Income Tax Appellate Tribunal - Panji
Motisons Buildtech Pvt. Ltd., Jaipur vs Acit, Jaipur on 30 October, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES , JAIPUR
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BEFORE: SHRI BHAGCHAND, AM & SHRI KUL BHARAT, JM
vk;dj vihy la-@ITA No. 384 & 385/JP/2017
fu/kZkj.k o"kZ@Assessment Year: 2009-10 & 2012-13
M/s. Motisons Buildtech Pvt. Ltd cuke The ACIT
B-9, Vivekanand Marg Vs. Central Circle-2
C-Scheme, Jaipur Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCM 8806 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 481, 554, 482, & 555/JP/2017
fu/kZkj.k o"kZ@Assessment Year: 2009-10, 2011-12 2012-13 & 2013-14
The ACIT cuke M/s. Motisons Buildtech Pvt. Ltd
Central Circle-2 Vs. B-9, Vivekanand Marg
Jaipur C-Scheme, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCM 8806 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assessee by: Shri Vijay Goyal, CA and
Shri Gulshan Agarwal, CA
jktLo dh vksj ls@ Revenue by:Smt. Rolee Agarwal, CIT - DR
Shri Praveen Kumar Mittal, DCIT
Shri Kamlesh Kumar Meena, DCIT
lquokbZ dh rkjh[k@ Date of Hearing : 11/10/2017
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 30 /10/2017
vkns'k@ ORDER
PER BENCH The Assessee and the Revenue have filed the above appeals against four separate orders of the ld. CIT(A)-4, Jaipur dated ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 31-03-2017, 31-03-2017, 28-04-2017 and 28-04-2017 for the assessment years 2009-10, 2011-12, 2012-13, and 2013-14 respectively.
2.1 First of all, we take up the cross appeals for the Assessment Year 2009-10 raising the grounds of appeal by the assessee and Revenue.
ITA No.384/JP/2017 - A.Y. 2009-10 (Assessee)''1. On the facts and in the circumstances of the case and in law the order passed u/s 153A read with sec 153B and 143(3)of the I.T. Act, 1961 is bad in law, void ab-initio and deserves to be annulled as the assessment for the A.Y. 2009-10 was not abated and ld. CIT(A) erred in holding that the AO was justified in reassessing the completed assessment.
2. On the facts and in the circumstances of the case and in law, the CIT erred in confirming the addition of Rs. 2,81,476/- made by the AO by disallowing the entire expenses incurred during the year.
ITA No.481/JP/2017 - A.Y. 2009-10 (Revenue )1. Whether on the facts and in the circumstances of the case the ld. CIT(A) was right in deleting the addition of Rs. 3,03,00,000/- made u/s 56(1) of the Act ignoring the fact that assets of the assessee company don't commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee.
3.1 During the course of hearing, the ld.AR of the assessee has not pressed the Ground No. 1 and 2 of the assessee in ITA No.384/JP/2017 for the Assessment Year 2009-10. Hence, the appeal of the assessee in ITA No. 384/JP/2017 is dismissed being not pressed. 2 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 4.1 The solitary ground of the Revenue in ITA No. 481/JP/2017 for the Assessment Year 2009-10 is as under:-
''1. Whether on the facts and in the circumstances of the case the ld. CIT(A) was right in deleting the addition of Rs. 3,03,00,000/- made u/s 56(1) of the Act ignoring the fact that assets of the assessee company don't commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee.'' 4.2 Apropos solitary ground of the Revenue, the AO made the addition of Rs. 3,03,00,000/- u/s 56(1) of the Act in the hands of the assessee company by observing as under:-
''16. Having dealt with each of the contention of the assessee and having found the same to be untenable it is important to place on record certain aspects which have a bearing on the issue at hand. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were not entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.
17. In the above back ground of the facts and circumstances surrounding this case, it is hereby held that the receipt of share capital and share premium was part of a colourful transaction by way of which a sum of Rs. 3,03,00,000/- was introduced into the books of the assessee company in the form of share premium of Rs. 990/- per share was not justified at all on the basis of absolutely no assets 3 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur commensurate to premium charged, no business activity, no income, no net worth of such value nor any promise for creation of this much assets, business activity income or net worth in the future.
Accordingly, the charging and receipt of share premium/ share capital to the tune of Rs. 3,03,00,000/- is held to be income of the assessee company in the nature of income envisaged u/s 56(1) of the Income Tax Act, 1961. The same is added back to the total income of the assessee.'' 4.3 In first appeal, the ld. CIT(A) has deleted the addition of Rs. 3,03,00,000/- made by the AO by observing at pages 96 & 97 of his order as under:-
''3.2.3 I have considered assessee's submission and carefully gone through assessment order. I have also take a note of factual matrix of the case as well as applicable case laws relied upon. I have already given a detailed findings in para 2.1.4.7 wherein total of Rs. 8,71,97,727/- has been sustained in the hands of M/s. . Motisons Global Pvt. Ltd, M/s. Motisons Entertainment Pvt. Ltd, M/s. Motisons Buildtech Pvt. Ltd and M/s. Shivansh Buildtech Pvt. Ltd, details of which are as under:-
Name of ITA No. A.Y. Addition made Addition Addition Appellant by AO sustained deleted/Relief Company given Motisons 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Global Pvt Ltd Motisons 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Global Pvt Ltd Motisons 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Global Pvt Ltd Motisons 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Global Pvt Ltd Motisons 760/14-15 2009-10 3,40,00,000 - 3,40,00,000 Entertainment (I) Pvt. Ltd Motisons 766/14-15 2011-12 1,95,00,000 - 1,95,00,000 Entertainment (I) Pvt. Ltd Motisons 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Entertainment (I) Pvt. Ltd Motisons 758/14-15 2009-10 3,03,00,000 - 3,03,00,000 Buildtech Pvt.4 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Ltd Motisons 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Buildtech Pvt.
Ltd Godawari 769/14-15 2010-11 2,00,00,000 - 2,00,00,000 Estates Pvt.
Ltd Godawari 768/14-15 2012-13 10,30,00,000 - 10,30,00,000 Estates Pvt.
Ltd Bholenath 770/14-15 2009-10 2,90,00,000 - 2,90,00,000 Real Estates Pvt. Ltd.
Rainbow 757/14-15 2009-10 2,00,00,000 - 2,00,00,000 Buildcon Pvt.
Ltd Shivansh 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Buildcon Pvt.
Ltd
94,14,07,100 8,71,97,727 85,42,09,373
In view of the above facts and circumstances of the case as discussed above, addition of Rs. 3,03,00,000/- made on a/c of bogus share capital in the hands of M/s. Motisons Buildtech Pvt. Ltd is hereby deleted. Assessee gets relief in Gr No. 2 & 3.'' Para 2.1.4.7 reads of ld. CIT(A)'s order as under:-
''2.1.4.7 In view of the above findings, it is also seen that this cash /DD was deposited at 4th Channel of source/ stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter, it is also seen that the assessee has not controverted the facts narrated by Shri Santosh Choube, Shri Rajesh Kr Singh and Shri Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts as evidences (both documentary & oral) gathered during search and & Post-search operation, addition to the extent of Rs. 8,71,97,727/- is sustained and balance is deleted, details given as under:-
Name of ITA No. A.Y. Addition made Addition Addition Appellant by AO sustained deleted/Relief Company given Motisons 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Global Pvt Ltd 5 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Motisons 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Global Pvt Ltd Motisons 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Global Pvt Ltd Motisons 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Global Pvt Ltd Motisons 760/14-15 2009-10 3,40,00,000 - 3,40,00,000 Entertainment (I) Pvt. Ltd Motisons 766/14-15 2011-12 1,95,00,000 - 1,95,00,000 Entertainment (I) Pvt. Ltd Motisons 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Entertainment (I) Pvt. Ltd Motisons 758/14-15 2009-10 3,03,00,000 - 3,03,00,000 Buildtech Pvt.
Ltd Motisons 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Buildtech Pvt.
Ltd
Godawari 769/14-15 2010-11 2,00,00,000 - 2,00,00,000
Estates Pvt.
Ltd
Godawari 768/14-15 2012-13 10,30,00,000 - 10,30,00,000
Estates Pvt.
Ltd
Bholenath 770/14-15 2009-10 2,90,00,000 - 2,90,00,000
Real Estates
Pvt. Ltd.
Rainbow 757/14-15 2009-10 2,00,00,000 - 2,00,00,000
Buildcon Pvt.
Ltd
Shivansh 771/14-15 2012-13 90,00,000 3,50,000 86,50,000
Buildcon Pvt.
Ltd
94,14,07,100 8,71,97,727 85,42,09,373
It is pertinent to mention here that M/s. Mayukh Vinimay Pvt.Ltd received share application of Rs. 10,54,95,000/- in AY 2009-10 which was added as income of M/s.Mayukh Vinimay Pvt. Ltd ind A.Y. 2009-10. Thereafter in subsequent years the part of the funds owned by this company was invested in the companies under appeal as under:-
6 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S.N. Name of company Assessment Year Amount (under your appeal)
1. Motisons Global 2012-13 6,93,49,800 Pvt. Ltd
2. Motisons Global 2013-14 2,24,50,000 Pvt. Ltd
3. Motisons 2012-13 1,55,00,000 Entertainment (India)Pvt ltd.
TOTAL 10,72,29,800 Further it is also submitted that addition made by the AO tantamount to double addition. It is also mentioned here that as per Ld. ARs request, appellate proceedings in case of M/s. MayukhVinimay Pvt. Ltd have been kept in abeyance till the dispostal of appeal by Hon'ble ITAT.
In view of aforementioned findings, now additions made by the AO are being discussed with respect to grounds of appeal raised by the respective assessee in para below.'' 4.4 During the course of hearing, the ld. DR supported the order of the AO and submitted that the order of the ld. CIT(A) may be set aside .
4.5 On the other hand, the ld.AR of the assessee supported the order of the ld. CIT(A) for which the ld.AR of the assessee filed the following written submission praying therein to dismiss the appeal of the department.
'' Submission of assessee:-
a) During the year under consideration the assessee allotted 30,300 equity shares of Rs. 10 each to various companies at a premium of Rs. 990/-
per share detail of which is as under: -
7 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S.N. Name No. of Amount Rate Amount Rate of Issue Total Shares adjusted per adjusted premium price Consideration alloted/ against share against per share of the Received applied share share share during capital premium the year 1 Arcade Dealcom Pvt. 3000 30,000 10 29,70,000 990 1000 30,00,000 Ltd 2 Debdaru Vinimay Pvt. 2500 25,000 10 24,75,000 990 1000 25,00,000 Ltd 3 Debdoot Vinimay Pvt. 3500 35,000 10 34,65,000 990 1000 35,00,000 Ltd 4 Matrabhumi Dealers 4400 44,000 10 43,56,000 990 1000 44,00,000 Pvt. Ltd 5 Puja Tie-Up Pvt. Ltd 5000 50,000 10 49,50,000 990 1000 50,00,000 6 Pushpa Dealers Pvt. 2500 25,000 10 24,75,000 990 1000 25,00,000 Ltd 7 Pushpa Trading Pvt. 4000 40,000 10 39,60,000 990 1000 40,00,000 Ltd 8 Shreya Tie Up Pvt. Ltd 1000 10,000 10 9,90,000 990 1000 10,00,000 9 Taranh Suppliers Pvt. 3400 34,000 10 33,66,000 990 1000 34,00,000 Ltd 10 Vandana Dealers Pvt. 1000 10,000 10 9,90,000 990 1000 10,00,000 Ltd Total 30,300 3,03,000 2,99,97,000 3,03,00,000
c). The ld. AO has not made the addition under the deeming provisions of section 68 of Income Tax Act. The ld AO made the addition by applying the provisions of section 56(1) of Income Tax Act on the ground that the assets of the assessee company don't commensurate to premium charged and any business activity was not performed or any business income has not been shown by the assessee. The ld CIT(A) has not confirmed the addition made by ld AO by applying the provisions of section 56(1) of Income Tax Act, on the basis of his detailed findings at page 39-42 of his order. The assessee relies on the findings of ld CIT(A).
d) Justification of Charging share premium 8 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur The assessee has submitted the justification for charging the share premium which is summarized as under: -
Name of Company Reason for Charging Share Premium Motisons Buildtech 1. Owing a big and valuable agriculture land at Village Dudu, Gidani Pvt. Ltd Nolya (At Ajmer Road, Near Dudu) for which planning of township was there.
2. Owning valuable land in the heart of city at C-Scheme and constructing the building thereon
2. Goodwill of Motisons Group.
e) Share premium/Capital is capital receipt:
If shares are issued at premium then capital receipt aggregate amount of premium is to be transferred to an account called the share premium account. This share premium account is not distributable as income just like as any other capital assets. On winding up, the surplus monies in the share premium account is to be returned to the share holders as capital. So long as the company is a going concern, the monies in share premium account can never be returned to the shareholders except through the medium of a reduction petition, or, in other words, except under exactly the same conditions as those under which any other capital asset can reach the shareholders hands. Distribution of share premium amount is not permitted through dividend. It is taken out of the category of divisible profits. The provisions in respect of issue of shares at premium are the same in the old company Act as well as in the new company Act. Hence Companies Act clearly mentions that amount received as premium is capital receipt and not a revenue receipt. The share premium is also verifiable from returns of allotment submitted in ROC. As per departmental circular (MCA) No. 3/77 dated 15.04.1977 the monies in the share premium account cannot be treated as free reserves, as they are in the nature of capital reserves.
f) On the issue of shares at premium, the ld. ITAT, Mumbai Bench in the case of ACIT V/s Gagandeep Infrastructure Pvt. Ltd. 2014-T10L- 656-ITAT-Mum (PB pg 354-359 of case laws) observed that issue of shares at premium is always a commercial decision which does not require any justification. The finding of the ITAT was confirmed by Mumbai High Court in its decision dated 20.03.2017 in appeal No. 1613 of 2014. PB page 360-366 /Case Laws) Further the premium is 9 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur a capital receipt which has to be dealt with in accordance with section 78 of companies Act 1956. Further the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature is a capital receipts and is not income for its ordinary sense. In the case before Mumbai bench has to consider a case where premium of Rs.190 per share was charged. The Tribunal observed as under (pg 358 to 359/Case laws):
"11. We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with Sec. 78 of the Companies Act, 1956. Further, the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipts and is not income for its ordinary sense. It is not in dispute that the assessee had filed all the requisite details/documents which are required to explain credits in the books of accounts by the provisions of Sec. 68 of the Act. The assessee has successfully established the identity of the companies who have purchased shares at a premium. The assessee has also filed bank details to explain the source of the share holders and the genuineness of the transaction was also established by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies. The entire dispute revolves around the fact that the assessee has charged a premium of 190/- per share. No doubt a non-est company or a zero balance sheet company asking for 190/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of the company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such huge premium without any bar from any legislated law of the land. The amendment has been brought in the Income Tax Act under the head "Income from other sources" by inserting Clause (viib) to Sec. 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A.Y. 2013-14. In so far as the year under consideration is concerned, the transaction has to be considered in the light of the provisions of Sec. 68 of the Act. There is no dispute that the assessee has given details of names and addresses of the share holders, their PAN Nos, the bank details and the confirmatory letters.10 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 11.1. Considering all these undisputed facts, it can be safely concluded that the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee . Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt. The receipt is not in the revenue field. What is to be probed by the AO is whether the identity of the assessee is proved or not. In the case of share capital, if the identity is proved, no addition can be made u/s. 68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Loevely Exports Pvt. Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings of the Ld. CIT(A). Ground No. 1 is accordingly dismissed."
g) As per provisions of section 56(1) of Income Tax Act, 1961 "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." In the case of the assessee company, the amount was received from investors were against share application and the same is capital receipt which was adjusted against share capital and share premium. The money so received to assessee company was capital receipt and was not revenue receipt, therefore the same cannot be taxed in the hands of assessee company under section 56(1) of Income Tax Act, 1961 because this section deal with income and not with capital receipts. The investors who subscribed the share capital of assessee company is also showing the amount paid to assessee as their investment in shares of assessee company and necessary documents in this regard was submitted to ld. AO. Therefore the assessee has proved with documentary evidences that the amount was received against share application i.e. capital receipt, therefore the same cannot be treated as income of the assessee. Further for treating the share capital/share premium as income of the assessee company no cogent reason has been given by ld. AO. Further, there is no deeming fiction has been given in section 56(1) of Income Tax Act, 1961 wherein the income can be taxed under deeming provision.
h) By Finance Act 2012 a new clause (viib) was inserted in 56(2).
Memorandum explaining the provisions in Finance Bill 2012 stated as under:-
Share premium in excess of the fair market value is to be treated as income.11 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur "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 56(2). The new clause will apply where, accompany, 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 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".
This amendment effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent Assessment years. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. This suggests that premium in excess of fair market value was not an income but is to be treated as income due to amended provision. Before the amendment, consideration received as premium was not income. The legislature in its wisdom required the share premium in excess of fair market value to be income from Assessment year 2013-14 and not the entire premium to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for Assessment year 2013-14 onward. Therefore, amendment in section 56(2)(viib) of Income Tax Act, 1961 effective from 1st April 2013 and will accordingly apply in relation to assessment year 2013-14 and subsequent assessment years and the provisions of this section cannot be made applicable in previous years. In this regard the ratio has been laid down in following judgments: -
a) By Finance Act 1994, section 55(2) was amended to provide that cost of acquisition of a tenancy right will be taken as Nil. The Hon'ble Apex Court in the case of D.P. Sandu Bros. Chembur (P) Ltd (supra), held that amendment took effect from 1st April, 1995 and therefore will not be applicable for A.Y. 1987-88.
Similar finding has been recorded by Hon'ble Raj, High Court in the case of Gotan Lime Stone Khanij Udhyog.
The ratio of law in respect of amendment in 55(2) being held as prospective and is also applicable for 56(2)(viib) and hence share premium in excess of fair market value cannot be held taxable for A.Y. 2009- 10. 12 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
b) Recently the Hon'ble Apex Court in the case of M.G. Pictures (Madras) Ltd V/s ACIT 373 ITR 39 held that amendment in section 40A(3) w.e.f. from 1.4.1996 is prospective and cannot be applied to previous years of Block period prior to F.Y. 1995-96.
c) The figure of 10,000 was changed to 20,000 u/s 40A(3) of Income Tax Act, 1961 and 269SS of Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act 1987 w.e.f. 1.4.1989. The CBDT vide circular No.522 dated 18.08.1988 stated that amendment in section 40A(3) is applicable for A.Y. 1989-90 as it is a substantive provision and since 269SS is a procedural provision, the effective date will be 1.4.89 i.e. previous year relevant to A.Y. 89-90.
d) The five Judge Constitution Bench in the case of CIT V Vatika Township (P) Ltd. 367 ITR 466 had an occasion to consider as to whether Proviso added to section 113 of the I.T. Act, is prospective or retrospective. The Hon'ble Apex Court while considering the various decisions held (as per page 469 Of ITR 367).
That surcharge levied by assessing Officer for the block assessment pertaining to the period from June 1, 2002 was liable to be deleted.
An amendment made to a taxing statute can be said to be intended to remove hardships only of the assessee, not of the department. Imposing a retrospective levy on the assessee would have caused undue hardship and for that reason parliament specifically chose to make the proviso effective from June 1, 2002.
Where a benefit is conferred by a legislation, the rule against a retrospective construction is different. In a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators objects, then presumption would be that such a legislation, giving it a purposive construction, would 13 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provision as retrospective. Where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature.
