/- as on 31.03.2010, was constituted . The details of these three investing companies duly found mentioned in the ITR filed by assessee for ay: 2010-11. It is further interesting to note from the said ITR filed by assessee for ay: 2010-11 , that its income from operations were Rs. Nil during financial year 2009-10. It is also pertinent to mention that the assessee has filed details of shareholders as on 31.03.2011 before

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda AO in its reply dated 21.12.2015 , wherein the total share capital of the assessee is shown at the same figure of Rs. 6,20,000/- (page 86 of paper book filed by department) but the names of these investing companies who were holding more than 80% shares as on 31.03.2010 were completely missing , and instead the shareholding as on 31.03.2011 was stated to be as under: S.No. Name of Shareholder Shareholding as on 31.03.2011 1. Mr. Dinesh Kumar Mishra 5000 shares 2. Smt. Malti Mishra 5000 shares 3. Mrs. Ambika Prasad Tiwari 400 shares 4. Mr. Santosh Kumar 400 shares 5. Mr. Brajesh Kumar 200 shares 6. Mr. Suresh Kumar 200 shares 7. Smt. Priti Mishra 200 shares 8. Mr. Divakar 200 shares 9 Mr. Anupam 200 shares 10. Mrs. Pushpa 200 shares 11. Parihar Granite Private Limited 20000 shares 12. Anil Kumar Shukla 10000 shares 13. Dinesh Kumar Mishra 10000 shares 14. Ramesh Kumar Mishra 10000 shares Total 62000 shares

Thus, it could be seen that the names of the three investing companies who invested more than 80% shareholding in assessee company in financial year 2009-10 are not reflected in the list of shareholders as at 31.03.2011. The three investing companies are not traceable. The assessee could not explain or

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda substantiate why these companies are not reflected in the shareholding as on 31.03.2011. The evidence which could be and is not would, if produced would be unfavorable to the person who withholds it . Reference is drawn to Section 114(g) of the Indian Evidence Act, 1872. The reasons is not difficult to understand, these investing companies who are undertaking these investments through multi layer web of companies launder money and assists in conversion of un-accounted money of the invested companies in whom they make investment . These investing companies who launder money participate in share capital in the invested company by bringing share capital at huge valuation/share premium in the invested company who want to convert their unaccounted money under the shell/garb of legitimate investment in the form of share investments in it . Thus, the apparent is not real. The interest of these investing companies is to earn commission income by arranging these conversion of unaccounted money of invested company, and at the same time when these so called under shell/garb of legitimate investments are made, the entire documentation for substantiating their identity, creditworthiness and genuineness are created and are handed over by these investing companies engaged in laundering money to the invested company in whom these investments are made , and along with is handed over simultaneously all the necessary blank signed documents to reverse the transaction at the date convenient to the invested company , so that the actual promoters can transfer the shares allotted to these companies engaged in money laundering at later date ,to themselves or their nominees /relatives at a throw away prices and consideration for reversal is also paid in cash and no money trail through banking channel will be available when the transactions are reversed. This will then enable the actual promoters and/or their nominees/relatives to wrest back control of their company , and at the same time unaccounted money are brought into the company by way of share capital allotted at huge premium for which laundered money comes through banking channel through these investing

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda companies , and while on reversal the shares are transferred at throw away price to promoters of the invested company and /or their nominees/relatives for which all blank transfer documents are obtained at the initial stage of investment itself , which are used at a later convenient date to transfer shares in favour of promoters of the invested company and/or their nominees/relatives. That is why , we donot find the names of these three Kolkatta based companies who invested in 2009-10, in the list of shareholders as at 31.03.2011. These three Kolkatta based companies who invested around more than 80% shares in assessee company in 2009-10, which comes to 50000 shares out of total 62000 shares (80%+), and if we see the list of shareholders as at 31.03.2011 as per list above at S.No. 11-14 constituted 50000 equity shares which raises a presumption that these persons/entities got the shares transferred in their favour from these three investing companies based at Kolkatta at a subsequent date in financial year 2010-11. .The assessee is withholding evidence and presumption will be drawn against the assessee u/s114(g) of Indian Evidence Act, 1872. While when transfer of shares took place, all details /documents such as transfer deed executed by transferor as well transferee is filed with the company, the share certificates are filed for endorsement in favour of transferee , Board Resolutions are passed and transfer of shares is also subjected to transfer fee/stamp duty payable to Government which is computed based on valuation/consideration for transfer. The requisite / prescribed information/documents are also filed with ROC/MCA. The assessee could have brought these documents on record to show the consideration recorded therein and mode of payment of consideration by transferee to get shares transferred in their favour. This would have also unravelled the truth about true valuation of shares of the assessee company at which such transaction took place in 2010-11, as it would have disclosed the price at which the transferee acquired the shares from these three transferor investing companies in the year 2010-11. Much is said by Mr. Dinesh Kumar Mishra in his statement recorded

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda before AO on 16.03.2016 that in the year 2012-13, the five Kolkatta based investing companies acquired 168000 equity shares of Rs. 10 each face value, at premium of Rs. 80 per equity share i.e. total sale price of Rs. 90 per equity share because the assessee company has a plot of land of 800 square yards on which it proposes to develop real estate project and hence higher valuation for shares. We are afraid that this contention lacks merit, as in the year 2009-10 itself when the assessee company was a newly incorporated entity having no business, it issued equity shares of Rs. 10 each at a share premium of Rs. 65 per equity share to three Kolkatta based investing companies which held as high as 80%+shares, and it is pertinent to mention that the assessee has purchased the plot of land of 800 square yards in financial year 2011-12 , as is reflected in ITR for ay: 2012-13 as no such property was there in the accounts until financial year 2010-11. Thus, even when there was no business was carried out by the assessee and no plot of land was available with assessee company to undertake any real estate project, the assessee company raised share capital at a premium of Rs. 65 per share , at issue price of Rs 75 per share in financial year 2009-10 i.e. the year of incorporation from these Kolkatta based company as against face value of Rs. 10 per equity share, and hence to say that the assessee issued shares at Rs. 90 per share including share premium of Rs. 80 per share in financial year 2012-13 because of real estate project is preposterous. Much is said about NAV of Rs. 87 per share , while issuing equity shares of Rs. 10 each face value at Rs. 90 share inclusive of share premium of Rs. 80 per share, but the NAV computed of Rs. 87 per share based on audited financial statement as at 31.03.2012 mainly constituted Reserves and Surplus which constituted shares issued at premium of Rs. 65 per share in financial year 2009-10 to these Kolkatta based three investing companies , who are not traceable. Thus , to contend that the assessee issued shares at a price of Rs. 90 per share inclusive of share premium of Rs. 80 per share in 2012-13 , because of its real estate project is preposterous, and valuation of its share based on NAV

