Income Tax Act, 1961 – Section 68 – Determination of income – Addition of share capital – Appellant/assessee filed return of income for relevant assessment year – Assessing Officer completed assessment by determining total income of assessee after making addition of alleged sum received in form of share capital and share premium by invoking provisions of Section 68 of the Act – CIT(A) dismissed appeal filed by Appellant – Whether CIT(A) has erred in confirming addition made by AO under Section 68 of the Act on account of unexplained share capital and share premium – HELD – Assessee received share capital and share premium from four investor companies – Assessee filed complete details to explain alleged sum – Perusal of details filed by assessee make it clear that all investor companies are regularly assessed to tax and they have sufficient funds in form of share capital and security premium to explain alleged investment in assessee company – Source of share capital and share premium has been successfully explained to best possible extent by assessee by furnishing all evidences and none of them were found to be incorrect – Assessee has successfully discharged its primary onus casted upon it of proving identity and creditworthiness of investor companies as well as genuineness of transactions – Order of CIT(A) confirming action of AO making addition under Section 68 of the Act set aside – Appeal is allowed
2022-VIL-1640-ITAT-KOL
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA ‘C’ BENCH, KOLKATA
I.T.A. No.: 2098/Kol/2018
Assessment Year: 2012-13
Date: 20.12.2022
DEVGHAR SUPPLIERS PVT. LTD
Vs
ITO, WARD-6(1), KOLKATA
Appeared on behalf of the Assessee: Sh. Siddharth Agarwal, Adv
Appeared on behalf of the Revenue: Smt. Ranu Biswas, Addl. CIT
BENCH
DR. MANISH BORAD, ACCOUNTANT MEMBER
SONJOY SARMA, JUDICIAL MEMBER
ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2012-13 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by Commissioner of Income Tax (Appeals)-23, Kolkata [in short ld. “CIT (A)”] dated 30.07.2018 which is arising out of the assessment order framed u/s 143(3) of the Act dated 13.03.2015.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That the order passed by the Ld. CIT (A)-23/KOL is unwarranted, arbitrary, invalid and bad-in-law, in so far as they are against the interest of the appellant Company.
2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the addition of Rs. 1,05,00,000/- made by Ld. I.T.O. WARD 6(1), Kolkata as unaccounted income u/s 68 of the appellant assessee company from Share Capital and Share Premium raised.
3. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming addition of Rs. 1,05,00,000/- u/s 68 of the Income Tax Act in respect of Increase in Share Capital by issuing shares at a premium by the appellant company and holding that the same are not genuine.
4. That on the facts and circumstances of the case, the Ld. CIT(A) erred in confirming addition of Rs. 1,05,00,000/-, made u/s 68 of the Income Tax Act 1961 without appreciating the facts that the appellant has proved the identity and creditworthiness of the subscribers and genuineness of transactions.
5. That the appellant craves leave to add or amend any grounds of appeal.”
3. Brief facts of the case are that the assessee, a private limited company, declared loss of Rs.137/- in the e-return filed 05.03.2013. The case was selected for scrutiny through CASS followed by serving of notices u/s 143(2) and 142(1) of the Act. In the course of assessment proceedings, the ld. A.O noticed that the assessee company issued share capital of Rs. 2,05,000/- at a share premium of Rs.1,03,95,000/-. The ld. AO called for the source of capital and share premium and details of the share subscribers and summons u/s 131 of the Act was issued to the directors of the assessee company as well as of the investing company. Instead of appearing personally in compliance to the summons, they filed the written submissions. Ld. A.O on going through the details filed by the assessee noted that most of these companies are in the initial years of operations and are basically investment companies having no business activity, showing normal income/loss and share capital with huge premium received by such companies are further invested in similar other companies. The ld. AO further taking guidance from the decision in the case of M/s Bisakha Sales Pvt. Ltd. vs. CIT in ITA No.1493/Kol/2013 coupled with relying on other decisions came to the conclusion that provisions of section 68 of the Act are applicable on the alleged sum received in the form of share capital and share premium and accordingly made an addition u/s 68 of the Act at Rs.1,06,00,000/- thereby assessing the income at Rs.1,05,99,860/-.