The Hon'ble Apex Court further noticed that CBDT circular mentioned that proviso is applicable from 1.6.2002. In respect of 56(2)(vii b), CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for assessment year 2013-14 onward. Hence Share premium even if in excess of Fair market value is not taxable u/s 56(1) for the A.Y. 2011-12.
i) Section 56 is not a charging section. This section starts with the following sentence.
"Income of every kind which is not to be excluded from the total income under the 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. For an income to be taxed u/s 56, it has to satisfy three conditions.
(a) It shall be classifiable as income as per the charging section of the Act.
(b) It shall not be excluded from the total income (e.g. section10).
(c) It is not chargeable to tax under any of the specified Heads in section 14, items A to E. The finance Bill 2012 as presented on 16th March 2012 included a new clause (viib) u/s 56(2) of I.T. Act [342 ITR1(st)]. No proposal in the original bill to insert a new clause u/s 2(24). Subsequently Notice of amendments to Finance Bill was given [See 343 ITR 37(st)] and amendments also made in charging section 2(24) in inserting clause (xvi) in 2(24) of I.T. Act w.e.f. 1.4.2013 reads as under:14 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur (xvi) Any consideration received for issue of shares as exceeds the fair market value of the shares referred to in clause (viib) of subsection (2) of 56.
The amendment made in 2(24) is also applicable w.e.f. 01.04.2013 and it cannot be applied earlier to 01-04-2013.
j) The Income for the purpose of the Income Tax Act is defined in section 2(24) of the Income Tax Act 1961. Section 2(24) of the Income Act 1961 gives inclusive definition of income but the income should be look into its normal meaning. The income will not include capital receipts unless it is specified in Income Tax Act. This argument finds supports from the amendment made by Finance Act 2012 w.e.f. 1.4.2013 in section 56(viib) and clause (xvi) of section 2(24) of Income Tax Act, 1961 wherein certain share premiums were made taxable w.e.f. 01.04.2013. If the same were already taxable u/s 56(1)/ 2(24) of Income Tax Act, 1961 then there was no need to make these amendments in the Act. In case there is no charging provision for specific receipt, then it cannot be taxed. The five member Bench of the Apex Court in CIT V Vatika Township P Ltd 367 ITR 466 (PB pg 19/case Laws).
"Tax Laws are clearly in derogation of personal rights and property interests and are, therefore, subject to strict construction and any ambiguity must be resolved against imposition of the tax. In Billings V U.S 232 U.S.261 at page 265, 34 S.Ct 421 (1914), the Supreme Court clearly acknowledged this basic and long standing rule of statutory construction.
Tax Statutes should be strictly construed, and, if any ambiguity be found to exist, it must be resolved in favour of citizen..."
"...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. On the other hand, if the crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the sprit of the law the case might otherwise appear to be" As observed in Partington V Attomey General LR4HL100.15 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Since for the year under consideration there was no provision in Income Tax Act, 1961 wherein the fair value of share could be computed and the excess share premium could be taxed, therefore in absence of computation provision the same cannot be taxed. The reliance is also placed on following cases: -
i) The Hon'ble Bombay High Court in the case of Cadell Wvg. Mills Co.(p) Ltd. V CIT 249 ITR 265 (PB 22-
41/Case Laws) had an occasion to consider the taxability of a sum received in respect of consideration of tenancy Right. Hon'ble High Court held that surrender of tenancy right which was not chargable to tax as capital gain under section 45 could not be taxed as casual and non recurring receipt under section 10(3) r.w. s. 56 under the head "Income from other sources".
ii) The Hon'ble Apex Court in the case of CIT V D.P. Sandu Bros. Chembur (P) Ltd 273 ITR 1 (PB 42- 49/Case Laws) also hold that as per 2(24)(vi) only income which is chargeable u/s 45 is to be included in income and if computation provision u/s 45 fails then charging provisions will fail. Ref. to CIT V B.C. Srinivasa Setty 128 ITR 294.
iii) The Hon'ble Rajasthan High Court in the Case of
CIT V Gotan Lime Stone Khanij Udyog 269 ITR 399
(PB 56-65/Case Laws) also held that in case
computation provision u/s 48 could not be applied for want of ascertainable cost of acquisition, then capital gain does not arise to be included in total income on account of failure of applicability of computation provision. The Hon'ble High Court referred to decision of Bombay High Court in the case of Cadell Wvg. Mills Co (P) Ltd. (Supra).
iv) The Hon'ble Rajasthan High Court in the case of S. Zoraster and Co. V/s CIT 322 ITR 35 (PB 66- 68/Case Laws) had on occasion to consider the taxability of receipt of Rs.20,000 received by vendee on default of the purchaser as per agreement for sell of Prem Prakash Talkies. The Hon'ble High Court after referring to the decision of Apex Court in the case of Travancore Rubber and Tea Co Ltd. V CIT 243 ITR 158 held that such receipt is capital receipt. Such 16 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Capital receipt is not taxable in view of judgment of Apex Court in D.P. Sandu Bros. Chembur (P) Ltd (Supra). Hence capital receipt is not taxable unless there is charging provision for a capital receipt and computation provisions are also applicable.
v) The Hon'ble Bombay High Court in the case of Vodafone India Services P. Ltd. V/s UOI 368 ITR 1 (PB 76-107/Case Laws) had an occasion to consider the difference between the share premium determined by revenue and the share premium charged as deemed loan and taxing of national interest on deemed loan. The Hon'ble Bombay High Court has referred to the decision of Apex Court in the case of Mathuram Aggarwal V/s State of MP (1999) 8 SCC 667 for the test to interpret a taxing statue which reads as under:
" The intention of the legislature is a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not flow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spent and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e. subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter."
Hon'ble Bombay High Court in this case (Vodafone case) observed that issue of shares at a premium is on capital account and gives rise to no income. 56(1) provides the income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However before 17 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur section 56 of the Act can be applied there must be income which arises. If the receipt is capital then it is not income. Hence share premium is not an income.
i) The CBDT vide circular/instruction No.2 dated 29.01.2015 has stated as under [371 ITR 6(st)].
"In reference to the above cited subject, I am directed to draw your attention to decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd V UOI for the Assessment year 2009-10 (WP No.871 of 2014) wherein the court has held interalia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment.
It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned writ petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where the issue is involved. This may also be brought to the notice of the ITAT, DRP's and CIT (Appeals)."
In view of above instruction, it is clear that ratio deciding of treating of share premium as capital receipt is binding on revenue authorities.
j. In view of the above submissions, it is clear that share premium received is a capital receipt and consideration received cannot be considered as income for the year under consideration by applying the provisions of section 56(1) of Income Tax Act.
k. The ld CIT(A) issued show cause notice to assessee to tax the share capital under section 68 of ITax Act as against 56(1) applied by ld AO but he satisfied about the ingredients of section 68 of I.Tax Act and no addition was sustained for AY 2009-10 even u/s 68 of I.Tax Act.
The ld AO issued several notices to assessee to explain the share capital. The assessee submitted detailed reply and documents from time to time as under:-
18 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S.No Particulars Copy at PB pg No 1 Copy of query letter of AO dated 05.01.2015. 103-104 2 Copy of reply of assessee dated 13.01.2015 filed in 105-110 response to query letter dated 05.01.2015.
3 Copy of show cause notice of AO dated 06.02.2015. 111-114 4 Copy of reply of assessee dated 13.02.2015 filed in 115-118 response to show cause notice dated 06.02.2015. 5 Copy of reply of assessee dated 03.03.2015. 119 6 Copies of documents filed before AO along with 120-317 various submission in respect of identity, creditworthiness of shareholder and genuineness of transactions The assessee has submitted sufficient documents before the ld AO to prove identity, creditworthiness and genuineness of share capital and ld AO satisfied that addition under section 68 cannot be made, so he applied section 56(1) of ITax Act to make the addition.
The assessee submitted detailed reply before ld CIT(A) vide letter dated 12/07/2016 (copy at PB pg 318-373). Ld CIT(A) when satisfied that the addition u/s 56(1) can't be made, he tried to sustain the addition by applying the provisions of section 68 of Income Tax Act. He issued a show cause notice vide letter dated 09/03/2017 (Copy at PB pg 374-420). The assessee submitted detailed reply on the show cause notice of ld CIT(A) vide letter dated 24-03-2017 & 28/03/2017 alongwith documents (Copy at Pb pg 421-510). To support that shareholders were genuine and creditworthiness is proved, the assessee has filed all details, in respect of incorporation/existence of investors and details of cheques vide which amounts were received. The capacity of shareholders is verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application.
l) During the course of assessment proceedings the assessee submitted the following documents to prove their identity of shareholders, creditworthiness of shareholders and genuineness of transaction with them: -
Name of Particulars of Documents submitted Copy at Shareholder PB Page 19 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Arcade Dealcom Share application containing the 121-124 Pvt. Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 125 Copy of PAN card of party. 126 Copy of bank statement showing the entry of 127-128 payment made to assessee.Declaration of source of funds with party. 129 Copy of Ack. of ITR of AY 2009-10. 130
Copy of audit report and audited balance sheet 131-141 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 142 Debdaru Vinimay Share application containing the 143-144 Pvt. Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 145 Copy of PAN card of party. 146 Copy of bank statement showing the entry of 147 payment made to assessee.Declaration of source of funds with party. 148 Copy of Ack. of ITR of AY 2009-10. 149
Copy of audit report and audited balance sheet 150-159 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 160 Debdoot Vinimay Share application containing the 161-162 Pvt Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 163 Copy of PAN card of party. 164 Copy of bank statement showing the entry of 165 payment made to assessee.Declaration of source of funds with party. 166 Copy of Ack. of ITR of AY 2009-10. 167
Copy of audit report and audited balance sheet 168-177 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 178 20 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Matribhumi Share application containing the 179-182 Dealers Pvt. Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 183 Copy of PAN card of party. 184 Copy of bank statement showing the entry of 185-187 payment made to assessee.Declaration of source of funds with party. 188 Copy of Ack. of ITR of AY 2009-10. 189
Copy of audit report and audited balance sheet 190-198 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 199 Puja Tie Up Pvt. Share application containing the 200-203 Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 204 Copy of PAN card of party. 205 Copy of bank statement showing the entry of 206-207 payment made to assessee.Declaration of source of funds with party. 208 Copy of Ack. of ITR of AY 2009-10. 209
Copy of audit report and audited balance sheet 210-221 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 222 Pushpa Dealers Share application containing the 223-224 Pvt. Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 225 Copy of PAN card of party. 226 Copy of bank statement showing the entry of 227 payment made to assessee.Declaration of source of funds with party. 228 Copy of Ack. of ITR of AY 2009-10. 229
Copy of audit report and audited balance sheet 230-239 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 240 21 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Puspa Trading Pvt. Share application containing the 241-244 Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 245 Copy of PAN card of party. 246 Copy of bank statement showing the entry of 247-248 payment made to assessee.Declaration of source of funds with party. 249 Copy of Ack. of ITR of AY 2009-10. 250
Copy of audit report and audited balance sheet 251-260 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 261 Shreya Tie Up Pvt. Share application containing the 262 Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 263 Copy of PAN card of party. 264 Copy of bank statement showing the entry of 265 payment made to assessee.Declaration of source of funds with party. 266
Copy of Ack. of ITR of AY 2009-10. 267-268 Copy of audit report and audited balance sheet 269-278 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 279 Tarang Suppliers Share application containing the 280-281 Pvt. Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 282 Copy of PAN card of party. 283 Copy of bank statement showing the entry of 284-285 payment made to assessee.Declaration of source of funds with party. 286
Copy of Ack. of ITR of AY 2009-10. 287-288 Copy of audit report and audited balance sheet 289-297 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 298 22 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Vandana Dealers Share application containing the 299 Pvt. Ltd name/address/PAN of party, detail of payment received etc. Copy of board resolution. 300 Copy of PAN card of party. 301 Copy of bank statement showing the entry of 302 payment made to assessee.
Copy of Ack. of ITR of AY 2009-10. 303-305 Copy of audit report and audited balance sheet 306-316 along with annexure of 31.03.09.
Copy of registration certificate issued by ROC. 317
m) All the share capital/share application was received through a/c payee cheques and verifiable from bank statement of assessee as well as bank statement of the party. The onus u/s 68 of the assessee is to prove the identity, capacity and genuineness of the transactions has been discharged which may be seen from the followings:-
i) Identity:-
The assessee proved the identity of all the companies by filing the share application received from the parties and the parties are duly in existence and the existence of the parties can be verified from the official website of MCA. The ld. AO also not doubted the identity of the above named companies. Further the notice issued u/s 133(6) of Income Tax Act, 1961 was duly served on all the companies which also prove the identity of the parties.
ii) Creditworthiness All the companies are Income Tax assessee and duly filing the Income Tax return and Balance sheets. There is sufficient source of funds with all the companies to investment share capital/share application in the assessee company. The assessee submitted the copies of bank account/declaration of source of funds with them of investor companies. The bank statement shows the huge transaction of high value in the accounts of the companies. The chart showing the amount invested by the above named companies in assessee company viz a viz own funds with the investor company are as under: -
Name of the Investor Amount Share capital Share capital company invested in and reserve & and reserve & assessee surplus with surplus with 23 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur company Investor Investor companies as companies as on 31.03.2009 on 31.03.2008 Arcade Dealcom Pvt. Ltd 30,00,000 11,71,00,000 11,71,00,000 (PB 136) Debdaru Vinimay Pvt. Ltd 25,00,000 14,20,06,978 NA (PB 155) Debdoot Vinimay Pvt. Ltd 35,00,000 16,13,16,670 NA (PB 173) Matrabhumi Dealers Pvt. 44,00,000 3,16,50,000 3,16,50,000 Ltd (PB 193) Puja Tie-Up Pvt. Ltd 50,00,000 11,95,23,840 11,95,12,729 (PB 215) Pushpa Dealers Pvt. Ltd 25,00,000 13,16,22,036 13,16,12,521 (PB 235) Pushpa Trading Pvt. Ltd 40,00,000 15,97,59,975 15,97,55,399 (PB 256) Shreya Tie Up Pvt. Ltd 10,00,000 9,60,60,000 9,60,60,000 (PB 273) Taranh Suppliers Pvt. Ltd 34,00,000 2,55,00,000 2,55,00,000 (PB 292) Vandana Dealers Pvt. Ltd 10,00,000 9,39,42,000 9,39,42,000 (PB 311) From the above chart it is clear that all the Investor companies were having their own share capital and Reserve & surplus which were much more than to the amount invested in the assessee company. From the audited P & L Account of these companies it is apparent that these companies had trading activities of large amount. The above chart shows that the investor companies were having their own independent funds and having their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved.
iii) Genuineness 24 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the assessee and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found from the possession of the assessee company or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books of account or document was found showing payment of cash to these investor companies against receipt of cheques from these companies against allotment of shares. Therefore the genuineness of the transactions cannot be doubted.
n) Onus to prove source of source From the show cause notice given by ld CIT(A) and excel sheet provided to the assessee showing chain of source it is apparent that even there is no cash deposit till 3rd stage of channel source (Copy at Pb pg 473 to 506/ AY 2012-13). If there is any cash deposited at 4th channel or beyond to that stage then the inquiry should have been made from the concerns in whose bank a/c such funds floated and necessary action should have been taken in the cases of such concern but the assessee cannot be hold responsible for cash deposit in some account at 4th Channel. Under section 68 of Income Tax Act, 1961 the onus of the assessee is to prove the source of credit entry and there is no onus of assessee to prove the source of source or source of all channel sources. The amendment in section 68 of I. Tax was made by inserting the following proviso to section 68 w.e.f.
01/04/2013 which require to prove source of finds in the hands of shareholder company. Though not required by law but still the assessee has proved source of finds in the hands of shareholder company. The amended section even does not require to prove source of funds in the hands of 3rd or 4th stage.
Further the amendment in section 68 of I.Tax was made by inserting the following proviso to section 68 w.e.f. 01/04/2013 25 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur "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:
The above proviso was inserted with effect from the 1st day of April, 2013 so it cannot be applied retrospectively. Therefore as per law the assessee has no onus to prove source of source. Hon'ble Mumbai High Court in the case of Commissioner of Income Tax 1 Vs M/s. Gagandeep Infrastructure Pvt.Ltd (Pb pg 360 to 366/Case Laws) held as under:-
"(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013.
Thus it would be effective only from the Assessment Year 201314 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. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue 26 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
(f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.
But in the case of the assessee the fact remains that the assessee has also proved source of source by submitting the copy of bank statement of the share applicant company wherein no cash deposit was made against the share application money.
Therefore, the addition on share application received by the assessee can neither be made u/s 56(1) of Income Tax Act, 1961 nor u/s 68 of Income Tax Act, 1961. The various judgments and arguments regarding addition made u/s 56(1) of Income Tax Act, 1961 has been submitted in forgoing paras. The various judgments regarding addition cannot be made u/s 68 of Income Tax Act, 1961 has been cited in the submission made for AY 2012-13 in assessee's appeal ITA No 482/JP/17.
In view of the above submission, the humble assessee prays your honor kindly to dismiss the appeal filed by the department.'' 4.6 We have heard the rival contentions and perused the materials available on record. Brief facts of the case are that the Department carried out search over Motisons Group on 31-10-2012. The AO during the course of assessment proceeding observed that in the course of search and seizure action u/s 132 of the Act, cash, jewellery, valuables, stock-in-
27 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur trade, documents, books of account and / or loose papers were found and / or seized from the premises of the members of the Motisons Group of which one such member happens to be the assessee. The AO also noted that the Group is involved in introducing large share capital on high premium in accounts of various group companies through the Kolkata based companies. The AO has mentioned these details at page 3 and 4 of his assessment order. The AO further noted that the receipt of share capital is Rs. 3,03,000/- and the premium is to the tune of Rs. 2,99,97,000/- during the year under consideration which is not only abnormal but also appeared to be part of a well planned exercise of tax evasion. Accordingly, the AO issued the show cause notice dated 6-02- 2015 to the assessee company requiring the assessee to show cause as to why the amount of Rs. 3,03,00,000/- should not be treated as income of the assessee u/s 56(1) of the Act. The assessee submitted the reply before the AO who rejected the assessee's contention and made the addition of Rs. 3,03,00,000/- u/s 56(1) of the Act in the hands of the assessee company. In first appeal, the ld. CIT(A) has deleted the addition of Rs. 3,03,00,000/- made by the AO. The relevant portion of ld. CIT(A)'s order from para 2.1.4.2 to 2.1.47 is reproduced hereunder:-
28 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur ''2.1.4.2 Final observation :
2.1.4.2.1 I have considered assessee's submission and also taken a note of judicial pronouncements relied upon by the appellant as well as the factual matrix of the case. The brief facts of the case are that "Motisons Group" has several companies. These Companies issued share capital on premium to various other companies. The AO held that the receipts on account of share capital on premium is taxable income u/s 56(1) of I. Tax Act, accordingly he made the additions in the hands of various companies as under:-
S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount of Share capital and Premium.