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda in 2012-13, constituted majorly share premium of Rs. 46,80,000/- raised in the year 2009-10 from three Kolkatta based companies who are untraceable. . Rather, the assessee is engaged in money laundering activities in concert with these Kolkatta based entities , to convert its unaccounted income /money by bringing it in its books by way of issuing shares at premium. The claim of the Revenue is that only two companies namely Champion Vintrade Private Limited and Sandal Wood Commercial Private Limited, responded to notices sent u/s 133(6), while in the case of other three investing companies , namely M/s Aparajita Vanijya Private Limited, Zigzag Vanijya Private Limited and M/s Shradha Vintrade Private Limited , notices sent u/s 133(6) returned back unserved. These two companies namely Champion Vintrade Private Limited and Sandal Wood Commercial Private Limited, responded to notices issued by AO u/s 133(6), while other three never responded. The AO asked the assessee to produce Directors of all these five investing companies, which were never produced.Thus, the AO was prevented by the assessee from interrogating Directors of these five investing companies to unravel truth. The AO is both the adjudicator and investigator. The assessee has also not filed with authorities below a copy of return of allotment in Form No. 2(PAS 3 under New Companies Act, 2013 ) with respect to share allotted to these five investing companies, and it become all the more important as because with respect to share money raised at premium by assessee in 2009-10 from three Kolkatta based investing company, their names now are not reflected in the shareholder list of the assessee company as at 31.03.2011 filed by assessee before AO vide reply dated 21.12.2015, and no explanation is forthcoming from assessee with respect thereto.. The assessee has claimed to have filed response of these five investing companies with AO,as certified in paper book at page number 85-212 (paper book filed by the assessee with tribunal), which is disputed by Revenue that said replies were not filed before the authorities below. Now, let us analyse all these documents pertaining to these 74

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda five investing companies, as claimed by the assessee to have been filed before authorities below in its defense albeit disputed by Revenue : a) Champion Vintrade Private Limited This investing company has confirmed that it invested Rs. 36,00,000/- in the assessee company via RTGS sent on 09.06.2012 through Indusind Bank, Burra Bazar, Kolkatta, for subscribing to 40000 shares of Rs. 10 each at premium of Rs. 80 per share of the assessee company. The source of investment is shown to be advance received against sale of shares from M/s Avtar Suppliers Private Limited to the tune of Rs. 25,50,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 10,50,000/- . The investing company has furnished its ITR for ay : 2013-14 in which income is reflected as Rs. 10540/-. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 36,00,000/- on 09th June, 2012 through RTGS, for making investment in the assessee company. This debit of Rs. 36,00,000/- is preceded by credit entry of Rs. 36,00,000/- on the same date . The balance prior to this credit was Rs. 19,976/- and the average balance maintained in this account was meager around Rs. 10,000. There are several credits in this account , which are succeeded by debits of the same amount on the very same day of credit , so that average balance maintained is merely around Rs. 10,000. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 as well also at 31.03.2013. The income from operations in the financial year 2012-13 was Rs. 1,16,611/- , while for financial year 2011-12 the same was Rs. Nil. It has declared post tax profit of Rs. 7,274.57 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was post tax loss of Rs. 7874.51. Thus, the company does not have any business apart from investments. This company has paid up share capital of Rs. 12,46,500 as at 31.03.2012 and also at 31.03.2013, while Reserves and 75

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Surplus were to the tune of Rs. 22,80,99,981.49 as at 31.03.2012 and Rs. 22,81,07,256.06 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. 22,81,22,620.00 as at 31.03.2022 as well at 31.03.2013. Thus, as against share capital of Rs. 12,46,500/- consisting of 124650 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 22,81,22,620/- translating into average share premium of Rs. 1830 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1840 per share as against face value of Rs. 10 keeping in view business of the said investing company . This company has majorily one asset which is investment in equity shares of other companies , which stood at Rs. 22,89,90,000/- as at 31.03.2012 and Rs. 21,83,20,000/- as at 31.03.2013. It is interesting to note that the entire investments made by it are in unquoted shares , and none of the investments are in quoted shares/mutual funds which are liquid form of investments and can generate higher as well regular returns. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well preceding year, as the income of Rs. 1,16,611/- declared by it for year under consideration is from interest income . Thus, the company did not consider investment in quoted shares/Mutual Funds , which are liquid and scope of growth is higher if investments are made in blue chip companies. The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the Company’s performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta. b) Aparajita Vanijya Private Limited This investing company has confirmed that it invested Rs. 25,20,000/- in the assessee company via RTGS sent on 12.05.2012 through Indusind Bank, Burra Bazar, Kolkatta, for subscribing to 28000 shares of Rs. 10 each at premium of Rs. 80 per share of the assessee company. The reply was claimed to be sent on 20.11.2015 to ITO, Kanpur, but on 19.11.2015, the jurisdiction of the case stood shifted from ITO, Kanpur to ITO, Banda. The revenue has denied to have received the said reply. The jurisdiction was shifted at the behest of assessee company. The assessee has enclosed reply of said company before ITO. The source of investment is shown to be advance received against sale of shares from M/s Shivdarshan Commodeal Private Limited to the tune of Rs. 15,00,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 21,20,000/- . The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 25,20,000 on 12th May, 2012 through RTGS, for making investment in the assessee company. This debit of Rs. 25,20,000/- is preceded by credit entry of Rs. 21,20,000/- and Rs. 4,00,000/- on the same date . The balance prior to this credit was Rs. 10,037/- and the average balance maintained in this account was meager Rs. 10,000/-. There are several credits in this account , which are succeeded by debits of the same amount on the very same day of credit , so that balance maintained is merely Rs. 10,000. It has passed a Board Resolution dated 21.07.2011 authorizing Mr. Arvind Pandit, Director to invest the fund of the company and to do all necessary documentation with respect thereto on behalf of the

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda company. The investing company has not furnished its ITR for ay : 2013-14 , while ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 17,462. The income from operation in financial year 2010-11 was Rs. Nil. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 and also at 31.03.2013. The income from operations in the financial year 2012-13 was Rs. Nil , while other income from interest was Rs. 6,07,507.00 , while for financial year 2011-12 there were purchase /sale of shares/Mutual Fund routed through Profit and Loss Account. It has declared post tax profit of Rs. 7,969.07 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was loss of Rs. 22,618.45. Thus, the company does not have any business apart from investments and/or sale / purchase of share/MF in preceding year. This company has paid up share capital of Rs. 19,53,750 as at 31.03.2012 and also at 31.03.2013, while Reserves and Surplus were to the tune of Rs. 36,88,13,930.05 as at 31.03.2012 and Rs. 36,88,21,899.12 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. 36,88,54,010 as at 31.03.2022 as well at 31.03.2013. Thus, as against share capital of Rs. 19,53,750 consisting of 195375 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 36,88,21,899.12 translating into average share premium of Rs. 1887.76 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1898 per share keeping in view business of the said investing company . This company has majorily one asset which is investment in equity shares of other companies , which stood at Rs. 37,48,85,000/- as at 31.03.2012 and Rs. 35,64,85,000/- as at 31.03.2013. It is interesting to note that the majority of investments made by it are in unquoted shares , and only Rs. 4 crores of the investments are in quoted

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda shares. Thus, the company did not consider investment majorly in quoted shares/Mutual Funds ,which are liquid and scope of growth is higher if investments are made in blue chip companies. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well preceding year, as the income of Rs. 16,07,507/- declared by it for year under consideration is from interest income . The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the company’s performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. The name of the assessee was also struck off from Register of ROC/MCA. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta.