4. Aggrieved, the assessee preferred appeal before the ld. CIT (A). The assessee filed various other details and evidences to explain the alleged sum. Remand report was called for by the ld. CIT (A) and the same was received vide letter dated 28.03.2017. Considering the remand report and thereafter referring to various decisions including that of Rajmandir Estate Pvt. Ltd. v. PCIT in GA No.509 of 2016 as well as decision of this Tribunal in the case of ITO vs. M/s Blessings Commercial Pvt. Ltd. in ITA No.271/Kol/2014 confirmed the addition observing as follows:
“The Hon’ble ITAT has discussed the issue in detail in the case of ITO, Ward-5(3), Kolkata vs. M/s Blessings Commercial Pvt. Ltd. in ITA No.271/Kol/2014 for A.Y 2010-11. In this case Rs.10/- share has been issued at a premium of Rs.990/- for which there is no valid explanation given. On this question, the assessee has not even attempted to justify the amount of share premium. A perusal of the audited statement of accounts of these companies demonstrates that the financials are not in line with the premium charged. Respectfully applying the propositions of law laid down by the coordinate bench of the Tribunal to the facts of the case, we find that section 68 of the Act applies to the facts of this case as a sum of money was credited, in the books of the assessee and the assessee could not prove the genuineness of these credits as well as the creditworthiness of the creditor. Hence in our informed view the addition has rightly been made by the A.O. Accordingly, the appeal of the appellant is hereby dismissed as the factual matrix is more or less similar.
IV. The Assessing Officer is directed to verify the correct figure regarding the amount of share capital. He has added the share capital of Rs.2,05,000/- however, the appellant has stated that the correct figure should actually be taken as Rs.1,05,000/-.”
5. Aggrieved, the assessee is now in appeal before this Tribunal challenging the addition of Rs.1,05,00,000/- made u/s 68 of the Act for unexplained share capital and share premium. The ld. Counsel for the assessee apart from referring to the written submissions filed before the ld. CIT (A), remand report dated 28.03.2017, various details including income tax return, audited balance sheet, bank statement of the investor companies, further stated that the directors of the Assessee Company and investing companies have replied. All the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transactions have been filed before both the lower authorities. The assessee has discharged the primary onus casted upon it. No enquiry was conducted by the AO. Reliance placed by the AO on the decision of M/s Bisakha Sales Pvt. Ltd. (supra) was not correct since the facts of the case of the assessee are distinguishable with that of M/s Bisakha Sales Pvt. Ltd. (supra). It was submitted that for non-appearance of the directors of the assessee company and investing companies personally before the AO cannot be taken as a basis to make the addition in the hands of the assessee. Reliance placed on CIT vs. Orissa Coprn (P) Ltd. (1986) 159 ITR 78 (SC) and in the case of Deputy CIT vs. Rohini Builders 256 ITR 360.
6. On the other hand, the ld. D/R vehemently argued supporting the findings of both the lower authorities and also stated that alleged investor companies are shell companies which provides bogus share capital and share premium and the alleged sum are in the nature of accommodation entries and the investing companies do not have sufficient creditworthiness to invest such huge amount that too at a premium of Rs.990/- on the equity share of face value of Rs.10/-.
7. We have heard rival contentions and perused the records placed before us. Through these appeals, the assessee has challenged the findings of the CIT (A) confirming an addition of Rs.1,05,00,000/- made u/s 68 of the Act for unexplained share capital and share premium. On-going through the assessment order, we find that the ld. AO made the addition for Rs.1,06,00,000/- which included share capital of Rs.2,05,000/- and share premium of Rs.1,03,95,000/-, but on perusal of the details, we find that figure of share capital is Rs.1,05,000/- and not Rs.2,05,000/- and therefore, correct figure of disallowance is Rs.1,05,00,000/-. We notice that during the year, the assessee received share capital and share premium totalling to Rs.1,05,00,000/- from following four investor companies:
|
SI. |
Name of the share applicants |
No. of shares allotted |
Share capital (Rs.) |
Share premium (Rs.) |
Total (Rs.) |
|
1 |
Footflash Vanijya Pvt. Ltd. |
32500 |
32500/- |
3217500/- |
3250000/- |
|
2 |
Viewmore Enclave Pvt. Ltd. |
37500 |
37500/- |
3712500/- |
3750000/- |
|
3 |
Khandeshwar Vinimay Pvt. Ltd. |
10000 |
10000/- |
990000/- |
1000000/- |
|
4 |
Trilokpati Commodities Pvt. Ltd. |
25000 |
25000/- |
2475000/- |
2500000/- |
|
Total |
1,05,00,000/- |
||||
8. We further observe that assessee filed complete details to explain the alleged sum. The ld. AO also issued summons to director of Assessee Company as well as investor companies. In most of the cases, written submissions were filed by the summoned parties directly to the AO. The ld. AO mainly observed that most of the investing companies are in the initial years of operation, having no business activity, showing normal income/loss and are basically investment companies. Further, the Ld. AO has heavily relied in the decision of M/s Bisakha Sales Pvt. Ltd. (supra). So far as reliance placed by the ld. AO on the decision of this Tribunal in the case of M/s Bisakha Sales Pvt. Ltd. (supra) is concerned, we do not find any merit as the facts of M/s Bisakha Sales Pvt. Ltd. (supra) are distinguishable to the facts of the present case. In the case of M/s Bisakha Sales Pvt. Ltd. (supra), the issue under challenge was revisionary order framed u/s 263 of the Act, wherein, it was alleged that the ld. AO has not made proper enquiries. However, in the case of the assessee, the scrutiny proceedings were carried out u/s 143(3) of the Act, complete details as called for by the ld. AO were filed and no specific mistake/defect pointed out by the ld. AO. The addition has been made based on general theory alleging that investor companies are shell companies and directors of the Assessee Company and Investor Company failed to appear personally before the AO. Therefore, in our considered view, ld. AO erred in placing reliance on decision of M/s Bisakha Sales Pvt. Ltd.