1 Motisons Global Pvt. Ltd 2009-10 Bholenath Traders Pvt. Ltd 25,00,000
Debraj Vincom Pvt. Ltd 15,00,000
Kingfisher Vinimay Pvt. Ltd 20,00,000
Nawab Vyapar Pvt. Ltd 50,00,000
Reality Merchant Pvt. Ltd 47,00,000
Sanmukh Vincom Pvt. Ltd 15,00,000
Shreya Tie Up Pvt. Ltd 53,00,000
Victor Tradcom Pvt. Ltd 50,00,000
Total 2,75,00,000
2 Motisons Global Pvt. Ltd 2011-12 Adarsh Deal Trade Pvt. Ltd 5,00,000
Adhunik Dealmark Pvt. ltd 42,00,000
Axion Commodeal Pvt. ltd 36,00,000
Bholenath Traders Pvt. Ltd 1,03,00,000
Bhusan Distributors Pvt. Ltd 25,00,000
Contra Vanijya Pvt. Ltd 78,00,000
Debdaru Vinimay Pvt. Ltd 21,00,000
Deep Commosales Pvt. Ltd 50,00,000
Dhanlabh Tradelinks Pvt. Ltd 27,00,000
Puspa Dealers Pvt. Ltd 60,00,000
Puspa Trading Pvt. Ltd 12,50,000
Rupa Tracom Pvt. Ltd 60,00,000
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M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount of Share capital and Premium.
Spangle Dealtrade Pvt. Ltd 70,00,000
Surya Deal Trade Pvt. Ltd 14,00,000
Swabhiman Dealers Pvt. Ltd 68,00,000
Vikash Tradecom Pvt. Ltd 25,00,000
Total 6,96,50,000
3 Motisons Global Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 3,05,00,000
Evershine Suppliers Pvt. Ltd 1,60,00,000
Alliance Tradecom Pvt. Ltd 3,95,58,900
Evershine Suppliers Pvt. Ltd 4,86,99,600
Mayukh Vinimay Pvt. Ltd 6,93,49,800
Mayukh Vintrade Pvt. Ltd 13,99,800
Regent Barter Pvt. Ltd 4,04,71,800
Regent Dealers Pvt. Ltd 7,59,99,900
Rose Suppliers Pvt. Ltd 9,87,49,800
Total 42,07,29,600
4 Motisons Global Pvt. Ltd 13-14 Alliance Tradecom Pvt. Ltd 50,50,000
Evershine Suppliers Pvt. Ltd 1,45,00,000
Mayukh Vinimay Pvt. Ltd 2,24,50,000
Regent Dealers Pvt. Ltd 16,00,000
Rose Suppliers Pvt. Ltd 5,00,000
Total 4,41,00,000
5 Motisons Entertainment (I) Pvt. Ltd 2009-10 Bholenath Traders Pvt. Ltd 35,00,000
Debdaru Vinimay Pvt. Ltd 50,00,000
Indigo Vinimay Pvt. Ltd 50,00,000
Kingfisher Vinimay Pvt. Ltd 20,00,000
Reality Merchant Pvt. Ltd 25,00,000
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M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount of Share capital and Premium.
Shreya Tie Up Pvt. Ltd 75,00,000
Sumeru Vincom Pvt. Ltd 35,00,000
Victor Tradcom Pvt. Ltd 50,00,000
Total 3,40,00,000
6 Motisons Entertainment (I) Pvt. Ltd 2011-12 Access Tradelink Pvt. Ltd 20,00,000
Bholenath Traders Pvt. Ltd 40,00,000
Chakra Deal Trade Pvt. Ltd 15,00,000
Debdaru Vinimay Pvt. Ltd 15,00,000
Interlink Saving and Finance P Ltd 25,00,000
Puja Tie Up Pvt. Ltd 15,00,000
Sanmukh Vincom Pvt. Ltd 45,00,000
Tara Vinimay Pvt. Ltd 20,00,000
Total 1,95,00,000
7 Motisons Entertainment (I) Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 1,59,00,000
Evershine Suppliers Pvt. Ltd 93,00,000
Evershine Suppliers Pvt. Ltd 17,00,000
Mayukh Vinimay Pvt. Ltd 1,55,00,000
Regent Barter Pvt. Ltd 1,79,00,000
Regent Dealers Pvt. Ltd 1,40,00,000
Rose Suppliers Pvt. Ltd 35,00,000
Total 7,78,00,000
8 Motisons Buildtech Pvt. Ltd 2009-10 Arcade Dealcom Pvt. Ltd 30,00,000
Debdaru Vinimay Pvt. Ltd 25,00,000
Debdoot Vinimay Pvt. Ltd 35,00,000
31
ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount of Share capital and Premium.
Matrabhumi Dealers Pvt. Ltd 44,00,000
Puja Tie-Up Pvt. Ltd 50,00,000
Pushpa Dealers Pvt. Ltd 25,00,000
Pushpa Trading Pvt. Ltd 40,00,000
Shreya Tie Up Pvt. Ltd 10,00,000
Taranh Suppliers Pvt. Ltd 34,00,000
Vandana Dealers Pvt. Ltd 10,00,000
Total 3,03,00,000
9 Motisons Buildtech Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 1,80,00,000
Evershine Suppliers Pvt. Ltd 28,00,000
Regent Barter Pvt. Ltd 1,60,27,500
Total 3,68,27,500
10 Godawari Estates Pvt. Ltd 2010-11 Debdaru Vinimay Pvt. Ltd 25,00,000
Jai Pitreshwar Vyapaar Pvt. Ltd 15,00,000
Mainak Vincom Pvt. Ltd 50,00,000
Puspa Dealers Pvt. Ltd 50,00,000
Snowfall Commercial Pvt. Ltd 25,00,000
Vignesh Info Services Pvt. Ltd 35,00,000
Total 2,00,00,000
11 Godawari Estates Pvt. Ltd 2012-13 Bakliwal Vyapaar Pvt. Ltd. 1,23,00,000
Jasmine Commodities Pvt. Ltd 65,00,000
Buniyad Vanijya Pvt Ltd 50,00,000
Puja Barter Pvt. Ltd. 60,00,000
Dhanlabh Tradelinks Pvt. Ltd 25,00,000
Devang Commercial Pvt. Ltd 50,00,000
32
ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount of Share capital and Premium.
Extent Vinimay Pvt. Ltd 25,00,000
Neha Deal Trade Pvt Ltd 20,00,000
Spring SalesPvt Ltd 67,00,000
Manali Tradecom Pvt Ltd. 50,00,000
Target Vincom Pvt Ltd 50,00,000
Bernstain Marketing Pvt Ltd 15,00,000
Kesarinandan Vanijya Pvt Ltd 5,00,000
Deep Commosale Pvt Ltd 50,00,000
Apollo Vintrade Pvt Ltd 25,00,000
Innova Commercial Pvt Ltd 25,00,000
Prayash Dealtrade Pvt Ltd 40,00,000
Justify Vanijya Pvt Ltd 50,00,000
Solty Financial Consultants P Ltd 50,00,000
Achiever Commotrade Pvt Ltd 50,00,000
Sishmahal Commotrade Pvt. Ltd 20,00,000
Advantage Dealtrade Pvt. Ltd 25,00,000
Origin VinimayPvt Ltd 40,00,000
Rukmani International Pvt Ltd 50,00,000
Total 10,30,00,000
12 Bholenath Real Estates Pvt. Ltd 2009-10 Lavender Dealcom Pvt. Ltd. 30,00,000
Arcade Dealcom Pvt. Ltd 20,00,000
Tarang Suppliers Pvt. Ltd 15,00,000
Transit Vinimay Pvt. Ltd 62,00,000
Vandana Dealers Pvt. Ltd 98,00,000
Variety Dealcom Pvt. Ltd 25,00,000
33
ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount of Share capital and Premium.
Vanila Vinimay Pvt. Ltd 15,00,000
Outlook Tracom Pvt. Ltd 25,00,000
Total 2,90,00,000
13 Rainbow Buildcon Pvt Ltd 2009-10 Anuraj Securities Pvt Ltd 20,00,000
Matribhumi Dealers Pvt Ltd 25,00,000
Narottamka Trade & Vyapaar Pvt Ltd 15,00,000
Puja Dealcom Pvt Ltd 40,00,000
Tarang Suppliers Pvt LTd 30,00,000
Vandana Dealers Pvt Ltd 30,00,000
Puja Tie-Up Pvt Ltd 40,00,000
Total 2,00,00,000
14 Shivansh Buildcon Pvt. Ltd 2012-13 Evershine Suppliers Pvt. Ltd 90,00,000
Total 90,00,000
Total Additions 94,14,07,100
During the appellate proceeding, Sh Vijay Kr Goyal has requested to keep the appellate matter pending for time being in case of M/s Mayukh Vinimay Pvt Ltd as the appeal against the order of 263 is pending for adjudication before the Hon'ble ITAT Kolkata where matter pertaining to jurisdiction of CIT who passed the order of 263, has been challenged. It is further submitted that assessee has also made request to ITAT Kolkata to transfer the said case to ITAT Jaipur which is still pending for consideration. In respect of addition made on a/c of bogus share capital, AO has also made similar addition of Rs. 10,54,95,000/= in the hands of M/s Mayukh Vinimay P Ltd, tantamounts to double addition.
After duly taking a note of the same, appellate order in case of M/s Mayukh Vinimay Pvt Ltd is being kept in abeyance till the disposal of said appeal by Hon'ble ITAT. With regard to decisions relied upon by the undersigned, Sh Vijay Goyal were differentiated on facts as under:
(i) Nova Promoters & Finlease Pvt. Ltd (2012) 342 ITR 169 (Delhi High Court): Summons sent to the companies received back unserved and other summons remained uncomplied with Whereas, in the case of assessee companies, notice u/s 133(6) was sent to investor companies, all of which were served and most of them were complied with.
(ii) CIT V/s N. R. Portfolio Pvt. Ltd 206 (2014) DLT (DB) (Del)/ 264 CTR 0258 (del) : Assessed u/s 144 of Itax Act. In this case the AO issued several notices and show cause notice which was not served/complied and assessment was framed u/s 144 of Income Tax Act. In our case all the compliances were made and evidences submitted.34 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
(iii) N Tariks Properties Pvt. Ltd 227 Taxmann.com 373 (with reference to decision of Delhi high court in 264 CTR 472) :AO noticed that extracts of bank account had been fabricated and AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company.
(iv) CIT v/s Navodaya Castle Pvt. Ltd 367 ITR 306 (Delhi High Court): AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company.
(v) CIT V/s MAF Academy Pvt. Ltd 206 (2014) DLT 277 (DB)(Del)/ 361 ITR 0285 (Del) : AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of Shareholder Company.
Further, the summons u/s section 131 of I.tax Act were sent to the shareholders which were received back unserved.
(vi) Rajmandir Estates Pvt. Ltd 70 Taxmann.com 124: Relates to order passed by CIT u/s 263 of ncome Tax Act, 1961.
(vii) CIT v/s Sumati Dayal (1995) 80 Taxman 89 (SC) & CIT V/s Durga Prasad More [1971] 82 ITR 540 (SC) : No application as ample evidence have been filed by assessee. Further no source of concealed income was found. Further no document was found as the result of intensive search operations to show outflow of unaccounted money against the receipts of share application money through the banking channels. This show the preponderance of probabilities is in favour of assessee.
(viii) CIT V/s Mussadilal Ram Bharose [1987] 165 ITR 14 This judgment relates to penalty u/s 271(1)(c).
In support of its contention, assessee through AR has relied upon following judgments fact of which are identical to the fact of the case of assessee:
Jurisdictional Rajasthan High Court
(i) CIT-1, Jaipur V/s M/s. ARL Infratech Ltd, wherein Hon'ble Rajasthan High Court has recently confirmed the findings of Hon'ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016.
(ii) Commissioner of Income-tax, Jaipur -II Versus Morani Automotives (P.) Ltd. No.- D.B. IT Appeal No. 619 of 2011 Dated.- October 23, 2013 (Rajasthan High Court).
(iii) Barkha Synthetics Ltd. vs. Asstt. CIT (005) 197 CTR (Raj) 432.
(iv) CIT vs. First Point Finance Ltd. (2006) 206 CTR (Raj) 626 : (2006) 286 ITR 477 (Raj HC).
(v) Commissioner of Income Tax Vs. Bhaval Synthetics (Raj HC) (2013) 84 DTR 0449 (Raj).
(vi) Commissioner of Income Tax Vs. AKJ Granites (P) Ltd. (Raj HC) (2008) 301 ITR 0298.
i) Commissioner of Income-Tax, Central, Jaipur Versus Supertech Diamond Tools (Pvt) Ltd. (Raj HC) D. B. IT Appeal No. 74 of 2012 Dated: - 12 December 2013.35 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
viii) Commissioner of Income-tax - I, Jaipur Versus AL Lalpuria Construction (P.) Ltd (Raj HC) D.B. IT Appeal Nos. 256 of 2010 AND 26 & 39 of 2011 Dated: - 25 February 2013.
(ix) Commissioner of Income-tax, Ajmer Versus HS. Builders (P.) Ltd. D.B. INCOME Tax (Raj HC) APPEAL NO. 48 OF 2006 Dated: - 03 March 2012.
(x) CIT Vs Jai Kumar Bakliwal (2014) 101 DTR (Raj) 377 : (2014) 267 CTR (Raj) 396. No liability to prove source of source
(xi) Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199. Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.
(xii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.
Since, the common issues are involved in all these 15 companies therefore, for convenience, I am dealing the issue in composite manner first on the basis of facts and then on legality also. The followings facts issues emerge from the findings of AO and submissions submitted by ld AR.
a) Issue of according opportunity of cross examination of Sh Santosh Choube, Sh Ajit Sharma & Sh Rajesh Kumar Singh to the assessee.
b) Charging of Premium on shares and taxability by applying the provisions of section 56(1) of Income Tax Act.
c) Addition by applying the provisions of section 68 of Income Tax Act 2.1.4.2 (a) According opportunity to cross examine Sh Santosh Choube, Sh Ajit Sharma & Sh Rajesh Kumar Singh But before asking for an opportunity for cross examining them, assessees has to disprove the correctness of their assertions as emanating from the statements recorded of Sh Santosh Choube, Sh Ajit Sharma and Sh Rajesh Kumar Singh. Corroborative evidences in form of bank statements obtained in this regard and their analysis further proves the theory of cash deposit prior to transfer of share application money. Vide show cause letter issued , assessee has already been confronted with the oral evidences gathered during the survey operation from aforementioned 3 persons by Investigation Directorate Kolkata. Further, the right of cross examination is not an absolute right as decided in Nath International Sales vs. UOI, AIR 1992 (Del) 295) wherein Hon'ble Supreme Court has also held that the right of hearing does not necessarily include right of cross examination. The right of cross examination must depend upon the circumstances of each case. In this regard, assessee is trying to use this shield of "absence of opportunity to cross-examine" of Sh Santosh Choube, Sh Ajit Sharma and Sh Rajesh Kumar Singh. It will be miscarriage of justice if assessee be given benefit on this a/c. It is also not possible to allow opportunity of cross-examination of each parties. Assessee is supposed to controvert all facts gathered from the oral evidences as well as from bank enquiries. In view of these facts, assessee's grievance is not justified as proper opportunity during the appellate proceeding has already been given to controvert those findings as mentioned in the show-cause letter.
2.1.4.2 (b) Charging of premium on shares & its taxability.
The AO has observed that companies have received abnormal share premium whereas as per the audited P&L account and balance sheet, these companies, do not have any business/profit and physical assets/assets are not in commensurate to value of share with the companies which appeared to be a part of a well planned exercise of tax evasion. In this regard, Ld AR has submitted following reasons for Charging of premium:
Name of Company Reason for Charging Share Premium Motisons Global Pvt. Ltd 1. Owing a big and valuable land in the heart of city at Lal Kothi, Tonk Road, Jaipur and constructin one of the most beautiful building of Jaipur city thereon.
2. Goodwill of Motisons Group.
Motisons Entertainment (I) Pvt. Ltd 1. The assessee company booked a big space (meant for Cinema Hall) in under construction comple 36 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur naming "World Trade Park" Further, the leasing out this space to world famous cinema theatre operator "Cinepolis" was under process.
2. Goodwill of Motisons Group.
Motisons Buildtech Pvt. Ltd 1. Owing a big and valuable agriculture land at Village Dudu, Gidani Nolya (At Ajmer Road, Near Dudu) for which planning of township was there.
2. Owning valuable land in the heart of city at C-Scheme and constructing the building thereon
2. Goodwill of Motisons Group.
Godawari Estates Pvt. Ltd 1. NBFC Company expecting good revenue.
2. Goodwill of Motisons Group.
Bholenath Real Estates Pvt Ltd (i) Owwing large chunk of agricultural land at Village Gaiji, Tehsil Mojamabad, Distt Jaipur (in between Bagru to Dudu at main NH Jaipur Ajmer Road) and planning development of township thereon.
(ii) Market rate of land was very high than book value which was on cost.
(iii) Goodwill of Motisons Group.
Rainbow Buildcon Pvt. Ltd 1. Owning large chunk of agricultural land at Village Gidani (Near Dudu at main NH Jaipur Ajmer Road and planning development of township thereon.
2. The market rate of this land was very high than book value.
3. Goodwill of Motisons Group.
Shivansh Buildcon Pvt. Ltd 1. Owning a valuable land in the heart of city at Seewad Area, Bapu Nagar, Jaipur and planning a commercial project thereon.
2. Goodwill of Motisons Group.
The ld AR has further submitted that that the shares were allotted to the investor companies at premium, after mutual discussion between assessee companies and investor companies. "Motisons Group" enjoys very high reputation and goodwill in market which was main reason for high premium. Hon'ble ITAT, Mumbai Bench in the case of ACIT Vs. Gagandeep Infrastructure Pvt. Ltd. 2014-T10L-656-ITAT-Mum has held that issue of shares at premium is always a commercial decision which does not require any justification. The assessee further submitted that wherever the authorized share capital is required to be increase, the same has been increased, it was purely a commercial decision of the companies on which income-tax Department cannot step into shoes of assessee. In view of this, it would be worthwhile to reproduce section 56(1) of the Act here as under:
"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."
Here, I find that the money so received against the share capital and share premium is capital receipt and not revenue receipt, therefore the same cannot be taxed in the hands of assessee companies under section 56(1) of Income Tax Act, 1961. The CBDT vide circular/instruction No.2 dated 29.01.2015 has stated as under [371 ITR 6(st)].
In reference to the above cited subject, I am directed to draw your attention to decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd V UOI for the Assessment year 2009-10 (WP No.871 of 2014) wherein the court has held interalia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment.
It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned writ petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where the issue is involved. This may also be brought to the notice of the ITAT, DRP's and CIT (Appeals).
In view of above instruction of CBDT share premium cannot be treated as revenue receipt taxable u/s 56(1) of Income Tax Act. Further this should be seen with reference to amendment made by Finance Act 2012 by insertion of clause (viib) to section 56 of Income Tax Act, 1961. This amendment was made effective from 01/04/2013. Memorandum explaining the provisions in Finance Bill 2012 stated as under:
"Share premium in excess of the fair market value is to be treated as income.37 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur "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 56(2). The new clause will apply where, accompany, 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 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".