c) Zigzag Vanijya Private Limited This investing company has confirmed that it invested Rs. 25,20,000/- in the assessee company via RTGS sent on 11.05.2012 through Indusind Bank. The reply was claimed to be sent on 20.11.2015 to ITO, Kanpur, but on 19.11.2015, the jurisdiction of the case stood shifted from ITO, Kanpur to ITO, Banda. The revenue has denied to have received the said reply. The jurisdiction was shifted at the behest of assessee company. The assessee has enclosed reply of said company before ITO. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda amount of Rs. 25,20,000 on 11th May, 2012 through RTGS, for making investment in the assessee company. This debit of Rs. 25,20,000/- is preceded by credit entry of Rs. 18,20,000/-and Rs. 2,00,000/-on same day, while Rs. 5,00,000/- stood credited on 09.05.2012 . The balance prior to this credit was Rs. 10298.77 and the average balance maintained in this account was meager Rs. 10,000/-. There are several credits in this account , which are succeeded by debits of the same amount on the very same or within 2-3 day of credit of amount in bank account , so that balance maintained is merely Rs. 10,000/-. The source of investment is shown to be receipt from M/s Shivdarshan Commodeal Private Limited to the tune of Rs. 7,00,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 18,20,000/- . It has passed a Board Resolution dated 19.07.2011 authorizing Mr. Arvind Pandit, Director to invest the fund of the company and to do all necessary documentation with respect thereto on behalf of the company The investing company has not furnished its ITR for ay : 2013-14 , while ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 16,210. The income from operation in financial year 2010-11 was Rs. Nil. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 and also at 31.03.2013. The income from operations from sale of share in the financial year 2012-13 was Rs. 14,83,953/- , while other income from interest was Rs. 8,65,828/- , while for financial year 2011-12 there were purchase /sale of shares/Mutual Fund routed through Profit and Loss Account. It has declared post tax profit of Rs. 22,657.8 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was post tax profit of Rs. 8,728.27. Thus, the company does not have any business apart from investments and/or sale / purchase of share/MF . This company has paid up share capital of Rs. 20,46,500/- as at 31.03.2012 and also at 31.03.2013, while Reserves and Surplus were to

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda the tune of Rs. 38,73,46,017.94 as at 31.03.2012 and Rs. 38,73,35,915.74 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. 38,73,53,500/- as at 31.03.2012 and Rs. 38,73,20,740/- as well at 31.03.2013. Thus, as against share capital of Rs. 20,46,500/- consisting of 204650 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 38,73,35,915.74 translating into average share premium of Rs. 1892.67 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1903 per share keeping in view business of the said investing company . This company has majorly one asset which is investment in equity shares of other companies , which stood at Rs. 37,89,55,000 as at 31.03.2012 and Rs. 36,25,34,850/- as at 31.03.2013. It is interesting to note that the entire investments made by it are in unquoted shares. Thus, the company did not consider investment in quoted shares/Mutual Funds on medium to long term bases, which are liquid and scope of growth is higher if investments are made in blue chip companies. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well preceding year. The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the company’s performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. The name of the assessee was also struck off from Register of ROC/MCA. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta. d) Shradha Vintrade Private Limited This investing company has confirmed that it invested Rs. 25,20,000/- in the assessee company via RTGS sent on 22.05.2012 through Indusind Bank. The reply was claimed to be sent on 20.11.2015 to ITO, Kanpur, but on 19.11.2015, the jurisdiction of the case stood shifted from ITO, Kanpur to ITO, Banda. The revenue has denied to have received the said reply. The jurisdiction was shifted at the behest of the assessee company. The assessee has enclosed reply of said company before ITO. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 25,20,000 on 22nd May, 2012 through RTGS , for making investment in the assessee company . This debit of Rs. 25,20,000/- is preceded by credit entry of Rs. 25,20,000/- on same day from Russle Mercantile Private Limited. The balance prior to this credit was Rs. 12010.95 and the average balance maintained in this account was meager Rs. 12,000/-. The source of investment is shown to be receipt from M/s Russle Mercantile Private Limited to the tune of Rs. 25,20,000/- . It has passed a Board Resolution dated 21.07.2011 authorizing Mr. Arvind Pandit, Director to invest the fund of the company and to do all necessary documentation with respect thereto on behalf of the company. The investing company has not furnished its ITR for ay : 2013-14 , while ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 18,115/- . The income from operation in financial year 2010-11 was Rs. Nil. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 and also at 31.03.2013. The income from operations in the financial year 2012-13 was Rs. 4,36,471/- which is interest income , while for financial year 2011-12 there were no reported

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda income . It has declared post tax profit of Rs. 6,578.02 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was loss of Rs. 8,798.72. Thus, the company does not have any business apart from investments .This company has paid up share capital of Rs. 20,03,000/- as at 31.03.2012 and also at 31.03.2013, while reserves and surplus were to the tune of Rs. 37,86,27,045.95 as at 31.03.2012 and Rs. 37,86,33,623.97 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. Rs. 37,86,53,960/- as at 31.03.2022 and Rs. 37,86,53,960/- as at 31.03.2013. Thus, as against share capital of Rs. 20,03,000/- consisting of 200300 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 37,86,27,045.95 translating into average share premium of Rs. 1890.30 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1900 per share keeping in view business of this company . This company has majorly one asset which is investment in equity shares of other companies , which stood at Rs. 38,48,35,000/- as at 31.03.2012 and Rs. 35,94,35,000/- as at 31.03.2013. It is interesting to note that the entire investments made by it are in unquoted shares. Thus, the company did not consider investment in quoted shares/Mutual Funds , which are liquid and scope of growth is higher if investments are made in blue chip companies. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well in the preceding year. The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the company’s performance is not satisfactory. This is against the theory of commercial expedience ,and is a path to self destruction, that is why we have seen many of these companies are struck off from records of ROC and are now untraceable. The name of the assessee was also struck off from

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Register of ROC/MCA. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta.

e) Sandalwood Commercial Private Limited This investing company has confirmed that it invested Rs. 39,60,000/- in the assessee company via RTGS sent on 21.05.2012 and 09.06.2012 in two tranches through Indusind Bank, Burra Bazar, Kolkatta, for subscribing to 44000 shares of Rs. 10 each at premium of Rs. 80 per share , of the assessee company. The source of investment is shown to be advance received against sale of shares from M/s Source Dealers Private Limited to the tune of Rs. 25,20,000/- and from M/s Russle Mercantile Private Limited to the tune of Rs. 13,40,000/- and Rs. 50,000 each on 2 occasions received from Mrs. Panna Maheshwai on 23.05.2012 and 30.05.2012. The investing company has not furnished its ITR for ay : 2013-14 , but ITR for assessment year 2011-12 is furnished in which income is reflected at loss of Rs. 16,192/-. The copy of bank statement of Indusind Bank is enclosed, and the said investing company has remitted an amount of Rs. 39,60,000/- on 21.05.2012 and 09th June, 2012 through RTGS, for making investment in the assessee company. This debit amount in aggregate of Rs. 39,60,000/- is preceded by credit entry on the same date of the majorly amounts except Rs. 1,00,000/- which stood credited few days back . The balance prior to this credit was around Rs. 10,000/- and the average balance maintained in this account was meager around Rs. 10,000/-. There are several credits in this