9. Now, moving on for examination of the facts as to whether the assessee has successfully discharged its primary onus casted upon it of proving the identity and creditworthiness of the investor/subscriber companies as well as genuineness of the transactions, we find that following documents/details have been filed by the assessee:
A) Viewmore Enclave Pvt. Ltd.
i) ITR Acknowledgement and Final Accounts
ii) Bank statement
iii) Reply filed on 09.03.2015
iv) Statement showing the source of fund
v) Share application form
vi) Allotment advice
vii) Explanation regarding the investment in equity shares at premium
viii) Board Resolution
B) Trilokpati Commodities Pvt. Ltd.
i) ITR Acknowledgement and Final Accounts
ii) Bank statement
iii) Reply filed on 27.02.2015
iv) Statement showing the source of fund
v) Share application form
vi) Explanation regarding the investment in equity shares at premium
vii) Board Resolution
C) Footflash Vanijya Pvt. Ltd.
i) ITR Acknowledgement and Final Accounts
ii) Bank statement
iii) Reply filed on 24.02.2015
iv) Statement showing the source of fund
v) Share application form
vi) Allotment advice
vii) Explanation regarding the investment in equity shares at premium
viii) Board Resolution
D) Khandeshwar Vinimay Pvt. Ltd.
i) ITR Acknowledgement and Final Accounts
ii) Bank statement
iii) Certificate explaining the source of investment
iv) Share application form
v) Allotment advice
vi) Explanation regarding the investment in equity shares at premium
vii) Board Resolution
10. On perusal of the above details, we find that all the investor companies are regularly assessed to tax, payments are made through banking channels, rules and regulations of the Companies Act have been followed duly supported by the copy of share application form, explanation regarding the investment in equity shares at premium and board resolutions. At any stage before the lower authorities, any of these details have not been found to be incorrect or fabricated. It is also evident that the investing company had sufficient funds in the form of share capital and security premium to explain the alleged investment in the assessee company.
11. We further notice that the ld. CIT (A) called for remand report under Rule 46A of the Income Tax Rules which was received vide letter dated 28.03.2017 and the relevant observations of the ld. AO in this remand report are extracted below:
“On the basis of information as provided Notices u/s 133 (6) issued on 31.12.2014 to 4 investor companies by post. Compliance received during the period of 27.02.2015 to 17.03.2015.
In the course of assessment proceeding Summon u/s 131 issued on 10.02.2015 to two directors of M/s Devghar Suppliers Private Limited by post, In response of Summon Sri Saurab Dhanuka, one of the director of assessee company filed written declaration about quantity of authorized equity shares, issue of 205000 number of shares at Rs. (205000 10395000) = 10500000/- and receipt of payment there from with supporting documents and requested - "since I am out of Kolkata I would request you to kindly allow me time to appear before you on any day after the first week of March 2015". No further date found fixed/given/recorded for taking statement of Sri Saurab Dhanuka. In the case of adjournment of date fresh notice required to be made and issued.
Information gathered u/s 133(6) verified with relevant information given in paper book and found issue of equity share by Assessee Company recorded in their books of account, books of accounts were maintained and audited. Similarly, all investor companies found PAN holders and filed return for AY. 2012-13 online. They file return regularly.
On verification of statements of bank accounts maintained by Investor Company’s deposit of cash not found.
As per the ITR and audited balance sheet total authorized equity shares before allotment was 225000 number and rate fixed at Rs. 1/- each. Number of shares issued during FY 2011-12 was 105000 Total Premium received against issue of 105000 number of shares was Rs. 10395000/-. Figures verified with information contained in paper book and no difference could be noticed.