The said amendment is effective from 1st April 2013, it will accordingly apply in relation to AY 2013-14 and subsequent AYs. In the memorandum it is mentioned that premium in excess of fair market value is to be treated as income. CBDT vide circular No.3 of 2012 dated 12.06.2012 has also mentioned that provisions of 56(2)(vii b) will be applicable for Assessment year 2013-14 onward. In all the cases of following assessee companies share capital and premium was received in the assessment years earlier to AY 2013-14 except the following one:-
Name of Detail of Share Capital issued
Company
Name of allottee No of Share Capital @ Share Premium Rate of Premium Total Amount
shares Rs. 10 per share per share
Motisons Global Alliance Tradecom Pvt. Ltd 12625 1,26,250 49,23,750 390 50,50,000
Pvt. Ltd
Evershine Suppliers Pvt. Ltd 36250 3,62,500 1,41,37,500 390 1,45,00,000
Mayukh Vinimay Pvt. Ltd 56125 5,61,250 2,18,88,750 390 2,24,50,000
Regent Dealers Pvt. Ltd 4000 40,000 15,60,000 390 16,00,000
Rose Suppliers Pvt. Ltd 1250 12,500 4,87,500 390 5,00,000
Total 1,10,250 11,02,500 4,29,97,500 4,41,00,000
Therefore in view of clause (viib) of section 56 of I.Tax Act, the share premium charged by M/s Motisons Global Pvt Ltd in AY 2013-14 can be examined whether it exceeds the fair market value of the shares or not. In this regard the assessee has explained that the share premium in excess to value computed as per manner & method provided in this section r.w.r. 11UA of Income Tax Rules 1962 can only be taxed by applying provisions of section 56(viib) of the Act. The value of shares of the assessee company computed as per manner & method of this rules is as under:
Particulars As per Method (A) As per Method (B) (Net assets value method) (Discounted free cash flow method) Book Value of total assets less prepaid expenses & preliminary 53,88,09,212 53,88,09,212 expenses as on last B/s i.e. 31.03.2012 Add: - Appreciation in market value of assets (In excess to book value) NA 25,52,48,216 Land at SB-110* Total Assets (A) 53,88,09,212 79,40,57,428 Total Liabilities, excluding share capital and reserves & Surplus (L) 76,56,570 76,56,570 Total amount of paid up equity share capital as shown in B/S (PE) 2,05,05,820 2,05,05,820 Paid up value of such equity shares (PV) 10 Fair market value of shares [(53,88,09,212- [(79,40,57,428-7656570)/2,05,05,820]*10 [(A-L)/PE]*PV 7656570)/2,05,05,820]*10 = Rs. 384 per shares* = Rs. 259 per shares For deciding the issue price of shares the assessee company choose the price as determined by option 2 and considering the value of goodwill & enhancement in value of other assets the issue price of shares decided Rs. 400 per shares which is quite reasonable.
The assessee has further clarified that the market value of land at SB-110, Tonk Road Jaipur, is taken on the basis of value of adjacent land at SB-111 purchased during the year under consideration (just adjoining to land at SB-110) and area of both the 38 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur lands are almost same. It was further stated by the assessee that in option two the appreciation in value of assets has been taken only in respect to land as for this the direct evidence is available. The value of other assets & goodwill is not taken in above computations. However while deciding the value of shares the same should also be taken into consideration.
Therefore, I found the explanation of assessee in case of Motisons Global Pvt Ltd that the issue price of the shares in AY 2013-14 is in accordance with the value of shares as computed as per rule 11UA of Income Tax Rules 1962 and it is acceptable. Accordingly, no addition can be made in AY 2013-14 also as income of M/s Motisons Global Pvt Ltd as per provisions of section 56(2)(viib)of the Act 1961. Therefore, AO's action in this regard is not correct as per the applicable provisions of the Act.
2.1.4.2 (c) Addition by applying the provisions of section 68 of the Act The assessee submitted that in all the cases, credit entries are supported by Share application containing (i) name/ address /PAN of party, (ii) detail of payment received, (iii) Copy of board resolution, (iv) Copy of PAN card of party , (v) Copy of bank statement showing the entry of payment made to assessee, (vi) Declaration of source of funds with party (vii) Copy of Ack. of ITR and Computation, (viii) Copy of audit report and audited balance sheet along with annexure. None of notice sent u/s 133(6) received back as "Un-served". Further it is also submitted that the ld AO has not made the addition by applying the provisions of section 68 of the Act so it cannot be applied by CIT(A). As per section 251 (1)(a) of Income Tax Act, 1961 the CIT (A) have the power "in an appeal against an order of assessment he may confirm, reduce, enhance or annual the assessment"
but he has no power to modify the basic theme of assessment order. During the course of assessment proceedings the assessee has submitted ample documents and satisfied the ld AO. The ld. AO being satisfied with the submission of assessee on section 68 of the Act, has not applied section 68 of the Act for the addition. The provisions of section 68 specified the authority mentioned as "Assessing Officer". The CIT(A) is not assessing officer so he cannot step into the satisfaction of AO for making the addition when the ld AO has satisfied about the ingredients of section 68 of Income Tax Act. Hon'ble ITAT Delhi Bench in the case of SH. SHAMSHER SINGH GILL C/O S.K. MONGA & ASSOCIATES Versus ITO, WARD-2, HARIDWAR ITA No 2987/Del/2015 order dated 28/02/2017. It was further stated by ld AR that the assessee has submitted ample documents to prove identity, creditworthiness and genuineness of share capital. Under section 68 of Income Tax Act, 1961 the onus of the assessee is to prove the source of credit entry and there is no onus of assessee to prove the source of source or source of all channel sources. The amendment in section 68 of the Act was made by inserting the following proviso to section 68 w.e.f. 01/04/2013 which require to prove source of funds in the hands of shareholder company. Though not required by law but still the assessee proved source of funds in the hands of shareholder company. The amended section even does not require to prove source of funds in the hands of 3rd or 4th stage. I have also perused the case records. In this regard, I find that the AO has issued notice u/s 133(6) of the Act to inquiry the identity, creditworthiness and genuineness of transactions. AO has issued total 94 notices for share capital of Rs. 35,29,50,000/-. On perusal of case records, it is seen that compliance was made for 41 notices issued u/s 133(6) of the Act which involvesd share capital amounting to total of Rs. 15,59,00,000/-. The status of notices issued u/s 133(6) of Income Tax Act can be seen from chart given below:
Name of assessee company Total Notice Total Amount for Received un- Number of Amount under issued Notice issued served Compliance compliance Motisons Global Pvt. Ltd AY 2009-10 8 2,75,00,000 0 4 1,00,00,000 Motisons Global Pvt. Ltd AY 20111-12 16 6,96,50,000 0 9 3,64,00,000 Motisons Entertainment (I) Pvt. Ltd (AY 2009-10) 8 3,40,00,000 0 3 1,20,00,000 Motisons Entertainment (I) Pvt. Ltd (AY 2011-12) 8 1,95,00,000 0 3 75,00,000 Motisons Buildtech Pvt. Ltd 10 3,03,00,000 0 3 70,00,000 39 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur AY 2009-10 Godawari Estates Pvt. Ltd AY 2010-11 6 2,00,00,000 0 3 1,10,00,000 Godawari Estates Pvt. Ltd AY 2012-13 24 10,30,00,000 0 15 6,22,00,000 Bholenath Real Estates Pvt. Ltd AY 2009-10 7 2,90,00,000 0 1 98,00,000 Rainbow Buildcon Pvt. Ltd AY 2009-10 7 2,00,00,000 0 0 0 Total 94 35,29,50,000 0 41 15,59,00,000 2.1.4.3 Further, in response to show cause notice issued by me u/s 250 (4) of the Act, is submitted that the assessee has also carried out search over the ROC site and found that charge has been registered over the assets of some of the investor companies under Companies Act in favour of leading banks like SBI etc for crores of rupees which proves that the shareholder companies are not shell company-rather creating of charge proves creditworthiness of the companies. The assessee submitted the following chart with search report on ROC site:
Name of Shareholder (Investor Name of Assessee Amount of share Amount, SRN and Name of Bank/Financial
Company) Company in which capital of the Charge Id and date of Institution in whose favou
share were taken investor company Charge created charge was created
Rukmani International Pvt Ltd Godawari Estates Pvt. 50,00,000 50 Crore SRN Axis Bank Ltd
Ltd C05684162 Charge Id
10501185 date 24/03/14
Narottamka Trade & Vyapaar Pvt Ltd Rainbow Buildcon Pvt 15,00,000 85.50 Crore SRN Union Bank of India
Ltd C72436744 Charge Id
10606561 date 30/09/15
Vikash Tradecom Pvt. Ltd Motisons Global Pvt. 25,00,000 9.43 Crore SRN Punjab National Bank.
Ltd C67525196 Charge Id
10345786 date10/02/2012
Arcade Dealcom Pvt. Ltd Motisons Buildtech 30,00,000 3.22 Crore SRN Punjab National Bank.
Pvt. Ltd B44276514 Charge Id
10366837 date
29/06/2012
40
ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Name of Shareholder (Investor Name of Assessee Amount of share Amount, SRN and Name of Bank/Financial Company) Company in which capital of the Charge Id and date of Institution in whose favou share were taken investor company Charge created charge was created Arcade Dealcom Pvt. Ltd Bholenath Real Estates 20,00,000 3.22 Crore SRN Punjab National Bank.
Pvt. Ltd B44276514 Charge Id
10366837 date
29/06/2012
Matribhumi Dealers Pvt Ltd Rainbow Buildcon Pvt 25,00,000 50.00 Crore SRN Axis Bank Ltd
Ltd C05683776 Charge Id
10501186 date
24/03/2014
Puja Tie Up Pvt. Ltd (i) Motisons 15,00,000 2.50 Crore SRN Punjab National Bank.
Entertainment (I) Pvt. C71816029 Charge Id
Ltd 10431745 date
24/05/2013
(ii) Motisons 50,00,000 2.25 Crore SRN
Buildtech Pvt. Ltd C718166656 Charge Id
10431744 date
24/05/2013
(iii) Rainbow 40,00,000 1.65 Crore SRN
Buildcon Pvt Ltd C71814016 Charge Id
10431742 date
18/05/2013
1.95 Crore SRN
C71817654 Charge Id
10431746 date
22/05/2013
Kingfisher Vinimay Pvt. Ltd (i) Motisons Global 20,00,000 87.50 Crore SRN State Bank of India
Pvt. Ltd C03615010 Charge Id
10490641 date
31/03/2014
(ii) Motisons 20,00,000 101.94 Crore SRN
Entertainment (I) Pvt. B73228603 Charge Id
Ltd 10419836 date
21/03/2013
Nawab Vyapar Pvt. Ltd Motisons Global Pvt. 50,00,000 9.95 Crore SRN Punjab National Bank
Ltd C67525006 Charge Id
10345784 date
10/02/2012
Snowfall Commercial Pvt. Ltd Godawari Estates Pvt. 25,00,000 8.00 Crore SRN Bank of India
Ltd B94083011 Charge Id
10289761 date
04/05/2011
41
ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Name of Shareholder (Investor Name of Assessee Amount of share Amount, SRN and Name of Bank/Financial Company) Company in which capital of the Charge Id and date of Institution in whose favou share were taken investor company Charge created charge was created Total 3,85,00,000 The assessee further clarified that out of above 10 cases, in 4 cases which have share capital of Rs. 1.15 crores with the following appellant Companies, notices u/s 133(6) sent by AO were also complied by these companies Name of assessee company Name of investor company Amount of Share application received Motisons Global Pvt. Ltd AY 2009-10 Kingfisher Vinimay Pvt. Ltd 20,00,000 Motisons Global Pvt. Ltd AY 2011-12 Vikash Trade Com Pvt Ltd 25,00,000 Motisons Entertainment (I) Pvt. Ltd (AY 2009-10) Kingfisher Vinimay Pvt. Ltd 20,00,000 Godawari Estates Pvt. Ltd (AY 2012-13) Rukmani International Pvt Ltd 50,00,000 Total 1,15,00,000 However, in case of following 9 parties cases having share capital of Rs. 2.70 crores with following appellant companies, notices u/s 133(6) issued remained un-complied or not complied, but their identity and creditworthiness is further proved from registration of charge under Companies Act Name of assessee company Name of investor company Amount of Share application received Motisons Global Pvt. Ltd (AY 2009-10) Nawab Vyapar Pvt Ltd 50,00,000 Motisons Buildtech Pvt. Ltd (AY 2009-10) Arcade Dealcom Pvt. Ltd 30,00,000 Motisons Buildtech Pvt. Ltd (AY 2009-10) Puja Tie Up Pvt. Ltd 50,00,000 Motisons Entertainment (I) Pvt. Ltd (AY 2011-12) Puja Tie Up Pvt. Ltd 15,00,000 Godawari Estates Pvt. Ltd (AY 2010-11) Snowfall Commercial Pvt. Ltd 25,00,000 Bholenath Real Estates Pvt Ltd (AY 2009-10) Arcade Dealcom Pvt. Ltd 20,00,000 Rainbow Buildcon Pvt Ltd (AY 2009-10) Matribhumi Dealers Pvt Ltd 25,00,000 Rainbow Buildcon Pvt Ltd (AY 2009-10) Puja Tie Up Pvt Ltd 40,00,000 Rainbow Buildcon Pvt Ltd (AY 2009-10) Narottama Trade & Yyapaar Pvt Ltd 15,00,000 Total 2,70,00,000 Further six share applicant companies were assessed by the same AO for AY 2013-14 wherein genuineness of these companies were not doubted. Further, out of these six companies, the assessment of one M/s Mayukha Vinimay Pvt Ltd for AY 2009-10 was made in same circle i.e. Central Circle-2, Jaipur wherein addition of Rs. 10,54,95,000/- was made on account of its share capital by passing order u/s 143(3) r.w.s.263 of the Act. In other Companies cases, assessment for AY 2009- 10 was made u/s 148 of the Act by their respective jurisdictional AO wherein their funds/ share capital was assessed. The share capital received from these companies are as under:
S. No. Name of Company AY Detail of Share Capital issued
Name of allottee Total Amount
3 Motisons Global Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 3,05,00,000
Evershine Suppliers Pvt. Ltd 1,60,00,000
Alliance Tradecom Pvt. Ltd 3,95,58,900
Evershine Suppliers Pvt. Ltd 4,86,99,600
Mayukh Vinimay Pvt. Ltd 6,93,49,800
42
ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur S. No. Name of Company AY Detail of Share Capital issued Name of allottee Total Amount Regent Barter Pvt. Ltd 4,04,71,800 Regent Dealers Pvt. Ltd 7,59,99,900 Rose Suppliers Pvt. Ltd 9,87,49,800 Total 41,93,29,800 4 Motisons Global Pvt. Ltd 13-14 Alliance Tradecom Pvt. Ltd 50,50,000 Evershine Suppliers Pvt. Ltd 1,45,00,000 Mayukh Vinimay Pvt. Ltd 2,24,50,000 Regent Dealers Pvt. Ltd 16,00,000 Rose Suppliers Pvt. Ltd 5,00,000 Total 4,41,00,000 7 Motisons Entertainment (I) Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 1,59,00,000 Evershine Suppliers Pvt. Ltd 93,00,000 Evershine Suppliers Pvt. Ltd 17,00,000 Mayukh Vinimay Pvt. Ltd 1,55,00,000 Regent Barter Pvt. Ltd 1,79,00,000 Regent Dealers Pvt. Ltd 1,40,00,000 Rose Suppliers Pvt. Ltd 35,00,000 Total 7,78,00,000 9 Motisons Buildtech Pvt. Ltd 2012-13 Alliance Tradecom Pvt. Ltd 1,80,00,000 Evershine Suppliers Pvt. Ltd 28,00,000 Regent Barter Pvt. Ltd 1,60,27,500 Total 3,68,27,500 14 Shivansh Buildcon Pvt. Ltd 2012-13 Evershine Suppliers Pvt. Ltd 90,00,000 Total 90,00,000 Total Additions 58,70,57,300 43 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 2.1.4.4 As regard Seized documents [party-1/Exhibit AS-3/Pge21], Sh Vijay Goyal, the Ld AR of the assessee has further clarified that FMV and maximum appreciation written 250/- and shares were also allotted for Rs. 250/- in that period. It is pertinent to also note that there is no Incriminating noting to show that share capital was acquired against the unaccounted cash of assessee group. As regard Tally accounts, the ld AR of assessee has explained that the tally accounts of six companies (assessed by same AO for AY 2013-14) were found in Pen drive of accountant Shri Banwari lal Yogi found and seized from residence of Chhabra Brothers. Same were received for reconciliation purpose. Since the up to date accounts were not there in Tally and missing supporting bills and vouchers from the searched premise clearly indicates that assessee group was not maintaining the books of account of shareholder companies. Further in such tally account there is no entry of outflow of any In this regard, it is also seen that the assessment of these six companies were made by same AO for AY 2013-14 wherein he has not made any adverse comments. Further, the tally account have no material to show that the appellant companies obtained the share capital by giving unaccounted cash. As regard the statements of employees of Motisons Group/directors of these six investor companies, the AR of the appellant Companies has given a plausible explanation that employees of Motisons Group were directors of Six companies. Major Share Holding company of these Six companies was M/s Mayukh Vintrade Pvt. Ltd and shareholder of this company was Chhabra family members (Owner of Motisons Group), therefore the known director were appointed in these Six Companies. Further none of the employee admitted to have managed the unaccounted money of the assessee company routed in its books through share capital.
2.1.4.5 Hon'ble Rajasthan High Court in the case of CIT -1, Jaipur Vs M/s. ARL Infratech Ltd, has recently confirmed the findings of Hon'ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016. Hon'ble ITAT Jaipur Bench in this case has made the following findings :
".....Before, we proceed to decide the issue on merits, we would like to discuss the scheme of the Act and precedents on the issue involved in this appeal as under:
''In cases where share application money is found recorded in the books of an assessee which may represent credit in the books and the share applicant is identified, that amount cannot be added in the assessee's hands u/s 68 of the Act. The Hon'ble Rajasthan High Court has repeatedly reiterated the above legal position. These cases are:
(i) CIT vs. Shree Barkha Synthetics Ltd. 182 CTR 175 (Raj.)
(ii) Barkha Synthetics Ltd. vs. ACIT (2005), 197 CTR 432 (Raj).13 In coming to the above conclusion, the Hon'ble Jurisdictional High Court has considered at length the relevant decisions on the issue like CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 = 251 ITR 263 (SC) which has confirmed the decision of Hon'ble Delhi High Court reported in (1992) 192 ITR
287. The Hon'ble Court has gone to the extent of stating that even if it be assumed that the subscriber to the sharecapital are not genuine, nevertheless, under no circumstances can the amount of share capital be regarded as undisclosed income of the assessee. In this case, the share subscriber is identified. There can be no dispute regarding the above stated legal position. The following decisions also lay down the same ratio:
(i) CIT vs. Lovely Exports (P) Ltd. (2008) 6 DTR 308 (SC)
(ii) CIT vs. Dolphin Conpack Ltd. (2006) 283 ITR 190 (Del.)
(iii) CIT vs. Gujarat Heavy Chemicals Ltd. (202) 256 ITR 795(SC)
(iv) CIT vs. Kwick Travels (1992) 199 ITR (St.) 85 (SC) This issue has been dealt at length by the Third Member in the case of Uma Polymers (P) Ltd. vs. DCIT, (2006) 101 TTJ (Jd.) T.M. 126 = (2006) 284 ITR (AT) 1 Jodhpur.'' 2.6 Adverting, the facts of the given case, we are of the considered opinion that all the share applicants stand identified. The assessee has provided PANs of the share applicants. The mode of payment has also been 44 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur made explained. There is no direct or indirect relation between the assessee company and the share applicants. The statements recorded during survey has got no evidentiary value and the law is very much settled on this issue. In any case, even under the provisions of Section 68 of the Act, the assessee cannot be forced to prove the source of the source. The law on this subject is also settled by numerous decisions. The alleged report of the Inspector of the Department who is stated to have visited at the given addresses of the share applicants was never put or confronted to the assessee. The cumulative effects of these reasons is that the impugned addition cannot be added in the hands of the assessee company. Accordingly, we order to delete the entire additions and allow the appeal of the assessee.