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda account , which are succeeded by debits of the same amount on the very same day of credit , so that balance maintained is merely around Rs. 10,000/-. It has passed a Board Resolution dated 21.07.2011 authorizing Mr. Arvind Pandit, Director to invest the fund of the company and to do all necessary documentation with respect thereto on behalf of the investing company. The perusal of Balance Sheet as at 31.03.2013 will reveal that there is no fixed assets as at 31.03.2012 and also at 31.03.2013. The income from operations in the financial year 2012-13 was Rs. 4,56,164/- , while for financial year 2011-12 income from operation was Rs. Nil. It has declared post tax profit of Rs. 7,803.55 for the financial year ended 31.03.2013, while for the financial year 2011-12, there was loss of Rs. 8,430.69. Thus, the company does not have any business apart from investments. This company has paid up share capital of Rs. 20,63,500 as at 31.03.2012 and also at 31.03.2013, while Reserves and Surplus were to the tune of Rs. 39,06,67,877.81 as at 31.03.2012 and Rs. 39,06,75,681.36 as at 31.03.2013. The aforesaid Reserves and Surplus comprises mainly of Securities Premium received on issue of shares which was at Rs. 39,06,92,500/- as at 31.03.2022 as well at 31.03.2013. Thus, as against share capital of Rs. 20,63,500/- consisting of 206350 equity shares of Rs. 10 each, the securities premium raised on issue of shares is to the tune of Rs. 39,06,92,500/- translating into average share premium of Rs. 1893 per equity shares, which by no means justify issuing shares at whopping price of Rs. 1903 per share keeping in view business of this investing company . This company has majorly one asset which is investment in equity shares of other companies , which stood at Rs. 39,18,90,000/- as at 31.03.2012 and Rs. 37,14,80,000/- as at 31.03.2013. It is interesting to note that the entire investments made by it are in unquoted shares , and none of the investments are in quoted shares/mutual funds which are liquid form of

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda investments. Despite huge investments made by it, the investing company did not got any dividend from its investments in this year as well preceding year, as the income of Rs. 4,56,164.00 declared by it for year under consideration is from interest income . Thus, the company did not consider investment in quoted shares/Mutual Funds , which are liquid and scope of growth is higher if investments are made in blue chip companies. The company has not declared any dividend during the year as well preceding year, and it is stated in Directors Report that the Company’s performance is not satisfactory. Thus, the entire factual matrix as discussed above leads to one and only one conclusion that this company is engaged in money laundering activities, where in it is a conduit/shell company to launder and convert unaccounted money of invested companies to bring in the books of invested company by way of share capital and share premium raised by invested company through these investing companies based at Kolkatta.

Thus, based on the above discussions, we are of the considered view that all these five investing companies are shell/conduit companies having no business of its own , and are merely created to launder money in order to convert unaccounted money of the investing companies under the garb/shell of share capital/share premium to bring it into the books of the invested company under the farce shell of legitimate share capital and share premium , with an intent and view to defraud revenue and evade taxes. Thus, what is apparent is not real. Thus, we hold that the share capital including share premium raised by the assessee company, to the tune of Rs. 1,51,20,000/- from these five investing companies based at Kolkatta , is infact the undisclosed income of the assessee which was inducted by way of share capital and share premium in the assessee company by laundering through these five investing companies based at Kolkatta, and the assessee company fails to prove the creditworthiness of these five investing companies as well genuineness 86

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda of these transactions, and the requirements of Section 68 read with proviso are not fulfilled/satisfied , and hence we uphold the appellate order passed by ld. CIT(A) which in turn confirmed the addition made by the AO in the assessment order, to the tune of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE of the 1961 Act. Our view is fortified by the decision of Mumbai-tribunal in the case of Royal Rich Developers Private Limited v. DCIT , in ITA no. 1835 & 1836/Mum/2014, vide appellate order dated 24.08.2016 , in which one of us being Accountant Member was part of the Division Bench which pronounced the order. The said appellate order of tribunal in the case of Royal Rich Developer was affirmed by Hon’ble Bombay High Court in Royal Rich Developers Private Limited v. PCIT, reported in (2019) 265 Taxman 99(Bom.). Our view is fortified by the decision of Mumbai-tribunal in the case of Pratik Syntex Private Limited v. ITO, reported in (2018) 94 taxmann.com 12(Mum.) , in which one of us being Accountant Member was part of the Division Bench which pronounced the order. Our view is further fortified by the decision of Hon’ble Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, wherein Hon’ble Supreme Court held as under: "Now the contention of the appellant is that assuming that he had failed to establish the case put forward "by him, it does not follow as a matter of law that the amounts in question were income received or accrued during the previous year, that it was the duty of the Department to adduce evidence to show from what source the income was derived and why it should be treated as concealed income. In the absence of such evidence, it is argued, the finding is erroneous. We are unable to agree. Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanation he put forward two explanations, one being a gift of Rs. 80,000 and the other being receipt of Rs. 87

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been, it was clearly open to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case. There is no ground for interfering with that finding, and these appeals are accordingly dismissed with costs."

We would also like to usefully refer to the decision of Hon’ble Calcutta High Court in the case of Rajmandir Estates Private Limited v. PCIT, reported in (2016) 70 taxmann.com 124(Calcutta), wherein SLP filed against the said judgment and order of Hon’ble Calcutta High Court was dismissed by Hon’ble Supreme Court in (2017) 77 taxmann.com 285(SC). The Hon’ble Calcutta High Court held as under 21. After hearing the learned advocates, we are of the opinion that the following questions arise for consideration:— (a) Whether in the light of the views expressed in the case of Lovely Exports (supra) & Steller Investment (supra) the order under Section 263 directing further investigation is legal? (b) Is the finding of the Commissioner of Income Tax that unaccounted money was or could have been laundered as clean share capital by creating facade of paper work, routing the money through several bank accounts and getting it the seal of statutory approval by getting the case reopened under Section 147 suo motu perverse? (c) Whether the order passed by the assessing officer under Section 143(3)/147 of the Income Tax Act is erroneous and also prejudicial to the interest of the revenue? (d) Whether the impugned judgement of the learned Tribunal is perverse? 22. We shall consider the second question first. In a commentary on the Prevention of Money Laundering Act, 2002 by Dr. M. C. Mehanathan published by Lexis Nexis, 2014, the steps of money laundering are described as follows:— "STEPS OF MONEY-LAUNDERING