Directors of Assessee Company and investors companies were examined and they confirm the investment made in M/s. Devghar Suppliers Private Limited during FY 201l-12. On query, director said that company is duly registered with ROC, equity shares were authorized by ROC, company regularly filed report to ROC, separate bank account maintained, books of accounts maintained and audited by registered CA, it has separate rented office, hence it is not a paper/shell company. Company had sufficient fund and decision of investment was made by Board of Directors.
Statement of directors verified with information contained in paper book and respective assessment folder and found no difference.
Transactions and credit of capital including premium reported by Assessee Company against the issue of equity share during FY 2011- 12 was basically found in order. Deficiency of supporting evidences also could not be noticed nor highlighted in assessment order.”
12. The observation of the AO almost brings an end to this litigation as it clearly proves that assessee has successfully discharged its primary onus by explaining the source of share capital and share premium received during the year. In the remand report, the ld. AO has confirmed that all the investor companies were PAN holders and has filed the returns regularly. No cash was found to be deposited in the bank accounts maintained by the investor companies. All the companies are regularly filing returns with the Registrar of Companies. Books of account are regularly maintained and duly audited. Companies had sufficient funds and decision of investment was made by Board of Directors. The ld. AO has also stated that statement of the director was verified from information contained in paper-book in respective assessment. Further, it is observed by the ld. AO that transactions and credit of capital including premium are found in order and there is no deficiency in supporting evidence. The remand report of ld. AO is loud and clear that the source of share capital and share premium of Rs.1,05,00,000/- has been successfully explained to the best possible extent by the assessee furnishing all evidences and none of them were found to be incorrect and no defect has been pointed out. Under the given facts and circumstances of the case, we fail to find any justification in the finding of ld. CIT (A) confirming the action of the AO making addition u/s 68 of the Act. Our view is further supported by following judicial pronouncements:
“i) CIT vs. Gagandeep Infrastructure (P) Ltd. 80 taxmann.com 272 (Bombay) wherein it was held by High Court that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso.
ii) PCIT vs. Chain House International (P) Ltd. 98 taxmann.com 47 wherein Madhya Pradesh High Court held that “The question raised by the revenue in regard to issuing the share at a premium is purely a question of fact. It is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe to shares at such a premium or not and moreover the section 68 does not envisages any law on share premium it only requirement is to identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants which same has been discharged by the respondent authority and the HIGH COURT OF M.P. BENCH AT INDORE Pg. No.--58-- (ITA No.112/2018 & Other connected matters) same has been accepted by the appellate authorities thus, the same cannot be reconsidered in these appeals as it is a pure question of fact.” SLP preferred by revenue was dismissed by Hon’ble Supreme Court and the same is reported in 103 taxmann.com 435(SC).
iii) CIT vs. Kamdhenu Steel & Alloys Limited [ITA No.972 of 2009] dated 23.12.2011 wherein the Delhi High Court in a batch of 11 appeals was required to adjudicate on the very issue of addition made by the A.O u/s 68 in respect of share application monies received by the assessees as alleged unexplained cash credit. In all these cases, the Department had alleged that the share application monies were received from persons who were ‘entry operators’ and the monies received by way of share application was nothing but was routing of unaccounted money of assessee in the form of subscription to share capital. However, in the assessments made the AOs had not brought on record any material or evidence to substantiate such finding. Accordingly, on appeal the appellate authorities had deleted the additions made u/s 68 of the Act.
iv) DCIT vs. Rohini Builders 127 Taxman 523 observed that the assessee had discharged its onus of proving the identity of creditors by giving their complete addresses, permanent accounts number and copies of assessment orders. It was further observed that the assessee had also proved capacity of creditors by showing that amounts were received by account payee cheques. The High Court held that only on the ground that some of the creditors could not be served with notice u/s 131 or they failed to appear before Assessing Officer the loans could not be treated as non-genuine and therefore upheld the order of the Tribunal deleting the addition u/s 68 of the I.T. Act 1961.
v) CIT vs. Orissa Corpn (P) Ltd. 159 ITR 78 where the Court held that “In this case the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index number was in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any further. In the premises, if the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.”
13. Therefore, respectfully following the judicial precedents and in the light of the facts and circumstances of the case, we are of the considered view that no addition was called for the alleged sum of the share capital and premium of Rs.1,05,00,000/- received by the assessee during the A.Y 2012-13. Thus the findings of the ld. CIT (A) is reversed and grounds of the appeal raised by the assessee are allowed.
14. In the result, the appeal of the assessee is allowed.
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