3.0 In the result, the appeal of the assessee stands allowed....."
The Department filed appeal before Hon'ble Rajasthan High Court. Hon'ble Rajasthan High Court confirmed the findings of Hon'ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016.
Further, Hon'ble Rajasthan High Court in another case Commissioner of Income-tax, Jaipur-II Versus Morani Automotives (P.) Ltd. No. D.B. IT Appeal No. 619 of 2011 Dated.- October 23, 2013 held that :
10. The points as sought to be raised by the appellant-revenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company.
11. Ultimately, the question as to whether the source of investment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:-
"13. 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 numbers were in the file of the Revenue. The Revenue, apart from issuing notices under s. 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 thing further. In the premises, if the Tribunal came to the conclusion that the assessee has 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."
12. In the case of CIT v. Chandra Prakash Rana [2001] 48 DTR 271 (Raj.), this Court noticed similar nature grounds urged on behalf of the revenue and found the same not leading to any substantial question of law. This Court noticed, observed, and held as under:
"7. Learned counsel for the appellant (Revenue) contended that firstly Tribunal erred in accepting the explanation offered by assessee in relation to source of income. His second submission was that what was offered by assessee was no explanation and hence should not have been accepted and lastly learned counsel made sincere attempt on his part after taking us through factual scenario of the explanation and contended that it can never be taken as satisfactory explanation for deleting the addition made by AO. We do not agree to this submission for more than one reason.
8. In the first place, it is a pure question of fact, what to say question of law, much less substantial question of law. Secondly, this Court cannot again in this appeal undertake the examination of factual issues nor can draw factual inferences on the basis of explanation offered by assessee. Thirdly, once the explanation is accepted by the two appellate Courts i.e. 45 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur CIT(A) and Tribunal in this case, then in such event, a concurrent finding recorded on such explanation by two appellate Courts is binding on the High Court.
9. Perusal of impugned finding quoted supra would go to show that Tribunal did examine the explanation offered by assessee in detail and then recorded a finding for its acceptance. Such finding when challenged does not constitute a substantial question of law within the meaning of s. 260A ibid in an appeal arising out of such order.
10. In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the CIT(A) and Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or that it had been based on no reasoning, or based on absurd reasoning to the extent that no prudent man of average judicial capacity could ever reach to such conclusion, or that it had been found against any provision of law, then a case for formulation of substantial question of law on such finding can be said to have been made out.
11. In our view, no such error could be noticed by us in the impugned order because as observed supra, the Tribunal did go into the details of explanation offered by assessee and then accepted the explanation by placing reliance on the documents filed by assessee. As a consequence thereof, the additions made by AO came to be deleted."
13. In CIT v. Shree Barkha Synthetics Ltd. [2004] 270 ITR 477 (Raj.), in a similar nature matter, this Court observed that the Tribunal having found that the companies from which the share application money had been received by the assessee-company were genuinely existing and the identity of the individual investors were also established and they had confirmed the fact of making investment, the finding that assessee had discharged initial burden and addition under Section 68 could not be sustained, was essentially a finding of fact. This Court said,-
"19. A perusal of the aforesaid finding goes to show that deletion has been made on appreciation ofevidence, which was on record Finding that there was existence of investors and their confirmation has been obtained, were found to be satisfactory. All these conclusions are conclusions of fact based on material on record and, therefore, cannot be said to be perverse so as to give rise to question of law, which may be required to be considered in this appeal under s.260A of the IT Act."
14. The ratio of the decisions aforesaid directly applies to the present case too. Herein, as noticed, the appellate authorities have returned the findings of fact in favour of the assessee after due appreciation of the evidence on record, on relevant considerations, and on sound reasonings. These findings have neither been shown suffering from any perversity nor appear absurd nor are of such nature that cannot be reached at all. Thus, no case for interference in the findings of the appellate authorities is made out.
In the result, the appeal fails and is, therefore, dismissed."
Ld AR Sh Vijay Goyal has also submitted that the decisions of jurisdictional High Court is binding for all the revenue authorities as held by Hon'ble Apex Court in the case of CIT Vs G.M Mittal Stainless Steel (P), CIT (2003) 263 ITR 255 wherein it has held by Hon'ble Supreme Court that decision of jurisdictional High Court is binding on the Revenue authorities within the State. Revenue authorities within the State cannot refuse to follow the jurisdictional High Court's decision on the ground that the decision of some other High Court was pending disposal before the Supreme Court. There are no material change in the facts of the appellant Companies with the facts of the above cited cases decided by Hon'ble Rajasthan High Court as the appellant Companies have submitted documents such as (i) Share application containing the name/address/PAN of party, (ii) detail of payment received etc. (iii) Copy of board resolution, (iv) Copy of PAN card of party, (v) Copy of bank statement showing the entry of payment made to assessee,(vi) Declaration of source of funds with party (vii) Copy of Ack. of ITR and Computation, (viii) Copy of audit report and audited balance sheet along with annexure proved all the ingredients of section 68 of the Act. Apart from this, it is also to be noted here that six companies involving share capital of Rs. 58,70,57,300/- to appellant companies were assessed by same AO for AY 2013-14 and in other cases as per the facts available from records non of the notices issued u/s 133(6) of the Act remained unserved and many of them have also made compliance to the notices issued u/s 133(6) of the Act. Further from search report of ROC, it is also seen that some of the investor companies have charge registered under Companies Act in favour of leading banks for crores of rupees.
46 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 2.1.4.6 Therefore, in view of the findings of Hon'ble jurisdictional High Court, the identity, creditworthiness and genuineness of transaction of these companies cannot be held as doubtful and addition by applying the provisions of section 68 of the Act cannot be upheld. However, it is also to be seen that the Investigation Directorate has carried out investigation for deposit of cash/DD at fourth stage of channel source in some cases. The Chart showing cash deposit/DD deposit at 4th Channel as per inquiries made by Investigation wing is as under:
Company A.Y. Amount From Company Cash deposit /Demand draft at 4th Channel per inquiry by investigation wing Motisons Buildtech P Ltd 2012-2013 15,00,000 Evershine Suppliers P Ltd Swastik Traders Motisons Buildtech P Ltd 2012-2013 20,00,000 Alliance Tradecom P Ltd Swastik Traders and Global Securities Motisons Buildtech P Ltd 2012-2013 17,00,000 Alliance Tradecom P Ltd Swastik Traders Motisons Buildtech P Ltd 2012-2013 30,00,000 Alliance Tradecom P Ltd Swastik Traders Total 82,00,000 Motisons Entertainment P Ltd 2012-2013 18,00,000 Rose Suppliers P Ltd Shyam Fashion and Durga Enterprises Motisons Entertainment P Ltd 2012-2013 46,00,000 Regent Barter P Ltd Durga Enterprises and Shyam Fashion Motisons Entertainment P Ltd 2012-2013 4,50,000 Mayukh Vinimay P Ltd Shyam Fashion and Durga Enterprises Motisons Entertainment p Ltd 2012-2013 10,00,000 Mayukh Vinimay P Ltd Shyam Fashion and Durga Enterprises Motisons Entertainment P Ltd 2012-2013 16,00,000 Regent Dealers P Ltd Shyam Fashion Motisons Entertainment P Ltd 2012-2013 10,00,000 Regent Dealers P Ltd Durga Enterprises Motisons Entertainment P Ltd 2012-2013 8,00,000 Regent Dealers P Ltd Durga Enterprises and Shyam Fashion Motisons Entertainment P Ltd 2012-2013 29,00,000 Alliance Tradecom P Ltd Swastik Traders and Global Securities Total 1,41,50,000 Motisons Global P Ltd 2012-2013 17,00,000 Rose Suppliers P Ltd Durga Enterprises and Shyam Fashion Motisons Global P Ltd 2012-2013 18,00,000 Rose Suppliers P Ltd Nibu Nagi Motisons Global P Ltd 2012-2013 19,00,000 Rose Suppliers P Ltd Nibu Nagi and Durga Enterprises Motisons Global P Ltd 2012-2013 3,50,000 Rose Suppliers P Ltd Durga Enterprises Motisons Global P Ltd 2012-2013 14,00,000 Rose Suppliers P Ltd Shyam Fashion Motisons Global P Ltd 2012-2013 18,50,000 Rose Suppliers P Ltd Durga Enterprises Motisons Global P Ltd 2012-2013 18,00,000 Regent Barter P Ltd Nibu Nagi Motisons Global P Ltd 2012-2013 18,00,000 Mayukh Vinimay P Ltd Nibu Nagi and Kevilhulie Sunotsu Motisons Global P Ltd 2012-2013 35,00,000 Mayukh Vinimay P Ltd Shyam Fashion and Durga Enterprises 47 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Company A.Y. Amount From Company Cash deposit /Demand draft at 4th Channel per inquiry by investigation wing Motisons Global P Ltd 2012-2013 16,00,000 Mayukh Vinimay P Ltd Durga Enterprises Motisons Global P Ltd 2012-2013 15,00,000 Mayukh Vinimay P Ltd Shyam Fashion and Durga Enterprises Motisons Global P Ltd 2012-2013 41,00,000 Mayukh Vinimay P Ltd Shyam Fashion and Durga Enterprises Motisons Global P Ltd 2012-2013 16,47,727 Evershine Suppliers P Ltd PNB, Axis Bank, Siliguri Motisons Global P Ltd 2012-2013 36,00,000 Evershine Suppliers P Ltd Durga Enterprises and Shyam Fashion Motisons Global P Ltd 2012-2013 18,00,000 Evershine P Ltd Durga Enterprises Motisons Global P Ltd 2012-2013 9,00,000 Regent Dealers P Ltd Nibu Nagi Motisons Global P Ltd 2012-2013 18,00,000 Regent Dealers P Ltd Durga Enterprises Motisons Global P Ltd 2012-2013 9,00,000 Regent Dealers P Ltd Kevihulie Sinotsu Motisons Global Private Limited 2012-2013 28,50,000 Regent Dealers P Ltd Durga Enterprises and Shyam Fashion Motisons Global Private Limited 2012-2013 18,50,000 Regent Dealers P Ltd Shyam Fashion Motisons Global Private Limited 2012-2013 22,00,000 Alliance Tradecom P Ltd PNB, Axis Bank Siliguri, Swastik Traders an Global Securities Motisons Global Private Limited 2012-2013 10,00,000 Alliance Tradecom P Ltd Swastik Traders Motisons Global Private Limited 2012-2013 35,00,000 Alliance Tradecom P Ltd M/s Swastik Traders , Global Securities Axis Bank Siliguri, Motisons Global Private Limited 2012-2013 20,00,000 Alliance Tradecom P Ltd Swastik Traders and Global Securities Motisons Global Private Limited 2012-2013 20,00,000 Alliance Tradecom P Ltd Swastik Traders and Global Securities Motisons Global Private Limited 2012-2013 16,00,000 Alliance Tradecom P Ltd Durga Enterprises Motisons Global Private Limited 2012-2013 9,50,000 Alliance Tradecom P Ltd Shyam Fashion Motisons Global Private Limited 2012-2013 10,00,000 Alliance Tradecom P Ltd Shyam Fashion and Durga Enterprises Motisons Global Private Limited 2012-2013 3000000 Alliance P Ltd Shyam Fashion and Durga Enterprises Motisons Global Private Limited 2012-2013 16,00,000 Alliance P Ltd P Ltd Nibu Nagi Motisons Global Private Limited 2012-2013 19,50,000 Alliance Tradecom P Ltd Durga Enterprises Motisons Global Private Limited 2013-2014 5050000 Alliance Tradecom P Ltd Shyam Fashion and Durga Enterprises Total 6,44,97,727 Shivansh Buildcon P Ltd 2012-2013 3,50,000 Evershine Suppliers P Ltd Durga Enterprises, Swastik and Shyam Fash 48 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Company A.Y. Amount From Company Cash deposit /Demand draft at 4th Channel per inquiry by investigation wing Total 3,50,000 Grand Total 8,71,97,727 2.1.4.7 In view of above findings, it is also seen that this cash/DD was deposited at 4th Channel of source/stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written submissions and compliance to show cause letter , it is also seen that assessee has not controverted the facts narrated by Sh Santosh Choube, Sh Rajesh Kr Singh and Sh Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts and evidences( both documentary & oral) gathered during search & post-search operation , addition to the extent of Rs. 8,71,97,727/= is sustained and balance is deleted, details given as under:
Name of Appellant Company ITA No AY Addition Made Addition Addition deleted/ by AO Sustained Relief Given Motisons Global Pvt. Ltd 753/14-15 2009-10 2,75,00,000 ------------- 2,75,00,000 Motisons Global Pvt. Ltd 754/14-15 2011-12 6,96,50,000 --------------- 6,96,50,000 Motisons Global Pvt. Ltd 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Motisons Global Pvt. Ltd 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Motisons Entertainment (I) Pvt. Ltd 760/14-15 2009-10 3,40,00,000 --------------- 3,40,00,000 Motisons Entertainment (I) Pvt. Ltd 766/14-15 2011-12 1,95,00,000 ---------------- 1,95,00,000 Motisons Entertainment (I) Pvt. Ltd 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Motisons Buildtech Pvt. Ltd 758/14-15 2009-10 3,03,00,000 --------------- 3,03,00,000 Motisons Buildtech Pvt. Ltd 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Godawari Estates Pvt. Ltd 769/14-15 2010-11 2,00,00,000 -------------- 2,00,00,000 Godawari Estates Pvt. Ltd 768/14-15 2012-13 10,30,00,000 -------------- 10,30,00,000 Bholenath Real Estates Pvt Ltd 770/14-15 2009-10 2,90,00,000 --------------- 2,90,00,000 Rainbow Buildcon Pvt. Ltd 757/14-15 2009-10 2,00,00,000 --------------- 2,00,00,000 Shivansh Buildcon Pvt. Ltd 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Total additions 94,14,07,100 8,71,97,727 85,42,09,373 It is pertinent to mention here that M/s Mayukh Vinimay Pvt Ltd received share application of Rs. 10,54,95,000/- in AY 2009-10 which was added as income of M/s Mayukh Vinimay Pvt Ltd in AY 2009-10. Thereafter in subsequent years the part of the funds owned by this company was invested in the companies under appeal as under:
S.No Name of Company (under your appeal) Assessment Year Amount 1 Motisons Global Pvt Ltd 2012-13 6,93,49,800
2. Motisons Global Pvt Ltd 2013-14 2,24,50,000 3 Motisons Entertainment (India) Pvt Ltd 2012-13 1,55,00,000 Total 10,72,99,800 Further, it is also submitted that addition made by the AO tantamount to double addition. It is also mentioned here that as per Ld AR's request, appellate proceedings in case of M/s Mayukh Vinimay Pvt Ltd have been kept in abeyance till the disposal of appeal by Hon'ble ITAT.
In view of aforementioned findings, now additions made by the AO are being discussed with respect to grounds of appeal raised by the respective assessee in para below. '' 49 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Section 68 of the Act provides regarding any sum found credited in the books of an assesse maintained and explanation offered by the assessee is not satisfactory in the opinion of the AO then such sum credited be charged to income-tax as the income of the assessee of that previous year.
The Section 68 reads as under:-
Section 68 - Cash Credits: Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the (Assessing) Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.'' Thus the sum so received by assessee towards share application and share premium could have been taxed as income u/s 68 of the Act. However, the AO has not invoked provisions of sec 68 of the Act. The AO invoked the provisions of sec 56(1) of the Act which reads as under:-
''56. Income from other sources.
(1) "Income of every kind which is not to be excluded from the total income under the 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.'' The provisions of Section 56(1) the Act can be invoked to tax income of every kind which is not chargeable to tax under any head specified in Section 14 from Item No. A to E is chargeable under the head 'Income from other sources'' by the provisions of section 56 of the Act. .50 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Therefore, provisions of sec 56(1) are not applicable. Further the amended provisions of sec 56 (2) of the I.T. Act, 1961 specify the various income to be assessed under this section. The premium on shares has been included by provision of sec 56(2)(viiib)of the Act w.e.f. 01-04- 2014 which is reproduced as under:
''56(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:-
(i) dividends
(ia) to (viia)...
(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:'' This has also been included in the definition of income u/s 2(24)of the Act w.e.f. 01-04-2013. The relevant portion reads as under:-
''(xvi) any consideration received for issue of shares as exceeds the fair market value of the share referred to in clause (viib) of sub-section (2) of Section 56;]'' To tax the income under the Act, it must come under the definition of income as provided u/s 2(24) of the I.T. Act, 1961. There were amendments in sec 2(24) of the Act and in section 56(2) of the Act w.e.f.
01-04-2013 are not applicable to A.Y. under consideration. By these amended provisions, any consideration received for issue of shares that exceeds the face market value of such shares the aggregate consideration 51 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur received for such shares as exceeds the fair market value of the shares shall be taxable as per clause (viib) of sub-section 2 of section 56 of the Act. The CBDT vide Circular No. 3 of 2012 dated 12-06-2012 has also mentioned that provision of section 56(2)(viib) will be applicable for A.Y. 2013-14. Thus the relevant portion of CBDT Circular is reproduced is as under:-
'Share premium in excess of fair market value to be treated as income In the Finance Bill, 2012, it had been proposed [section 56(2), as sub-clause [(viib)] that in case of a company, not being a company in which the public are substantially interested, which receives, in any previous year, from any person being a resident, any consideration for issue of shares and the consideration received for issue of such 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. An exemption was provided in a case where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.
(i) It has now been further provided that such excess share premium is included in the definition of "income" under sub-clause (xvi) of clause (24) of section 2.
(ii) Considering that the proposed amendment may cause avoidable difficulty to investors who invest in start-ups where the fair market value may not be determined accurately, it is proposed to provide an exemption to any other class of investors as may be notified by the Central Government.
These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.'' The provisions of sec 56(2)(viib) of Income-tax Act, 1961 are applicable w.e.f. 1st April, 2013 and will accordingly apply in relation to Assessment Year 2013-14 and subsequent Assessment Years. The income as mentioned in section 56(2)(viib) is included in definition of section 2(24) of the Act w.e.f. 01-04-2013. Therefore, the provisions of these sections cannot be made applicable prior to that A.Y. 2013-14. It is 52 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur pertinent to note that the ld. CIT(A) had issued the show cause notice to the assessee to tax the share capital under section 68 of the I.T. Act, 1961 as against section 56(1) applied by the AO. However, he had not made any addition under section 68 of the Act. His observation on this issue is in para 2.1.4.6 which reads as under:-
''2.1.4.6 Therefore, in view of the findings of Hon'ble Jurisdictional High Court, the identity, creditworthiness and genuineness of transaction of these companies cannot be held as doubtful and addition by applying the provisions of sec 68 of the Act cannot be upheld.''' The Revenue has not preferred appeal against this findings the ld.
CIT(A). It is also pertinent to note that AO has made whole addition by invoking section 56 of the Act, hence the amended provision w.e.f. 01- 04-2013 are applicable only on shares premium received on fair market value. In view of these facts, circumstances of the case and the case laws relied on by the ld.AR of the assessee (supra), it is clear that share premium received cannot be considered as income for the year under consideration by invoking provisions of section 56(1) of the Act.