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda Although money-laundering often involves a complex series of transactions, it generally includes the following three basic steps: 1. Placement It involves introduction of the proceeds of crime into the financial system. This is accomplished by breaking up large amounts of cash into smaller sums that are then deposited directly into a bank account, or by purchasing monetary instruments, transferring the cash overseas for deposit in banking/financial institutions, use for purchase of high value things such as gold, precious stones, art works etc. and reselling the same through cheques or bank transfers etc. 2. Layering This involves formation of complex layers of financial transactions which distance the illicit proceeds from their source and disguise the audit trail. In this process a series of conversions or transactions are involved for moving the funds to places such as offshore financial centres operating in a liberal regulatory regime. Often "front" companies are formed to accomplish this task. These companies obscure the real owners of the money through the bank secrecy laws and attorney-client privilege. The techniques used for the purpose are to lend the proceeds back to the owner as loans, gifts and etc., under invoicing the items exported to the real owner or etc. In some cases, the transfers may be disguised as payments for goods or services, thus giving them a legitimate appearance. 3. Integration This involves investment in the legitimate economy so that the money gets the colour of legitimacy. This is achieved by techniques such as lending the money through "front" companies etc. The money may be invested in real estates, business and etc. The stages at which money-laundering could be easily detected are those where cash enters into the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of tax haven countries and where it is repatriated in the form of transfers." The role of the revenue authorities in tackling the menace of laundering black money was commented by the learned author as follows:— "It has to be kept in view that India has a problem of black economy, which is unacounted and many a time the holders of black money also launder the black money in order to acquire legitimate assets. Legal or illegal income which evades tax and illegal income that comes within the exempted taxation slab constitute the unreported Gross Domestic Product or black economy. Laundering the black money and laundering proceeds of crime are two different issues, although there is frequent overlap between the two. While laundering black money is to be handled through taxation laws or similar laws, the laundering of proceeds of crime is to be handled through special anti-money-laundering laws." 23. The following pieces of evidence are noticeable:—

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda (a) 39 corporate subscribers purchased 7,92,737 shares of Rs.10 each at a premium of Rs.390/- per share. In the process the assessee company raised a paid up share capital of Rs.79.27 lakhs with a premium of Rs.31.7 crores. (b) From the information made available by the assessee, it appears that 19 out of 39 applicants secured funds, for the purpose of contributing to the share capital of the assessee, on account of share application money. In other words, those 19 applicants collected funds on account of share application money in their respective companies and that money was contributed to the share capital of the assessee. 15 out of the 39 applicants procured the requisite fund by selling shares. The rest of the applicants of shares, in the share capital of the assessee company, did not disclose the nature of receipt at their end though the source of fund was identified. What has not been specified is, as to on what account was the money received. (c) The forms of share application purporting to have been signed by the applicant companies have also been disclosed from which it appears that the date of allotment, number of allotment, number of shares allotted, share ledger folio, allotment register folio, application number, have all been kept blank. These particulars, Mr. Poddar, submitted should have been filled up by the assessee, but that has not been done. (d) Another significant fact admitted by the assessee in reply to the notice to show cause under Section 263 is that the "shares were offered to, and subscribed by the closely held companies owned by the Promoters/Directors or their close relatives and friends". (e) From the bank statements disclosed it appears that to have the cheques issued in favour of the asseessee honoured, matching amounts were credited to the accounts of the subscribers shortly before the cheques issued in favour of the assessee were presented for collection. (f) 19 applicants of shares within a period of less than six months had money contributed to their share capital which in their turn they contributed to the share capital of the assessee. So that, the 19 companies which contributed to the share capital of the assessee in the name of assets were left merely with the share-scripts of the assessee. The other lot of 15 subscribers in substance had the share-scripts held by them substituted by the share-scripts of the assessee. (g) Though, Mr. Poddar made extensive submissions scanning the order under Section 263 in between the lines, he did not criticize the finding of the Commissioner that "the A.O. did not examine a single Director of the assessee company or of the subscribing company" which goes to show that correctness of this assertion is not in dispute. 24. From the aforesaid evidence the following, prima facie, inferences can safely be drawn:— (a) The promoter/directors of the assessee and their close relatives and friends had united with the common object of creating at least 20 (19+1) companies apparently having a large capital 90

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda base, but, in fact these are mere paper companies having no real worth. The transaction of sale and purchase of shares was nominal rather than real. (b) The allegation, in response to the notice to show-cause u/s. 263 that "it bears importance to state here that the investor companies of shares were interested to subscribe shares of the assessee company as, according to them, the assessee company had prospect in future," is a plain lie. (c) The blank share application forms etc. tabulated above go to show that the alleged application for shares and the alleged allotment were not in the usual course of the business. (d) In the light of the aforesaid pieces of evidence and the prima facie finding, we are emboldened to say that the three requirements: (A) identity of the share-holders; (B) genuineness of the transaction and (C) the creditworthiness of the share-holders repeatedly impressed, by Mr. Poddar, upon us, have not been satisfied. Identity of the alleged share- holders is known but the transaction was not a genuine transaction. The transaction was nominal rather than real. The creditworthiness of the alleged share holders is also not established because they did not have any money of their own. Each one of them received from somebody and that somebody received from a third person. Therefore, prima facie, the share-holders are mere name lenders. 25. For the reasons discussed in the preceding paragraph, we are satisfied that the judgement in the case of Steller Investment (supra) has no manner of application to the facts and circumstances of this case. The question as to whether there has been a device adopted for money laundering also did not crop up for consideration in that case. The Prevention of Money Laundering Act, 2002 was not also there on the statute at that point of time. Before the appeal in Steller Investment Ltd. was dismissed by the Apex Court, the question had cropped up in the case of Sophia Finance Ltd. (supra) wherein a special bench held as follows:— "As we read section 68 it appears that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee, then it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not. It is in this regard that enquiries are usually made in order to find out as to whether, firstly, the persons from whom money is alleged to have been received actually existed or not. Secondly, depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere name-lender or not. Be that as it may, it is clear that the Income-tax Officer has jurisdiction to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of share application money. 91

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda The use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money." In the case of Sumati Dayal (supra). Their Lordships held that a capital receipt can become taxable if the explanation offered by the assessee about the nature and source thereof is not satisfactorily explained. The judgement in the case of Lovely Exports (P.) Ltd. (supra) lends no assistance to the assessee because in that case the Division Bench reiterated that omission to make an enquiry, where such an exercise is provoked, shall render the order of the assessing officer both erroneous and prejudicial to the revenue. The Division Bench went on to hold that the revenue should not harass the assessee where "the preponderance of evidence indicates absence of culpability". In the present case there exists reasonable suspicion if not prima facie evidence of culpability. 26. The learned Tribunal in the impugned judgement in paragraphs 3, 4 and 5 observed, inter alia as follows:- "We have heard the rival submissions and perused the relevant material on record. It is relevant to mention that we have disposed of more than 500 cases involving same issue through certain orders with the main order having been passed in a group of cases led by Subhlakshmi Vanijya Pvt. Ltd. v. CIT (ITA No.1104/Kol/2014) dated 30.07.2015 for the A. Y. 2009-10. Both the sides have fairly admitted that facts and circumstances of the cases under consideration are mutatis mutandis similar to those decided earlier, except for certain issues which we will advert to a little later. In our aforesaid order in Subhalakshmi Vanijya Pvt. Ltd. v. CIT (ITA No. 1104/Kol/2014 A.Y. 2009-10), we have drawn the following conclusions:- ** ** **" It is noticed that all or some of the above conclusions are applicable to the appeals in this batch." The appellant has disclosed a copy of the judgement delivered by the learned Tribunal in Subhalaxmi Vanijya (P.) Ltd. v. CIT. The learned Tribunal in paragraph 17.i. opined as follows:- "All the cases under consideration have the same common feature of passing assessment orders in undue haste. When we consider the above factual matrix, there can be no escape from an axiomatic conclusion that in all these cases the enquiry conducted by the AOs is exceedingly inadequate and hence fall in the category of 'no enquiry' conducted by the AO, what to talk of charactering it as an 'inadequate enquiry'. In our considered opinion, the highly inadequate enquiry conducted by the AO resulting in drawing incorrect assumption of facts, makes the orders erroneous and prejudicial to the interests of the revenue."