Therefore, in our considered view, the ld. CIT(A) has rightly deleted the addition of Rs. 3,03,00,000/- and we concur with his findings on the issue in question Thus the Revenue's appeal in ITA No. 481/JP/2017 is dismissed.53 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 5.1 In ITA No. 554/JP/2017 for the Assessment Year 2011-12, the Revenue has raised the solitary ground as under:-
'' Whether on the facts and in the circumstances of the case the ld. CIT(A) was rightly in deleting the disallowance of expenses of Rs. 24,20,479/- without appreciating the fact that assessee has not started the business activity, hence expenses have to be capitalized.'' 5.2 Brief facts of this ground are that the AO during the course of assessment proceeding noticed that the assessee had not started its business activities during the year consideration. The AO further noted that the assessee had received Rent and discount of Rs. 18,19,006/- for which the assessee claimed expenses of Rs. 24,20,479/-. The AO noted that since the assessee had not started its business activities, therefore, the rent received and discount received is to be treated as income from other source and the expenses claimed by the assessee should be capitalized.
The AO thus relied on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Pvt. Ltd 227 ITR 172.
5.3 In first appeal, the ld. CIT(A) deleted the addition made by the AO by observing at para 3.3 of his order as under:-
''3.3 I have duly considered assessee's submission and also carefully gone through the assessment order. I have also taken a note of factual matrix of the case as well as case laws. While passing the assessment orders, AO has disallowed entire expenses of Rs. 24,20,479/- & Rs.41,26,273/- debited respectively in profit & loss a/c 54 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur for A.Y. 2011-12 & 2013-14 by holding that assessee has not started its business activities and only received rental income and discount which are to be assessed as income from rent & other sources respectively. In this regard, it is submitted that the expenses debited in P&L for the years were in relation to income earned during the year or other day today incidental expenses of the company. Since the expenses so claimed were incidental to the income earned during the year or day to day incidental expenses of the company which are not attributable to a particular activity/ project of the company, thus the same are duly allowable out of income of the year. The financial expenses, salary expenses, water & electricity expenses, Repair & Maintenance expenses etc. were in relation of building which was given on rent inclusive of other amenities such as electricity & water, repair & maintenance, guard facility etc. Thus these expenses have direct bearing from income of the year credited in P&L a/c and therefore, same is duly allowable out of the income of the year. It is also a fact that during the search operation, no incriminating document suggesting suppression of income or inflation of incidental expenses, were found from the possession of the assessee. The rental income so disclosed by the assessee for the year are composit rent, accordingly assessee has claimed incidental expenses in relation to that building /property. For claiming of such composite rents for the aforementioned AYs, assessee has debited the same in its P&L A/c to which AO has not pointed out any mistake/ defect. It is also a fact that AO has not properly examined the P&L A/c & Balance Sheet for the AYs 2011-12 & 2013-14. Apart from this AO's observation is also not based on any positive finding arising out of investigation carried out by him during assessment proceeding.
In view of the facts and circumstances of the case, addition made by the AO of Rs. 24,20,479/- and Rs. 41,26,273/- for A.Y. 2011- 12 & 2013-14 respectively cannot be sustained, accordingly AO is directed to delete them. Assessee gets relief in Gr No.1 for the A.Y. 2011-12 and 2013-14 '' 5.4 During the course of hearing, the ld. DR supported the order of the AO.55 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 5.5 On the other hand, the ld.AR supported the order of the ld. CIT(A) for which the ld.AR of the assessee filed the following written submission.
''Submission of assessee:-
a) The assessee relies upon the detailed factual findings of ld CIT(A) given at pg 4-5 of order.
b) The ld. AO disallowed the entire expenses debited in profit & loss a/c by holding that assessee has not started its business activities and only received rental income and discount which are to be assessed as income from rent & other sources respectively. In this regard this is to submit that from perusal of Memorandum of Association of the company (PB pg 23-33) your honor would found that the assessee is in the business of real estate and leasing out of the property is its business activities. Kindly see main object and objects incidental or ancillary to main object at PB pg 26-27. Therefore, the letting out the properties is business activity of the assessee.
c) From the P&L of the assessee PB pg 10, your honor would found that during the year the assessee received rental income from renting out of building along with other amenities and received composite rent of Rs. 18,00,000/- The discount was of Rs. 19,006/- only.
d) The assessee has shown the rental income as Income from business or Profession in the income tax return . Kindly see computation at PB 3, which has been accepted by AO.
Therefore, ld AO has made wrong finding that the business activity of the assessee has not started.
e) The financial expenses, salary expenses, Water & electricity expenses, Repair & maintenance expenses etc. were in relation of building which was given on rent inclusive of other amenities such as electricity & water, repair & maintenance, guard facility etc. Thus these expenses have direct bearing from income of the year credited in P&L a/c and therefore the same is duly allowable out of income of the year.
56 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
f) The Administrative expenses debited in P&L was in relation to income earned during the year or other day to day incidental expenses of the company. Since the expenses so claimed were incidental to the income earned during the year or day to day incidental expenses of the company which are not attributable to a particular activity/project of the company, thus the same are duly allowable out of income of the year.
g) The fact of case law relied by ld. AO i.e. Tuticorin Alkali Chemcials and Fertilizers Pvt Ltd 227 ITR 172 (SC)/1997 is totally difference from case of the assessee. In the cited case for the accounting year ending on June 30, 1981 (assessment year 1982-83), the assessee received a total amount of interest of Rs. 2,92,440. In its return of income filed on June 22, 1982, the company disclosed the said sum of Rs. 2,92,440 as " income from other sources ". It also disclosed business loss of Rs. 3,21,802. After setting off the interest income against business loss, the company claimed the benefit of carry forward of net loss of Rs. 29,360. But in the case of the assessee, it has started business activity and rental income of the assessee is business income. The assessee has shown this rental income as business income in the return filed by it and the ld AO accepted it as business income.
In view of the above submission, the humble assessee prays your honour kindly to dismiss the appeal filed by the revenue and sustain the order of ld CIT(A).'' 5.6 We have heard the rival contentions and perused the materials available on record. It is noted that the AO had disallowed the expenses on the ground that the assessee has not started its business activities for which he took the resort of the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicalss and Fertilizers Pvt. Ltd. (supra). In first appeal, the ld. CIT(A) has deleted the disallowance of expenses of 57 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Rs. 24,20,479/- observing that the expenses were incurred in relation to the income of the assessee and day today incidental expenses for running the company. The ld. CIT(A) held that the financial expenses, salary expenses, water & electricity expenses, repairs & maintenance expenses were in relation to building which was given on rent. Thus these expenses are direct bearing to the income of the year credited in P & L A/c. It is also noted that during search no incriminating document was found to show the suppression of income or inflation of expenses. In view of the above facts and circumstances of the case, we concur with the findings of the ld. CIT(A) on the issue in question. Thus the solitary ground of the Revenue is dismissed.
6.1 Now we take up the cross appeals for the Assessment Year 2012- 13 raising the grounds of appeal by the assessee and Revenue.
ITA No.385/JP/2017 - A.Y. 2012-13 (Assessee)1. On the facts and in the circumstances of the case and in law the ld. CIT (A) erred in: -
a) confirming the addition of Rs. 82,00,000/- out of total addition of Rs. 3,68,27,500/- made by ld. AO treating the following amount received by the assessee against share capital and premium from companies mentioned as under as income of the assessee.
Date Amount From Company Cash deposit /Demand draft at 4th 58 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Channel as per inquiry by investigation wing 02.08.2011 1500000 Evershine Suppliers Private Limited Swastik Traders 25.07.2011 2000000 Alliance Tradecom Private Limited Swastik Traders and Global Securities 26.07.2011 1700000 Alliance Tradecom Private Limited Swastik Traders 29.07.2011 3000000 Alliance Tradecom Private Limited Swastik Traders Total 8200000
b) confirming the addition of Rs. 82,00,000/- by holding that the assessee could not explain the deposit of cash/DD in the accounts of other parties/persons at 4th Channel of source/stage and further erred in not providing opportunity of cross examination of Shri Santosh Choube, Shri Ajit Sharma and Sh Rajesh Kumar Singh and other persons; and
c) confirming the addition of Rs. 82,00,000/- more so when he has categorically held that the addition made by ld. AO u/s 56(1) of Income Tax Act, 1961 is not sustainable and the identity, creditworthiness and genuineness of transaction of the transaction cannot be held as doubtful and the addition by applying the provisions of section 68 of I.Tax Act cannot be upheld.
2. On the facts and in the circumstances of the case, the ld. CIT(A) erred in confirming the addition of Rs. 19,08,447/- made by the AO by disallowing the entire expenses during the year.'' ITA No.482/JP/2017 - A.Y. 2012-13 (Revenue ) "Whether on the facts and in the circumstances of the case the ld CIT(A) was right in deleting the addition of Rs. 2,86,27,500/-out of total addition of Rs. 3,68,27,500/- made u/s 56(1) of the Act ignoring the fact that the assets of the assessee company don't commensurate to premium charged and further ignoring the fact that neither any business activity was performed nor any business income has been shown by the assessee.'' 59 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 7.1 Apropos solitary ground of the Revenue (ITA No.482/JP/2017), the AO made the addition of Rs. 3,68,27,500/- u/s 56(1) of the Act in the hands of the assessee company by observing as under:-
''24. Having dealt with each of the contention of the assessee and having found the same to be untenable it is important to place on record certain aspects which have a bearing on the issue at hand. It is true that the apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax has to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were not entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.
25. In the above back ground of the facts and circumstances surrounding this case, it is hereby held that the receipt of share capital and share premium was part of a colourful transaction by way of which a sum of Rs. 3,68,27,500/- was introduced into the books of the assessee company in the form of share premium attached to the share capital. As discussion above, the premium of Rs. 1240/- per share was not justified at all on the basis of absolutely no assets commensurate to premium charged, no business activity, no income, no net worth nor any promise for creation of this much assets, business activity income or net worth in the future. Accordingly, the charging and receipt of share premium and share capital to the tune of Rs. 3,68,27,500/- is held to be income of the assessee company in the nature of income envisaged u/s 56(1) of the Income Tax Act, 1961. The same is added back to the total income of the assessee.'' 60 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 7.2 In first appeal, the ld. CIT(A) has deleted the addition of Rs. 2,86,27,500/- out of addition of Rs.3,68,27,500 made by the AO u/s 56(1) of the Act by observing at pages 105 & 106 of his order as under:-
''3.2.2 I have considered assessee's submission and carefully gone through assessment order. I have also take a note of factual matrix of the case as well as applicable case laws relied upon. I have already given a detailed findings in para 2.1.4.7 wherein total of Rs. 8,71,97,727/- has been sustained in the hands of M/s. . Motisons Global Pvt. Ltd, M/s. Motisons Entertainment Pvt. Ltd, M/s. Motisons Buildtech Pvt. Ltd and M/s. Shivansh Buildtech Pvt. Ltd, details of which are as under:-
Name of ITA No. A.Y. Addition made Addition Addition Appellant by AO sustained deleted/Relief Company given Motisons 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Global Pvt Ltd Motisons 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Global Pvt Ltd Motisons 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Global Pvt Ltd Motisons 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Global Pvt Ltd Motisons 760/14-15 2009-10 3,40,00,000 - 3,40,00,000 Entertainment (I) Pvt. Ltd Motisons 766/14-15 2011-12 1,95,00,000 - 1,95,00,000 Entertainment (I) Pvt. Ltd Motisons 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Entertainment (I) Pvt. Ltd Motisons 758/14-15 2009-10 3,03,00,000 - 3,03,00,000 Buildtech Pvt. Ltd Motisons 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Buildtech Pvt. Ltd Godawari 769/14-15 2010-11 2,00,00,000 - 2,00,00,000 Estates Pvt. Ltd Godawari 768/14-15 2012-13 10,30,00,000 - 10,30,00,000 Estates Pvt. Ltd Bholenath 770/14-15 2009-10 2,90,00,000 - 2,90,00,000 61 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Real Estates Pvt. Ltd.
Rainbow 757/14-15 2009-10 2,00,00,000 - 2,00,00,000 Buildcon Pvt.
Ltd Shivansh 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Buildcon Pvt.
Ltd
94,14,07,100 8,71,97,727 85,42,09,373
In view of the above facts and circumstances of the case as discussed above, addition of Rs. 2,86,27,500/- made on a/c of bogus share capital in the hands of M/s. Motisons Buildtech Pvt. Ltd is hereby deleted. Assessee gets relief in Gr No. 2 & 3.'' 7.3 During the course of hearing, the ld. DR relied on the order of the AO and submitted that the order of the ld. CIT(A) should be set aside on the issue in question.
7.4 On the other hand, the ld.AR of the assessee submitted that the facts and circumstances of the issue raised in the departmental appeal for the AY 2012-13 under ground No 1 are exactly similar to Ground No 1 for AY 2009-10 in ITA No 481/JP/2017. The assessee has made detailed submission in AY 2009-10 for ITA No 481/JP/2017. In order to avoid repetition, we pray your honor kindly to consider the submission made for ITA No 481/JP/2017 for AY 2009-10 under para 2.01.2 above as also made for AY 2012-13 under Ground No 1 of ITA No 482/JP/2017.62 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 7.5 We have heard the rival contentions and perused the materials available on record. It is not imperative to repeat the same facts of the case as the similar issue on deleting the addition of Rs. 2,86,27,500/- out of total addition of Rs. 3,68,27,500/- u/s 56(1) of the Act was dealt with in detail in the Revenue's appeal in ITA No. 481/JP/2017 for the Assessment Year 2009-10. Hence, the decision taken therein shall apply mutatis mutandis on this ground of the Revenue's appeal. In this view of the matter, the Ground raised in the Revenue's appeal is dismissed.
8.1 In Ground No. 1 (ITA No. 385/JP/2017l), the assessee is aggrieved that the ld. CIT(A) has confirmed the addition of Rs. 82,00,000/- in the hands of the assessee. The relevant observation of the ld. CIT(A) at page 50, 52 & 53 of his order is as under:-
2.1.4.6 Therefore, in view of the findings of Hon'ble Jurisdictional High Court, the identity, creditworthiness and genuineness of transactions of these companies cannot be held as doubtful and addition by applying the provisions of section 68 of the Act cannot be upheld. However, it is also to be seen that the Investigation Directorate has carried out investigation for deposit of cash/DD at fourth stage of channel source in some cases. The chart showing cash deposit/DD deposit at 4th channel as per inquires made by investigation wing is as under........
''2.1.4.7 In view of the above findings, it is also seen that this cash /DD was deposited at 4th Channel of source/ stage. This money came to the hands of some of appellant companies through the six companies assessed in Jaipur. However, on perusal of written 63 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur submissions and compliance to show cause letter, it is also seen that the assessee has not controverted the facts narrated by Shri Santosh Choube, Shri Rajesh Kr Singh and Shri Ajit Sharma and also could not satisfactorily explain the reasons of cash deposits made to those accounts. Therefore, duly considering those facts as evidences (both documentary & oral) gathered during search and & Post-search operation, addition to the extent of Rs. 8,71,97,727/- is sustained and balance is deleted, details given as under:-
Name of ITA No. A.Y. Addition made Addition Addition Appellant by AO sustained deleted/Relief Company given Motisons 753/14-15 2009-10 2,75,00,000 - 2,75,00,000 Global Pvt Ltd Motisons 754/14-15 2011-12 6,96,50,000 - 6,96,50,000 Global Pvt Ltd Motisons 767/14-15 2012-13 42,07,29,600 5,94,47,727 36,12,81,873 Global Pvt Ltd Motisons 755/14-15 2013-14 4,41,00,000 50,50,000 3,90,50,000 Global Pvt Ltd Motisons 760/14-15 2009-10 3,40,00,000 - 3,40,00,000 Entertainment (I) Pvt. Ltd Motisons 766/14-15 2011-12 1,95,00,000 - 1,95,00,000 Entertainment (I) Pvt. Ltd Motisons 756/14-15 2012-13 7,78,00,000 1,41,50,000 6,36,50,000 Entertainment (I) Pvt. Ltd Motisons 758/14-15 2009-10 3,03,00,000 - 3,03,00,000 Buildtech Pvt.
Ltd Motisons 759/14-15 2012-13 3,68,27,500 82,00,000 2,86,27,500 Buildtech Pvt.
Ltd Godawari 769/14-15 2010-11 2,00,00,000 - 2,00,00,000 Estates Pvt. Ltd Godawari 768/14-15 2012-13 10,30,00,000 - 10,30,00,000 Estates Pvt. Ltd Bholenath 770/14-15 2009-10 2,90,00,000 - 2,90,00,000 Real Estates Pvt. Ltd. Rainbow 757/14-15 2009-10 2,00,00,000 - 2,00,00,000 Buildcon Pvt. Ltd Shivansh 771/14-15 2012-13 90,00,000 3,50,000 86,50,000 Buildcon Pvt. 64 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Ltd 94,14,07,100 8,71,97,727 85,42,09,373 Thus the ld. CIT(A) confirmed the addition of Rs. 82.00 lacs in the hands of the assessee.
8.2 During the course of hearing, the ld.AR of the assessee prayed for deletion of addition confirmed by the ld. CIT(A) amounting to Rs. 82.00 lacs for which the ld.AR of the assessee filed the following written submission.
''Submission of Assessee:-
a) The assessee has submitted sufficient documents before the ld AO to prove identity, creditworthiness and genuineness of share capital and ld AO satisfied that addition under section 68 cannot be made. The ld AO made the addition of Rs. 3,68,27,500/- on account of share capital received by the assessee during this year by applying the provisions of section 56(1) of Income Tax Act on the ground that the assets of the assessee company don't commensurate to premium charged and any business activity was not performed or any business income has not been shown by the assessee. However, the ld CIT(A) issued show cause notice to assessee to tax the share capital under section 68 of ITax Act as against 56(1) applied by ld AO. The assessee submitted detailed reply before ld CIT(A) vide letter dated 12/07/2016 (copy at PB pg 280-351). The ld CIT(A) has not confirmed/sustained the addition made by ld AO by applying the provisions of section 56(1) of Income Tax Act, on the basis of his detailed findings at page 41-53 of his order. Ld CIT(A) when satisfied that the addition u/s 56(1) can't be made, he tried to sustain the addition by applying the provisions of section 68 of Income Tax Act. He issued a show cause notice vide letter dated 09/03/2017 (Copy at PB pg 352-398). The assessee submitted detailed reply on the show cause notice of ld CIT(A) vide letter dated 24-03-2017 & 28/03/2017 alongwith documents (Copy at Pb pg 399-474). To support that shareholders were genuine and creditworthiness is proved, the assessee has filed all details, in respect of incorporation/existence of investors and details of cheques vide which amounts were received. The capacity of shareholders is 65 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur verifiable from the copy of the balance sheet of the shareholders. The shareholders have funds on a prior date from the allotment of shares given by the assessee company and such funds were more than the amount of share application. Ld CIT(A) satisfied about the ingredients of section 68 of I.Tax Act however, he sustained the addition of Rs. 82,00,000/- on account of cash/DD deposited at 4th channel stage as under:-
Date Amount From Company Cash deposit /Demand draft at 4th Channel as per inquiry by investigation wing 02.08.2011 1500000 Evershine Suppliers Private Limited Swastik Traders (PB page 484/AY 2012-13) 25.07.2011 2000000 Alliance Tradecom Private Limited Swastik Traders and Global Securities (PB pg 478/AY 2012-13) 26.07.2011 1700000 Alliance Tradecom Private Limited Swastik Traders (PB pg 478/AY 2012-13) 29.07.2011 3000000 Alliance Tradecom Private Limited Swastik Traders (PB pg 478/AY 2012-13) Total 8200000
b) Regarding application of 68 of ITax Act, 1961 by CIT(A)
i) Section 68 was not applied by AO, therefore, the CIT(A) cannot apply it.
ii) It is relevant to mention here that as per section 251 (1)(a) of Income Tax Act, 1961 the CIT (A) shall have the power "in an appeal against an order of assessment he may confirm, reduce, enhance or annual the assessment". As regard applicability of section 68 of I.Tax Act by CIT(A) we submit that the assessee has made detailed submission before the ld AO and satisfied the ld AO that it has discharged its onus laid down under section 68 of Income Tax Act. The ld AO being satisfied with the submission of assessee on section 68, has not applied section 68 of Income Tax Act for the addition. The provisions of section 68 specify the authority mentioned as "Assessing Officer".