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 27. In the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) the Tribunal had held as follows:- "The Tribunal further held that if the orders for 1955-56 to 1959-60 were left out and the assessment order for 1960-61 was considered by itself, it could not be said that the assessment order was prejudicial to the interests of revenue. It was also observed that the factum of advance of initial capital, realization of amounts by sale of gold ornaments and the carrying on of the money-lending and speculative business had already been accepted and assessed in the previous years, that even in the year of assessment in question the Income-tax Officer had added Rs.1,499 to the disclosed income from speculative business and Rs.1,270 to the disclosed income from interest and made the assessment on a total income of Rs.9,037; as such it could not be said that the assessment was prejudicial to the interests of revenue and that at the most it could be said that the assessee could not have carried on any business at the addresses given by her but where an assessment has been made without territorial jurisdiction it could not be said to be prejudicial to the interests of revenue." This Court set aside the order of the learned Tribunal. In an appeal by the assessee before the Apex Court their Lordships upheld the order of this Court holding, inter alia as follows:— "The learned advocate for the assessee contends that under section 33B the Commissioner had no jurisdiction to cancel the assessment made by the Income-tax Officer inasmuch as it cannot be said that where an assessee has been assessed to tax it was prejudicial to the interests of revenue on the ground that no assessment could have been made in respect of the income of which she made a voluntary return. This contention in our view is unwarranted by the language of section 33B. The words of the section enable the Commissioner to call for and examine the record of any proceeding under the Act and to pass such orders as he deems necessary as the circumstances of the case justify when he considers that the order passed was erroneous in so far as it is prejudicial to the interests of the revenue. It is not, as submitted by the learned advocate, prejudicial to the interests of the revenue only if it is found that the assessment for the year was disclosed on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. If so and we think it is so the Commissioner under section 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income- tax authorities is liable for the income thereof." The reasoning advanced by their Lordships in respect of an alleged revenue receipt is, according to us, equally applicable to an alleged capital receipt which, in fact, was received only in papers. The attempt of the assessee, it was apprehended in the case of Smt. Tara Devi Aggarwal (supra) was to assist someone else. An identical attempt is involved in this case. Who is the person sought to be assisted by the assessee? This question can only be answered after a thorough enquiry, directed by the CIT, is held. The assessee is interested in stalling that investigation on the plea that the order of the assessing officer is neither erroneous nor prejudicial to the interest of the revenue.

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 28. We have indicated above the pieces of evidence which go to show that the Commissioner had reasons to entertain the belief that this was or could be a case of money laundering which went unnoticed because the assessing officer did not hold requisite investigation except for calling for the records. The evidence which we have tabulated above and the prima facie inference drawn by us is deducible from the documents also submitted before the assessing officer. The fact that the assessing officer did not apply his mind to those pieces of evidence would be evident from the assessment order itself which reads as follows:— "During the Financial Year the assessee company has issued 792737 No. of equity share with a face value of Rs.10/- along with a premium of Rs.390/-. Thereafter, Notices u/s. 133(6) of the I.T. Act, 1961 were also issued to verify the transactions of the assessee on test check basis. The case is discussed and heard. Issue relevant for determination of total income of the assessee is discussed as under:" The issues relevant according to the assessing officer were a receipt of a sum of Rs.61,000/- on account of consultancy charges and the preliminary expenses written off amounting to a sum of Rs.60,000/-. He, therefore, completed the assessment after making addition of a sum of Rs.1,21,000/-. When is an order erroneous in so far as the same is prejudicial to the interest of the revenue was considered by this Court in the case of Maithan International (supra) to which one of us (Girish Chandra Gupta, J.) was a party wherein the following views were expressed:— 'It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial orders. Where the relevant enquiry was not undertaken, as in this case, the order is erroneous and prejudicial too and, therefore, revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. In a different context the apex court observed "contra veritatem lex nunquam aliquid permittit : implies a duty on the court to accept and accord its approval only to a report which is the result of faithful and fruitful investigation" (See Sidhartha Vashisht alais Manu Sharma v. State (NCT of Delhi) reported in [2010] 6 SCC 1 paragraph 200 at page 80)' In the case of N.R. Portfolio (P.) Ltd. (supra) the following views were expressed:— "What we perceive and regard as correct position of law is that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the three factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details, PANs or the fact that third persons or company had filed Income-tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soulless and are dependent upon the individuals behind them who run and manage the said

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda companies. It is the persons behind the company who take the decisions, control and manage them." The persons behind the assessee company and the persons behind the subscribing companies were not interrogated which was essential to unearth the truth. Reference may also be made to the judgement of this Court in the case Active Traders (P.) Ltd. (supra). The question for consideration is whether in the presence of materials discussed above the Commissioner was justified in treating the assessment order erroneous and prejudicial to the interest of the revenue. That question in the facts and circumstances has to be answered in the affirmative. We find no substance in the submission that the order of the learned Tribunal is perverse, after examining all the submissions advanced by Mr. Poddar. 29. Whether receipt of share capital was a taxable event prior to 1st April, 2013 before introduction of Clause (VII b) to the Sub-section 2 of Section 56 of the Income Tax Act; whether the concept of arms length pricing in a domestic transaction before introduction of Section 92A and 92BA of the Income Tax Act was there at the relevant point of time are not questions which arise for determination in this case. The assessee with an authorised share capital of Rs.1.36 crores raised nearly a sum of Rs.32 crores on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees is an important pointer necessitating investigation. Money allegedly received on account of share application can be roped in under Section 68 of the Income Tax Act if the source of the receipt is not satisfactorily established by the assessee. Reference in this regard may be made to the judgement in the case of Sumati Dayal (supra) wherein Their Lordships held that any sum "found credited in the books of the assessee for any previous year, the same may be charged to income tax….". We are unable to accept the submission that any further investigation is futile because the money was received on capital account. The Special Bench in the case of Sophia Finance Ltd. (supra) opined that "the use of the words "any sum found credited in the books" in Section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as receipt of share application money. Mere fact that the payment was received by cheque or that the applicants were companies, borne on the file of Registrar of Companies were held to be neutral facts and did not prove that the transaction was genuine as was held in the case of Nova Promoters and Finlease (P) Ltd. (supra). Similar views were expressed by this Court in the case of Precision Finance (P.) Ltd. (supra). We need not decide in this case as to whether the proviso to Section 68 of the Income Tax Act is retrospective in nature. To that extent the question is kept open. We may however point out that the Special Bench of Delhi High Court in the case of Sophia Finance Ltd. (supra) held that "the ITO may even be justified in trying to ascertain the source of depositor". Therefore, the submission that the source of source is not a relevant enquiry does not appear to be correct. We find no substance in the submission that the exercise of power under Section 263 by the Commissioner was an act of reactivating stale issues. In the case of Gabriel India Ltd. (supra) the CIT was unable to point out any error in the explanation furnished by the assessee. Whereas in the present case we have tabulated the evidence which

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda was before the assessing officer which should have provoked him to make further investigation. The assessing officer did not attach any importance to that aspect of the matter as discussed above by us. The judgement in the case of Leisure Wear Exports Pvt. Ltd. (supra) relied upon by Mr. Poddar has no applicability because the evidence furnished by the assessee in this case does suggest a cover up. We also have held prima facie that neither the transaction appears to be genuine nor are the applicants of share are creditworthy. The judgement in the case of Omar Salay Mohamed Sait (supra) cited by Mr. Poddar has no application for reasons already discussed. It is not true that the Commissioner in this case has merely on the basis of suspicion held that this was or could be a case of money laundering. We as a matter of fact have discussed this issue in great detail and need not reiterate the same. The order passed by the Commissioner is by no means an act of substituting his own views to that of the assessing officer. It is true that the assessing officer had requisitioned the necessary details by his notice u/s.142(1) but he thereafter did not apply his mind thereto. The judgement in the case of J. L. Morrison (India) Ltd. has no manner of application because in that case the question essentially was whether the receipt was of a capital or revenue nature. The facts and circumstances were not in dispute. Moreover the view taken by the assessing officer was not shown nor was held by the Court to be an erroneous view. Whereas in this case we have demonstrated in some detail as to why is the order of the assessing officer erroneous and prejudicial to the revenue. The judgement in the case of Malabar Industrial Co. Ltd. (supra) and Max India Ltd. do not apply to the facts of this case for reasons already discussed by us. From the judgement of the learned Tribunal in the case of Subholaxmi, placed before us in great detail by Mr. Poddar, we find that all important issues placed for consideration by no other than Mr. Poddar himself were duly considered by the learned Tribunal. 30. For reasons already discussed we answer the issue No. (a) and (c) in the affirmative and the issue No. (b) and (d) in the negative. In the result the appeal fails and is dismissed. It is clarified that the views expressed herein are for the purpose of disposal of this appeal and shall not preclude the statutory authority from arriving at its own conclusion in accordance with law.” The ld. Sr. DR has relied upon number of case laws to support its contentions, which we have reproduced in the preceding para’s of this order. The ld. Counsel for the assessee relied upon decision of Hon’ble Supreme Court in the case of P Mohankala(supra) and Sreeleathers(supra) , to contend that the assessee has offered proper and reasonable explanation before the AO and it is not a case that no explanation was offered , the AO was required to objectively consider the explanation. We are afraid that the contentions of the assessee cannot be accepted as proper explanation was not provided, as the assessee could not explain the creditworthiness of the investing companies as well genuineness of the 96

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda transactions of raising equity share capital of face value of Rs. 10 each at a huge premium of Rs. 80 per share. These investing companies were not having any business and even there was no fixed assets. Huge amount of share money was raised by these investing companies at huge valuation , which does not justify keeping in view their business affairs and background. The amounts are invested by these investing companies in unquoted shares of several private limited companies by these Kolkatta based investing companies, defying commercial prudence and expediency . No dividend was earned by these investing companies despite having investment portfolio of Rs. 22-40 crores. Meager amount of bank balance is maintained by these investing companies, and every debit in their bank account for making investing in target/client companies are preceded by the credit in bank account on the same day. They have not invested any amount in quoted/listed shares including Mutual Funds etc. wherein they can maximize their profits, defying commercial expediency and prudence. There are no other business carried out by these investing companies. The income earned by these investing companies are negligible /Nil , and business is not governed on the principles commercial expediency rather it is self destructive. So much so these companies become untraceable after few years or they are struck off from register of ROC/MCA. The AO not being satisfied with the replies asked the assessee to produce the Directors of these five investing companies , but these Directors were not produced and their statement could not be recorded by AO to unravel the truth. The AO is both adjudicator and investigator. Even notices sent u/s 133(6) returned unserved. The assessee has also not filed any Form No. 2 i.e. return of allotment filed by assessee with ROC/MCA. The assessee had issued equity shares of Rs. 10 each at share premium of Rs. 65 per share to three investing companies in the year 2009-10 ( year of incorporation of the assessee) , and incidentally these three companies held 80%+ shares in the share capital of the assessee company , but their names were not appearing in the list of shareholders as on 31.03.2011

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda filed by assessee before the AO, nor any explanation is forthcoming from assessee as to their exclusion from the list of shareholders as on 31.03.2011. Thus, these five investing companies who have invested in the year under consideration in the assessee company by subscribing 168000 equity shares of Rs. 10 each at a share premium of Rs. 80 per shares , aggregating to Rs. 1,51,20,000/- are merely shell /conduit companies created to launder illgotten money to convert and bring back into the books of the assessee under the garb/shell of legitimate share capital and hence it is a fit case for making additions u/s 68 read with Section 115BBE of the 1961 Act. The detailed analysis was made by us in preceding para’s of this order. The ld. Counsel for the assessee has relied upon the decision of ITAT-Mumbai in the case of Pratik Syntex Private Limited(supra) to contend that merely because the assessee has not filed Form No. 2 i.e. return of allotment, no adverse view may be taken. Firstly, the assessee is not able to prove creditworthiness of these five investing companies as well genuineness of the transactions of raising equity share capital of face value of Rs. 10 each at a huge premium of Rs. 80 per share, as discussed above in preceding para’s which triggered addition u/s 68. Moreover, proviso to Section 68 is also applicable , and the assessee also could not prove source of source. Secondly , the assessee did not file return of allotment in form no. 2(New Form PAS 3 under the Companies Act, 2013) which establishes to whom shares were allotted by the assessee. It also transpires that the assessee had issued equity shares of Rs. 10 each at share premium of Rs. 65 per share to three investing companies in the year 2009-10 ( year of incorporation of the assessee) , and incidentally these three companies held 80%+ shares in the share capital of the assessee company , but their names were not appearing in the list of shareholders as on 31.03.2011 filed by assessee before the AO, nor any explanation is forthcoming from assessee as to their exclusion from the list of shareholders as on 31.03.2011. Thus, it becomes all the more imperative to have complete paper trail of documentation as to how and to whom these shares held 98

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda by three investing companies based at Kolkatta subscribed in 2009-10 got transferred and at what value, as the value reflected for transfer of these shares in 2010-11 will have bearing on the valuation of the company. Thus, based on the above discussions, we are of the considered view that all these five investing companies are shell/conduit companies having no business of its own , and are merely created to launder money in order to convert unaccounted money of the investing companies under the garb of share capital/share premium to bring it into the books of the invested company under the farce shell of legitimate share capital and share premium , with an intent and view to defraud revenue and evade taxes. Thus, what is apparent is not real. Thus, we hold that the share capital including share premium raised by the assessee company, to the tune of Rs. 1,51,20,000/- from these five investing companies based at Kolkatta , is in- fact the undisclosed income of the assessee which was inducted by way of share capital and share premium in the assessee company by laundering through these five investing companies based at Kolkatta, and the assessee company fails to prove the creditworthiness of these five investing companies as well genuineness of these transactions, and the requirements of Section 68 read with newly inserted proviso are not fulfilled/satisfied, and hence we uphold the appellate order passed by ld. CIT(A) which in turn confirmed the addition made by the AO in the assessment order, to the tune of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE of the 1961 Act. 6b. Now, coming to the second issue which concerns with additions to the tune of Rs.1,10,00,700/- made by AO by invoking provisions of Section 56(2)(viib) of the 1961 Act, with respect to 170000 equity shares of Rs. 10 face value issued by the assessee company at an issue price of Rs. 90 per share including share premium of Rs. 80 per share , issued by the assessee company during the year under consideration to thirteen investors. We have already held in the preceding para’s of this order that so far as issue of 168000 equity shares of Rs. 10 each face value 99