For the sake of clarity we are reproducing the provisions of section 68 of I.Tax Act as stood for AY 2012-13 as under:-
"Where any sum is found credited in the book 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 66 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
Therefore, addition under section 68 of ITax Act can be made only he the explanation of the assessee is not satisfactory in the opinion of "Assessing Officer".
The Assessing Officer has been defined u/s 2(7A) of Income Tax act as under:-
"(7A) Assessing Officer" means the Assistant Commissioner 31[or Deputy Commissioner] 32[or Assistant Director] 31[or Deputy Director] or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the 33[Additional Commissioner or] 34[Additional Director or] 35[Joint Commissioner or Joint Director] who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;]"
Therefore, CIT(A) is not assessing officer so he cannot invoke the provisions of section 68 for making the addition particularly when the Assessing Officer has satisfied about the ingredients of section 68 of Income Tax Act. In the case of the assessee the ld. AO has not framed an opinion that the explanation given by the assessee was not satisfactory but he framed an opinion after examining the facts, documents and explanation that the additions of share capital cannot be made u/s 68 but it should have been made u/s 56(1) of Income Tax Act, 1961 then the jurisdiction of CIT (A) in limited to deciding the matter whether the addition under this section is correct or not. In the appellate proceeding the addition cannot be confirmed by applying all together different section by invoking a section for which satisfaction is required to be by "Assessing Officer" and the assessing officer after considering the detailed reply and documents was satisfied about the ingredients of section 68.
c) Regarding confirming the addition of Rs. 82,00,000/- by CIT(A) 67 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur A) All the share capital/share application was received through a/c payee cheques and verifiable from bank statement of assessee as well as bank statement of the party. The onus u/s 68 of the assessee is to prove the identity, capacity and genuineness of the transactions has been discharged which may be seen from the followings:-
i) Identity:-
The assessee proved the identity of all the companies by filing the share application received from the parties and the parties are duly in existence and the existence of the parties can be verified from the official website of MCA. The ld. AO also not doubted the identity of the above named companies. Further the assessment for AY 2009-10 (Copy at PB Page 198 to 199, 212 to 213 and 226 to 228) and for AY 2013-14 of these companies were also completed at returned income. The assessment of AY 2013-14 was completed by the same AO of all the above companies who completed the assessment of the assessee in the same month. The copies of assessment order are at PB pg 243 to 245, 259 to 261 and 277 to 279. It is further relevant to mention here that the department also carried out the survey operations over these parties which also prove the existence of these parties.
ii) Creditworthiness All the companies are Income Tax assessee and duly filing the Income Tax return and Balance sheets. There is sufficient source of funds with all the companies to investment share capital/share application in the assessee company. The assessee submitted the copies of bank account/declaration of source of funds with them of investor companies. The bank statement shows the huge transaction of high value in the accounts of the companies. The chart showing the amount invested by the above named companies in assessee company viz a viz own funds with the investor company are as under: -
Name of the Investor Amount Share capital Share capital Share capital company invested in and reserve and reserve and reserve & assessee & surplus & surplus surplus with company with Investor with Investor Investor companies as companies as companies as on 31.03.2012 on 31.03.2011 on 31.03.2009 Alliance Tradecom Pvt. Ltd 1,80,00,000 11,05,42,868 11,07,03,338 11,07,00,991 PB pg 137 PB pg 137 PB pg 194 Evershine Suppliers Pvt. Ltd 28,00,000 10,41,99,989 10,42,52,807 10,42,50,971 68 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur PB pg 156 PB pg 156 PB pg 206 Regent Barter Pvt. Ltd 1,60,27,500 10,51,11,109 10,52,03,352 10,52,01,041 PB pg 177 PB pg 177 PB pg 220 From the above chart it is clear that all the Investor companies were having their own share capital and Reserve & surplus which were much more than to the amount invested in the assessee company. From the audited P & L Account of these companies it is apparent that these companies had trading activities of large amount. The above chart shows that the investor companies were having their own independent funds and having their independent source to invest in the shares of the assessee company. Apart from the investment made in the shares of assessee companies, the investor companies were also having investments in shares of other companies or loans & advances to parties which is much more than to the amount invested in the assessee company, therefore from the bank statement as well as financials statements of the investor companies their creditworthiness is duly proved.
iii) Genuineness The assessee submitted the Share Application Form received from above companies against the share application received from the companies. The share application is supported by Board Resolution passed in the investor companies. The assessee company has allotted the shares to the investor companies. The proper returns were filed before the ROC against allotment of the shares to these companies. Furthermore, the department has carried out intensive search operations over the assessee and no any incriminating material was found to show that the money against the share allotment was own money of the company. Shares certificates were issued against the allotment of the shares to these companies were not found from the possession of the assessee company or its director or employees. This fact shows that after allotment of shares by the appellant company share certificates were dispatched to the subscriber companies. No any entry in books of account or document was found showing payment of cash to these investor companies against receipt of cheques from these 69 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur companies against allotment of shares. Therefore the genuineness of the transactions cannot be doubted.
B) Onus to prove source of source From the show cause notice given by ld CIT(A) and excel sheet provided to the assessee showing chain of source it is apparent that even there is no cash deposit till 3rd stage of channel source (Copy at Pb pg 473 to 506/ AY 2012-13). The ld CIT(A) confirmed the addition of Rs. 82,00,000/- on account of cash/DD deposited at 4th channel or beyond to that stage shown as under:-
Date Amount From Company Cash deposit /Demand draft at 4th Channel as per inquiry by investigation wing 02.08.2011 1500000 Evershine Suppliers Private Swastik Traders Limited (PB page 484/AY 2012-13) 25.07.2011 2000000 Alliance Tradecom Private Swastik Traders and Global Securities Limited (PB pg 478/AY 2012-13) 26.07.2011 1700000 Alliance Tradecom Private Swastik Traders Limited (PB pg 478/AY 2012-13) 29.07.2011 3000000 Alliance Tradecom Private Swastik Traders Limited (PB pg 478/AY 2012-13) Total 8200000 In such cases, the inquiry should have been made from the concerns in whose bank a/c such funds floated and necessary action should have been taken in the cases of such concern but the assessee cannot be hold responsible for cash/DD deposit in some account at 4th Channel.
Under section 68 of Income Tax Act, 1961 the onus of the assessee is to prove the source of credit entry and there is no onus of assessee to prove the source of source or source of all channel sources. The amendment in section 68 of I. Tax was made by inserting the following proviso to section 68 w.e.f. 01/04/2013 which require to prove source of finds in the hands of shareholder company. Though not required by law but still the assessee has proved source of finds in the hands of shareholder company. The amended section even does not require to prove source of funds in the hands of 3rd or 4th stage.
70 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Further the amendment in section 68 of I.Tax was made by inserting the following proviso to section 68 w.e.f. 01/04/2013 "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:
The above proviso was inserted with effect from the 1st day of April, 2013 so it cannot be applied retrospectively. Therefore as per law the assessee has no onus to prove source of source. Hon'ble Mumbai High Court in the case of Commissioner of Income Tax 1 Vs M/s. Gagandeep Infrastructure Pvt.Ltd (Pb pg 360 to 366/Case Laws) held as under:-
"(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013.
Thus it would be effective only from the Assessment Year 201314 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. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been 71 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
(f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained.
But in the case of the assessee the fact remains that the assessee has also proved source of source by submitting the copy of bank statement of the share applicant company wherein no cash deposit was made against the share application money.
C) As regard to the statement of Shri Santosh Choube, Shri Ajit Sharma and Shri Rajesh Kumar Singh, as mentioned in show cause notice of ld CIT(A) PB pg 403-408, the assessee has submitted before ld CIT(A) that:-
i) As regard to the statement of Shri Santosh Choubey first of all this is to submit the assessee group or its Shareholder (investor) companies have no concern with this person or concerns managed by Shri Santosh Choubey. The assessee group do not know to any person naming Shri Santosh Choubey. Regarding the statement of Shri Santosh Choubey and its reliance for taking the adverse action against the assessee we submit as under: -
a) This person admitted to maintain the bank a/c of Shri Ajit Sharma and Rajesh Kumar Singh and used for its own purpose therefore onus to prove the source of amount deposited in their bank accounts primarily lay on this person PB 407.
b) At Q. No. 12 of statement of this person he said that "The Motisons Jewellers group of Jaipur was the 72 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur beneficiary of accommodation entries arranged by me through the bank accounts of the above prop. concerns.
The cash was received by me from Motisons Jewellers group from time to time and was deposited into a number of bank accounts including the two bank accounts of M/s Shyam Fashion (Prop. Ajit Sharma) and M/s Durga Enterprises (Prop. Rajesh Kr Singh) in IDBI, Girish Park Branch, Kolkata."
In this regard it is quite interesting to note that a person stating that Motisons Jewellers group was the beneficiary of the accommodation entries arranged by him and he is also admitting that cash was received by him from "Motisons Jewellers Group" to deposit the same is bank accounts maintaining by him but no further questions were made from him to controvert that whatever he is stating is true or not. The important thing is that Motisons Jewellers group is not a human being therefore it was necessary and for the interest of equities, fairness, and justice to ask questions that : -
What is the identity of the M/s Motisons Jewellers.
In Jaipur where the Motisons Group exists?
Who are the owners of this group?
Who was the person who was contacting to him regarding cash dealing?
How the cash reached to him?
From whom he was communicating and how he was communicating? What are his telephone number.
Whether he ever visited the office of Motisons Group, or ever meet to owners or their employees of Motisons Group?
Who were the brokers of Kolkatta through whom he know the Motisons Group?
As this person had admitted that he received the cash from Motisons Jewellers Group then he should know the answers of all the above questions. The fact is that he has made wrong statements and these words were put in his mouth by the person who recorded his statement. Further even if his statements are considered as true 73 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur then also additions cannot be made in the hands of assessee company and in such situation (without consenting) at the worst, the addition could be made in the hands of "Motisons Jewellers group". Further in his statement this person also admitted that money was finally transferred to the a/c of Motisons Jewellers group but no question were asked from this person that what is the detail of such accounts in which the money were transferred. It is most importantly relevant to notice that M/s Motisons Jewellers did not receive any share application from the six companies than how this person choose to take the name of Motisons Jewellers and how he know the name of Motisons Jewellers and how he come to know that the assessee group is engaged in the Jewellery business too. This shows that the name of "Motisons Jewellers Group" was put into the mouth of this person by the search party with a motive to make their case strong.
The AO and Investigation team neither followed the principle of law nor principle of evidence rather appeared to be bent upon making huge additions without any basis. The AO has not made independent inquiry on this issue.
a) It is settled law that the AO is quasi-judicial authority and should be governed in his function by judicial consideration and must conform to the rules of natural justice and must proceed without bias- Tin Box Co. Vs CIT 249 ITR 216 (SC).
b) It is also settled law that the AO must act honestly on the material before him and not vindictively, capriciously, or arbitrarily- Gurumukh Singh Vs CIT 12 ITR 393, 427 (FB), Dakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775,
c) It is also settled law that the AO is not entitled to make a pure guess without any evidence or material at all -
Dakeshwari Cotton Mills Ltd Vs CIT 26 ITR 775, But in the case of assessee, the ld AO and the investigating team has brushed aside all the principles of law and utilizing a statement which is totally irrelevant, unacceptable to frame a 74 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur high-pitched assessment purely on surmises, conjectures and suspicion.
c) In view of above mentioned the statements of this person have no legal sanctity and cannot be relied upon. From the reading statement of this person its appears that the investigating party recorded the statement by putting words in his mouth with sole motive to use the same against the assessee group to make a strong case against the assessee. Therefore we submit that the statement of this person is completely false, incorrect and not acceptable and therefore cannot be relied upon unless the opportunity of cross examination is not given to the assessee.
d) In the light of above mentioned serious defects in the statement of this person the cross examination of this person is warranted to decided the matter in fair and just manner. It is further relevant to mention here that it is settle legal position that before using some material and statements against the assessee the opportunity of cross examination and confrontation should have been provided to the assessee. Therefore the circumstances strongly warranted in this case for cross examination of statement of this person. In this regard we would like to refer the recent judgment of Jaipur Bench of ITAT passed in the case of Shri Prateek Kothari in appeal No. 159/JP/16 wherein it was held as under: -
"2.8 We have heard the rival contentions and perused the material available on record. The transaction under question relates to unsecured loans taken by the assessee amounting to Rs 1 Crores from M/s Mehul Gems Pvt Ltd during the impunged assessment year and not accepting the said loan transaction as a genuine transaction by the Assessing officer and the resultant addition made under section 68 of the Act.
Undisputedly, the primary onus to establish genuineness of the loan transaction is on the assessee. In the instant case, the assessee has provided the necessary explanation, furnished documentary evidence in terms of tax filings, affidavits and confirmation of the Directors, bank statements of the lender, balance sheet of the lender company, and an independent confirmation has also been obtained by the Assessing officer to satisfy the cardinal test of identity, 75 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur creditworthiness and genuineness of the loan transaction. However, the Assessing officer has not given any finding in respect of such explanation, documentary evidence as well as independent confirmation. Apparently, the reason for not accepting the same is that the Assessing officer was in receipt of certain information from the investigation wing of the tax department as per which the transaction under consideration is a bogus loan transaction. The said information received from the investigation wing thus overweighed the mind of the Assessing officer. The Assessing officer stated that the primary onus is on the assessee to establish the genuineness of the transaction claimed by it and if the investigation done by the department leads to doubt regarding the genuineness of the transactions, it is incumbent on the assessee to produce the parties alongwith necessary documents to establish the genuineness of the transaction. In response, the assessee submitted that Shri Bhanwarlal Jain is not known to him and regarding various incriminating documentary evidences seized during the course of search and statements recorded of Shri Bhanwarlal Jain and other persons, he specifically requested the AO to provide copies of such incriminating documents and statement of all various persons recorded in this regard and provide an opportunity to the assessee to cross examine such persons. However, the AO didn't provide to the assessee copies of such incriminating documents and statements of various persons recorded and allow the cross- examination of any of these persons. While doing so, the AO stated that "in his statements, Bhanwarlal Jain had described that they are indulged in providing accommodation entries of bogus unsecured loans and advances through various Benami concerns (70) operated and managed by them. This admission automatically makes all the transactions done by them as mere paper transactions and in these circumstances, further as per the information name and address of assessee and the Benami Concern through which accommodation entry of unsecured loans was provided is appearing in the list of beneficiaries to whom the said Group has provided. This admission is sufficient to 76 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur reject the contentions of the asseesse." Further, regarding cross examination, the AO stated that "the right of cross examination is not an absolute right and it depends upon the circumstances of each case and also on the statute concerned. In the present case, no such circumstances are warranted as in the list of beneficiaries to whom accommodation entries were provided by the said group categorically contains the name and address of the assessee. Further the group has categorically admitted to providing of accommodation entries of unsecured loans through various benami concerns." The AO further relied upon the decision of Hon'ble Supreme Court in the case of C. Vasantlal & Co. Vs. CIT 45 ITR 206(SC) and Hon'ble Rajasthan High Court in case of Rameshwarlal Mali vs. CIT 256 ITR 536(Raj.) among others. In this regard, it was submitted by the assessee that if the entries and material are gathered behind the back of the assessee and if the AO proposes to act on such material as he might have gathered as a result of his private enquiries, he must disclose all such material to the assessee and also allow the cross examination and if this is not done, the principles of natural justice stand violated.
2.9 In light of above discussions, in our view, the crux of the issue at hand is that whether the principle of natural justice stand violated in the instant case. In other words, where the AO doesn't want to accept the explanation of the assessee and the documentation furnished regarding the genuineness of the loan transaction and instead wants to rely upon the information independently received from the investigation wing of the department in respect of investigation carried out at a third party, can the said information be used against the assessee without sharing such information with the assessee and allowing an opportunity to the assessee to examine such information and explain its position especially when the assessee has requested the same to the Assessing officer.
2.10 In this regard, the Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) has held that "The rule of law on this subject has 77 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Sinqh where it was stated that while proceeding under sub-section (3) of section 23, the Income-tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to find that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it." It was held in that case that "In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing."
The Hon'ble Supreme Court in case of C. Vasantlal & Co. Vs. CIT 45 ITR 206 (SC) has held that "the ITO is not bound by any technical rules of the law of evidence. It is open to him to collect material to facilitate assessment even by private enquiry. But, if he desires to use the material so collected, the assessee must be informed about the material and given adequate opportunity to explain it. The statements made by Praveen Jain and group were material on which the IT authorities could act provided the material was disclosed and the assessee had an opportunity to render their explanation in that regard."
The Hon'ble Supreme Court in case of Kishinchand Chellaram v. CIT (1980) 125 ITR 713 (SC) has held that "whether there was any material evidence to justify 78 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur the findings of the Tribunal that the amount of Rs. 1,07,350 said to have been remitted by Tilokchand from Madras represented the undisclosed income of the assessee. The only evidence on which the Tribunal could rely for the purpose of arriving at this finding was the letter, dated 18-2-1955 said to have been addressed by the manager of the bank to the ITO. Now it is difficult to see how this letter could at all be relied upon by the Tribunal as a material piece of evidence supportive of its finding. In the first place, this letter was not disclosed to the assessee by the ITO and even though the AAC reproduced an extract from it in his order, he did not care to produce it before the assessee or give a copy of it to the assessee. The same position obtained also before the Tribunal and the High Court and it was only when a supplemental statement of the case was called for by this Court by its order, dated 16- 8-1979 that, according to the ITO, this letter was traced by him and even then it was not shown by him to the assessee but it was forwarded to the Tribunal and it was for the first time at the hearing before the Tribunal in regard to the preparation of the supplemental statement of the case that this letter was shown to the assessee. It will, therefore, be seen that, even if we assume that this letter was in fact addressed by the manager of the bank to the ITO, no reliance could be placed upon it, since it was not shown to the assessee until at the stage of preparation of the supplemental statement of the case and no opportunity to cross examine the manager of the bank could in the circumstances be sought or availed of by the assessee. It is true that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the bank in evidence to prove this letter, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross examine the manager of the bank with reference to the statements made by him."