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda at an issue price of Rs. 90 per equity share inclusive of share premium of Rs. 80 per share , by assessee to five corporate entities based at Kolkatta is concerned, the assessee is not able to satisfy the creditworthiness of these five investing companies nor genuineness of the transaction could be proved , and we have already affirmed the additions to the tune of entire amount of Rs. 1,51,20,000/- raised by the assessee company from these five investing companies inclusive of share premium , as income of the assessee u/s 68 read with Section 115BBE of the 1961 Act. Thus, so far as addition of Rs. 1,08,71,280/- made by AO by invoking provisions of Section 56(2)(viib) of the 1961 Act , with respect to issue of 168000 equity shares to these five investing companies based at Kolkatta, stood deleted as there could not be double addition, for which we have given our decision in the preceding para of this order. However, we clarify that if at any stage , our decision in this order with respect to sustaining of additions to the tune of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE , is reversed by Hon’ble Superior Courts by holding the assessee is able to give satisfactory explanation which meets the requirement of Section 68 read with newly inserted proviso and the additions sustained u/s 68 read with Section 115BBE by us are deleted by Hon’ble Superior Courts , then in that situation Section 56(2)(viib) will get triggered and then issue of shares at premium by the assessee company is to be tested under the rigors of Section 56(2)(viib) to make additions, if so warranted. Thus, now what is remaining is the addition of Rs. 1,29,420/- made by AO u/s 56(2)(viib) of the 1961 Act, with respect to issue of 2000 equity shares of face value of Rs. 10 each at issue price of Rs. 90 per share inclusive of share premium of Rs. 80 per equity share to eight individuals as under: 1. Ambika Prasad 200 Cash 20.05.2012 18,000 Tiwari S/o Ram PhalTiwari Gram Post- Kamokhar, Distt- Hamirpur 100

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 2. Santosh Kumar S/o 200 Cash 20.05.2012 18,000 Mahadev Prasad, Gram Post-Imilia, Distt. Hamirpur 3 Brajesh Kumar S/o 200 Cash 20.05.2012 18,000 Shiv Narain Gram Post- Imilia Distt- Hamirpur 4 Suresh Kumar S/o 200 Cash 20.05.2012 18,000 Diwakar, Gram Post- Kamokhar, Distt- Hamirpur 5 Smt. Priti Mishra 400 Cash 20.05.2012 18,000 D/o Suresh Kumar 20.06.2012 18,000 Mishra, 123/34, K- Block, Kidwai Nagar, Kanpur 6 Divakar S/o Ram 200 Cash 20.05.2012 18,000 Shankar, Gram Post- Kamokhar, Distt- Hamirpur 7 Anupam S/o Suresh 200 Cash 20.05.2012 18,000 Kumar, Gram post- Imilia Distt- Hamirpur 8 Smt. Pushpa D/o 400 Cash 20.05.2012 18,000 Shiv Shankar 20.06.2012 18,000 Gram Post- Imilia Distt-Hamirpur

It will be profitable at this stage to refer to provisions of Section 56(2)(viib) of the 1961 Act, which were inserted by Finance Act, 2012 , w.e.f. 01.04.2013, which reads as under: “Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda (2) In particular, and without prejudice to the generality of the provisions of sub- section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :— *** *** (viib)where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received— (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.—For the purposes of this clause,— (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; (b)"venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b)and clause (c) of Explanation 1 to clause (23FB)of section 10;

It will be appropriate at this stage to refer to Memorandum and Notes on Clauses as is referred in Finance Bill, 2012, which reads as under: Memorandum SHARE PREMIUM IN EXCESS OF THE FAIR MARKET VALUE TO BE TREATED AS INCOME “Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources". It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any 102

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head "Income from other sources". However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund. Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value— (i) as may be determined in accordance with the method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets, including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.”

Simultaneously , sub-clause (xvi) was inserted in Section 2(24) by Finance Act, 2012 w.e.f. 01.04.2013, which stipulated, as under: “(24) "income" includes— *** *** (xvi) any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of sub-section (2) of section 56;” Section 56(2)(viib) and Section 2(24)(xvi) were inserted by Finance Act, 2012 , w.e.f. 01.4.2013. We are presently concerned with assessment year 2013-14, and Section 56(2)(viib) read with Section 2(24)(xvi) is applicable. Thus, in a case of closely held company in which public is not substantially interested , which receives in any previous year , from any person resident any consideration for issue of shares that exceeds the FMV of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares, shall be treated as income from other sources and brought to tax. Then , there are certain 103

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda exceptions provided in Section 56(2)(viib). The Explanation to Section 56(2)(viib) provide the manner of computation of Fair Market Value. The method prescribed as is provided under Section 56(2)(viib) are provided in Rule 11UA of Income-tax Rules , 1962. There was amendment in Rule 11UA by Income-tax(Fifteenth Amendment Rules, 2012, w.e.f. 29.11.2012. The assessee has received consideration for issue of shares in May/June, 2012, but the date of allotment of shares is not furnished by the assessee . The AO has computed Fair Market Value of shares at Rs. 25.29 per equity shares, but the AO has not furnished any details/break-up of the working to arrive at FMV of Rs. 25.29 per equity shares. The assessee has worked out FMV of Rs. 87 per equity share. No valuation report is furnished by the assessee. The valuation as determined by the assessee of Rs. 87 is on NAV basis. The assessee raised in the year 2009-10 ( date of incorporation of the assessee 23.06.2009) share capital by issuing equity shares of Rs. 10 each at share premium of Rs. 65 per share , to three Kolkatta based investing companies, which held more than 80% of share capital of the assessee, but while submitting the list of shareholders as at 31.03.2011 , these three companies are not reflected as shareholders. The assessee has not given any explanation for the same. The assessee’s valuation of Rs. 87 per share as FMV vis-à-vis face value of Rs. 10 per share , is mainly/majorly attributable to share premium received from these three investing companies based at Kolkatta in the year 2009-10. These three investing companies are untraceable..The issue has not been comprehensively dealt with by the authorities below. In our considered view, this matter need to be restored back to the file of the AO for fresh determination of income chargeable to tax u/s 56(2)(viib), after giving opportunity of being heard to the assessee. Thus, this issue is restored to the file of the AO for fresh denovo adjudication, after giving proper opportunity to the assessee. The assessee shall be allowed by AO to submit evidences/explanation in its defence, which shall be adjudicated by AO on merits in accordance with law. We order accordingly.

ITA No 258/ALLD/2018 Assessment Year: 2013-14 M/s. Govind Stone Pvt. Ltd. v. ITO Banda 7. In the result, appeal filed by assessee in ITA no. 258/Alld/2018 for ay: 2013-14 is partly allowed for statistical purposes. Order pronounced on 19/12/2022 at Allahabad in accordance with Rule 34(4) of the Income Tax (Appellate Tribunal) Rule, 1863.

Sd/- dSd/- Sd/- Sd/- SdSd [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19/12/2022 KdAzmi Copy forwarded to:

By Order P.S.