79 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 2.10 In light of above proposition in law and especially taking into consideration the decision of the Hon'ble Supreme Court in case of C. Vasantlal & Co. (supra) relied upon by the Revenue and which actually supports the case of the assessee, in the instant case, the assessment was completed by the AO relying solely on the information received from the investigation wing, statement recorded u/s 132(4) of Shri Bhanwarlal Jain and others, and various incriminating documentary evidence found from the search and seizure carried out by Investigation Wing, Mumbai on the Shri Bhanwarlal Jain group on 03.10.2013. It remains undisputed that the assessee was never provided copies of such incriminating documents and statements of Shri Bhanwarlal Jain and various persons and an opportunity to cross examine such persons though he specifically asked for such documents and cross examination. On the other hand, the burden was sought to be shifted on the ITA No. 159/JP/16 The ACIT, Central -2, Jaipur vs. M/s Prateek Kothari, Jaipur 21 assessee by the A.O. It is clear case where the principle of natural justice stand violated and the additions made under section 68 therefore are unsustainable in the eye of law and we hereby delete the same. The order of the ld CIT(A) is accordingly confirmed and the ground of the Revenue is dismissed."
ii) It is relevant to mention here that statements of Shri Ajit Sharma and Shri Rajesh Kumar Singh are no relevance in the case of the assessee because in their statement these persons have not admitted that they were maintaining the bank account for the benefit of assessee group. They admit to maintain their bank account by some Shri Santosh Choubey.
Therefore, the addition on share application received by the assessee can neither be made u/s 56(1) of Income Tax Act, 1961 nor u/s 68 of Income Tax Act, 1961. The various judgments and arguments regarding addition made u/s 56(1) of Income Tax Act, 1961 has been submitted in forgoing paras. The reliance regarding addition cannot be made u/s 68 of Income Tax Cat, 1961 is placed on the following decisions: -
80 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
a) Rajasthan High Court: -
(i) CIT-1, Jaipur V/s M/s. ARL Infratech Ltd, (PB pg 130 to 143/Case Laws) wherein Hon'ble Rajasthan High Court has recently confirmed the findings of Hon'ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016 regarding deletion of addition of share capital made by applying the provisions of 68 of Income Tax Act, 1961.
(ii) Commissioner of Income-tax, Jaipur -II Versus Morani Automotives (P.) Ltd. No.- D.B. IT Appeal No. 619 of 2011 Dated.- October 23, 2013 (Rajasthan High Court) (PB pg 144 to 149/Case Laws).
The findings of Hon'ble Rajasthan High Court was as under:-
10. The points as sought to be raised by the appellant-
revenue in the present case are all the matters relating to appreciation of evidence. The relevant factors have been taken into account and considered by the appellate authorities before returning the findings in favour of the assessee. Even as regards the three referred share capital contributors, it is noticed that they are existing assessees having PA numbers; and are being regularly assessed to tax. The appellate authorities cannot be said to have erred in deleting the additions in their regard too at the hands of assessee-company.
11. Ultimately, the question as to whether the source of investment or of credit has been satisfactorily explained or not remains within the realm of appreciation of evidence; and the Courts have consistently held that such a matter does not give rise to any substantial question of law. In the case of CIT v. Orissa Corpn. (P.) Ltd. [1986) 159 ITR 78 (SC), the Hon'ble Supreme Court held as under:-
"13. 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 numbers were 81 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur in the file of the Revenue. The Revenue, apart from issuing notices under s. 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 thing further. In the premises, if the Tribunal came to the conclusion that the assessee has 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."
12. In the case of CIT v. Chandra Prakash Rana [2001] 48 DTR 271 (Raj.), this Court noticed similar nature grounds urged on behalf of the revenue and found the same not leading to any substantial question of law. This Court noticed, observed, and held as under:-
"7. Learned counsel for the appellant (Revenue) contended that firstly Tribunal erred in accepting the explanation offered by assessee in relation to source of income. His second submission was that what was offered by assessee was no explanation and hence should not have been accepted and lastly learned counsel made sincere attempt on his part after taking us through factual scenario of the explanation and contended that it can never be taken as satisfactory explanation for deleting the addition made by AO. We do not agree to this submission for more than one reason.
8. In the first place, it is a pure question of fact, what to say question of law, much less substantial question of law. Secondly, this Court cannot again in this appeal undertake the examination of factual issues nor can draw factual inferences on the basis of explanation offered by assessee. Thirdly, once the explanation is accepted by the two appellate Courts i.e. CIT(A) and Tribunal in this case, then in such event, 82 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur a concurrent finding recorded on such explanation by two appellate Courts is binding on the High Court.
9. Perusal of impugned finding quoted supra would go to show that Tribunal did examine the explanation offered by assessee in detail and then recorded a finding for its acceptance. Such finding when challenged does not constitute a substantial question of law within the meaning of s. 260A ibid in an appeal arising out of such order.
10. In our opinion, therefore, once the CIT(A) and Tribunal accepted the explanation of assessee and accordingly, deleted certain additions made by AO holding the transaction of shares to be genuine, then it would not involve any substantial issue of law as such. In other words, this Court in its appellate jurisdiction under s. 260A ibid, would not again de novo hold yet another factual inquiry with a view to find out as to whether explanation offered by assessee and which found acceptance to the CIT(A) and Tribunal is good or bad, or whether it was rightly accepted, or not. It is only when the factual finding recorded had been entirely de hors the subject, or that it had been based on no reasoning, or based on absurd reasoning to the extent that no prudent man of average judicial capacity could ever reach to such conclusion, or that it had been found against any provision of law, then a case for formulation of substantial question of law on such finding can be said to have been made out.
11. In our view, no such error could be noticed by us in the impugned order because as observed supra, the Tribunal did go into the details of explanation offered by assessee and then accepted the explanation by placing reliance on the documents filed by assessee. As a consequence thereof, the additions made by AO came to be deleted."
13. In CIT v. Shree Barkha Synthetics Ltd. [2004] 270 ITR 477 (Raj.), in a similar nature matter, this Court observed that the Tribunal having found that the companies from which the share application money had 83 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur been received by the assessee-company were genuinely existing and the identity of the individual investors were also established and they had confirmed the fact of making investment, the finding that assessee had discharged initial burden and addition under Section 68 could not be sustained, was essentially a finding of fact. This Court said,-
"19. A perusal of the aforesaid finding goes to show that deletion has been made on appreciation ofevidence, which was on record Finding that there was existence of investors and their confirmation has been obtained, were found to be satisfactory. All these conclusions are conclusions of fact based on material on record and, therefore, cannot be said to be perverse so as to give rise to question of law, which may be required to be considered in this appeal under s.260A of the IT Act."
14. The ratio of the decisions aforesaid directly applies to the present case too. Herein, as noticed, the appellate authorities have returned the findings of fact in favour of the assessee after due appreciation of the evidence on record, on relevant considerations, and on sound reasonings. These findings have neither been shown suffering from any perversity nor appear absurd nor are of such nature that cannot be reached at all. Thus, no case for interference in the findings of the appellate authorities is made out.
In the result, the appeal fails and is, therefore, dismissed."
(iii) Barkha Synthetics Ltd. vs. Asstt. CIT (005) 197 CTR (Raj) 432. (PB pg 150 to 156/Case Laws) Substantial question of law--Cash credit vis-a-vis share application money--Tribunal found that 6 out of 7 companies from which the share application money had been received were genuinely existing and no enquiry was conducted in respect of the source of share application money at the time of making the investment in the assessee-company and thus the assessee has discharged its initial burden except in one case--As 84 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur regards individual investors, the Tribunal found that identity of 9 out of 10 investors has been established and they have confirmed the fact of making investment in the shares of the assessee-company and no further enquiry was directed by the AO--Thus, additions were sustained only in respect of investments said to have been made by U, an individual investor and by W Ltd., for the reason that such investments were not proved-- Finding of the Tribunal is essentially a finding of fact which is not vitiated in law--No substantial question of law arise for consideration.
(iv) CIT vs. First Point Finance Ltd. (2006) 206 CTR (Raj) 626 : (2006) 286 ITR 477 (Raj HC). (PB pg 157 to 162/Case Laws) Income--Cash credit--Share application money-- Tribunal found that the investors are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded--Amount of share capital/share application money could not be treated as unexplained cash credits and no addition could be made under s. 68--No substantial question of law arises.
(v) Commissioner of Income Tax Vs. Bhaval Synthetics (Raj HC) (2013) 84 DTR 0449 (Raj) (PB pg 163 to 165/Case Laws)Held that even in case of doubt about subscribers to increased share capital, amount of share capital could not be regarded as undisclosed income of company--Amount referable to share application could not be attributed to assessee and could not be assessed in its hands--Appeal dismissed
(vi) Commissioner of Income Tax Vs. Akj Granites (P) Ltd. (Raj HC) (2008) 301 ITR 0298 (PB pg 166 to 168/Case Laws)held that in respect of share applications received from different places accompanied with share application money, no presumption can be drawn that same belong to the assessee and cannot be assessed in his hands as his undisclosed income unless some nexus is established that share application money for augmenting the investment in business has flown 85 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur from assessee's own money--No substantial question of law arises--Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 followed.
(vii) Commissioner of Income-Tax, Central, Jaipur Versus Supertech Diamond Tools (Pvt) Ltd. (Raj HC) D. B. IT Appeal No. 74 of 2012 Dated: - 12 December 2013. (PB pg 169 to 174/Case Laws)
(viii) Commissioner of Income-tax - I, Jaipur Versus AL Lalpuria Construction (P.) Ltd (Raj HC) D.B. IT Appeal Nos. 256 of 2010 AND 26 & 39 of 2011 Dated: - 25 February 2013. (PB pg 175 to 176/Case Laws)
(ix) Commissioner of Income-tax, Ajmer Versus HS.
Builders (P.) Ltd. D.B. INCOME Tax (Raj HC) APPEAL NO. 48 OF 2006 Dated: - 03 March 2012.
(PB pg 177 to 185/Case Laws)
(x) CIT Vs Jai Kumar Bakliwal (2014) 101 DTR (Raj) 377 : (2014) 267 CTR (Raj) 396 (PB pg 186 to 192/Case Laws). No liability to prove source of source.
(xi) Aravali Trading Co Vs Income Tax Officer (2008) 8 DTR (Raj) 199. (PB pg 193 to 200/Case Laws) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.
(xii) CIT Vs Heera Lal Chagan Lal Tank (2002) 157 ITR 281 (Raj) (PB pg 201 to 202/Case Laws) Burden of the assessee stands discharged when the identity of the creditors is established and he confirms the loans.
b) ITAT Jaipur/Jodhpur
i) Shalimar Buildcon (P) Ltd. vs ITO (2011) 128 ITD
0396 (Jaipur) (PB pg 214 to 238/Case Laws)
In this case Hon'ble ITAT Jaipur Bench has relied on its old decision in the case of Hotel Gaudavan ITA 86 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur No. 1162 and 1137/JP/2008 and addition on account of share capital was deleted.
28.5 On identical issue, the Tribunal, Jaipur Bench in the case of Hotel Gaudavan (P) Ltd. (supra) has held as under :
"6. As regards the issue on merit in the Departmental appeal, we concur with the views of the learned CIT(A) that the AO has not considered the explanation of the assessee. The amount under consideration of Rs. 1.89 crore has been received by the assessee as share application money from M/s Jalkanta Technical & Financial Service (P) Ltd. (JTFSPL) after a proper resolution passed by the board of directors of the aforesaid company through banking channel. M/s JTFSPL is having permanent account and filing its return of income regularly. The AO has nowhere mentioned that money belongs to the assessee company and therefore, provisions of s. 68 cannot be invoked. The learned CIT(A) has rightly relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 which has been confirmed by the Hon'ble Supreme Court of India. The learned CIT(A) has also relied upon the decision of Hon'ble jurisdictional High Court in the case of Barkha Synthetics Ltd. vs. Asstt. CIT (2005) 197 CTR (Raj) 432 and also the decision of Tribunal, Jodhpur Bench in the case of Uma Polymers (P) Ltd. vs. Dy. CIT (dt. 27th Feb., 2006) [reported at (2006) 101 TTJ (Jd)(TM) 124--Ed.] where it has been held that the assessee has to prove the existence of the shareholders which in the present case is not under dispute.
Therefore, the assessee has discharged the burden and therefore the AO was not justified in making any addition under s. 68 of the Act. The learned counsel for the assessee has referred to the decision of Hon'ble Supreme Court of India in the case of Divine Leasing & Finance Ltd. dt. 21st Jan., 2008, the copy of which is placed on record where it has been observed by the Supreme Court as under :87 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 'Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961 ? We find no merit in this SLP for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Therefore, we find no infirmity in the order of the learned CIT(A), with the impugned judgment.' The said decision of Hon'ble Supreme Court of India has been followed by the Tribunal, Delhi Bench in the case of ITO vs. Bhor Mal Dhansi Ram Ltd. in ITA No. 4670/Del/2007, dt. 3rd March, 2006. The copy of the said decision of Tribunal, Delhi Bench is placed on record. The learned counsel for the assessee Shri H.M. Singhvi, chartered accountant has also relied upon the decision of Hon'ble Supreme Court of India on the said issue in the case of CIT vs. Lovely Exports (P) Ltd.
(2008) 216 CTR (SC) 195 : (2008) 6 DTR (SC) 308 wherein it has been held that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company."
28.6 The Hon'ble Delhi High Court in the case of CIT vs. Divine Leasing & Finance Ltd. (supra) had an occasion to consider the addition on account of share application money. We are reproducing the held portion from the decision of Hon'ble Delhi High Court as mentioned in (2007) 207 CTR (Del) 38 (supra).
"Income--Cash credit--Share application money-- Burden of proof can seldom be discharged to the hilt by the assessee--If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay duty-bound, to carry out thorough investigations--But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat 88 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur the subscribed capital as the undisclosed income of the company--If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders registers, share application forms, share transfer register etc. it would constitute acceptable proof or explanation by the assessee--Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices--Tribunal has noted that the assessee company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange--Complete details were furnished-- Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources."
28.7 The Hon'ble apex Court in the case of CIT vs. Lovely Exports (P) Ltd. (supra) held that if the share capital money is received by the assessee company from alleged bogus shareholders then the Department is free to proceed to reopen the individual assessments of such shareholders in accordance with law. Such share application money cannot be regarded as undisclosed income of the assessee company.
28.8 The Hon'ble High Court in the case of First Point Finance Ltd. (supra) held that burden of proof on the assessee company lies to the extent of making out a case that investor exists and thereafter it is not for the assessee to further prove where they have brought money from to invest with it.
28.9 The Hon'ble Delhi High Court in the case of CIT vs. United Bio-tech (P) Ltd. 2010 TIOL-533-HC-Del held that in case the identity of the share applicants has been established and it is found that the said applicants are corporate assessees who are assessed to tax with IT 89 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Department then there is no case of any substantial question of law. In the instant case, the share applicants are corporate assessees.
28.10 The Hon'ble Delhi High Court in the case of CIT vs. Samir Bio-tech (P) Ltd. (supra) held that if investments have been shown by the share applicants in their audited balance sheet then the addition cannot be made under s. 68 of the Act.
28.11 In view of the legal position as discussed above, the AO was not justified in making the addition of Rs. 1.10 crore without bringing on record any material for the addition. Simply on the basis of information which is not substantiated in the course of assessment proceedings against the assessee, the AO could not have added the amount.
(ii) The Honb'le ITAT, Jaipur Bench, Jaipur in its judgment the case of M/s Jadau Jewellers & Manufacturers Pvt. Ltd., B-1, Trimutri Circle, Govind Marg, Jaipur in ITA No. 686/JP/2014 dated 14.12.2015 (PB pg 239 to 267/Case Laws) gave the following findings:-
".6.1 On facts also, the assessee has produced before the Assessing Officer copy of share application, confirmation of the cash creditors, copy of PAN, copy of Board resolution, copy of Director's report, auditor's report, copy of balance sheet, copy of P&L account, copy of bank account in all the cases to prove the identity, genuineness and creditworthiness of the cash creditors. The ld Assessing Officer made addition on the basis of investigation conducted by the ITO, Investigation Wing, Kolkata but the ld Assessing Officer of the assessee has not clarified what inquiry had been conducted and what evidences collected which goes against the assessee. The notice U/s 131 issued by the ITO, Investigation Wing, Kolkata were served in case of Vidya Agencies Pvt. Ltd. and Shivarpan Mercantiles Pvt. Ltd., but compliance could not be made on the 90 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur given date because concerned officer was on leave. In case of Middleton Goods Pvt. Ltd. And Lactrodryer Marketing Pvt. Ltd., notices were served on the assessee and in compliance to the notice, the party submitted all the documents in the IT office. The case law referred by the ld CIT(A) i.e. decision of Hon'ble Delhi High Court in the case of Nipun Builders and Developers Pvt. Ltd. Vs. CIT and Vijay Power Generator Ltd. Vs CIT (supra) are not squarely applicable on the facts of the case as there was short time available with the Assessing Officer as well as Investigation Wing of Kolkata. The copy of inquiry has not been provided by the Assessing Officer to the assessee. As per findings of the Hon'ble Delhi High Court in the case Nipun Builders and Developers Pvt. Ltd. Vs. CIT (supra), the Investigation Officer at Kolkata had not deputed Inspector to enquire the whereabouts of the company. The case laws referred by the assessee are squarely applicable on the facts and circumstances of the appellant's case, therefore, we reverse the order of the ld CIT(A) on technical ground as well as on merit also...."
(iii) Uma Polymer (P) Ltd. , 101 TTJ 124, Jodhpur (PB pg 282 to 318/Case Laws) Income--Cash credit-- Share application money--In respect of share capital money, the assessee-company has to prove only the existence of the person in whose name share application is received--No further burden is cast on the assessee to prove whether that person himself has invested the money or some other person has made the investment in his name--Burden to prove that the money did not belong to him but to somebody else is on the Revenue--Distinction between a public company and a private company is not very material for this purpose-- AO treated the investments made by ten shareholders in the assessee-company as bogus and made addition under s. 68 --Not justified--In all the cases except that of V, AO had obtained the bank statements of the shareholders which clearly show that the accounts were regularly maintained and the shareholders had made 91 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur deposits--Further, the shareholders are also assessed to tax--Simply because scrutiny assessments were not made in the case of shareholders, such assessments could not be made in the course of assessment of the assessee--Having regard to the information collected by the AO from the banks, identity of the shareholders was fully established--If any shareholder is found to have made unexplained investment, then addition of such investment is required to be made in the hands of the shareholder and not in the account of the assessee-- U had invested in the share capital through cheque except for a small sum which was returned to her--Her bank account shows several entries, both credit and debit, which have no relation with the amount invested with the assessee-company--Merely because she has not submitted her returns after the asst. yr. 1984-85, it cannot be said that she was not assessed to tax--Though V has not been shown to be assessed to tax, he had made major part of investments towards share capital through cheques and his identity is not doubted-- Accordingly, share capital advanced by U and V is also to be accepted as genuine--Therefore, no addition of share capital money could be made in the hands of the assessee-company.
(iv) The ld. Jaipur Tribunal in the case of DCIT V M/s Kamdhenu Steel and Alloys Ltd. 2014-TIOL-709- ITAT- (PB pg 203 to 213/Case Laws) Case relates to search and issue of shares on premium. Held that the assessee had submitted the particulars of registration of the applicant company, the confirmation from the share applicants, bank account details from which payment through account payee cheques, so the assessee had discharged its initially onus.
(v) M/s. ARL Infratech Ltd. vs. The ACIT ITA No. 619/JP/2013 (PB pg 268 to 281/Case Laws) ITAT Jaipur. The findings of Hon'ble ITAT was as under:-
Before, we proceed to decide the issue on merits, we would like to discuss the scheme of the Act and precedents on the issue involved in this appeal as under:-92 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur ''In cases where share application money is found recorded in the books of an assessee which may represent credit in the books and the share applicant is identified, that amount cannot be added in the assessee's hands u/s 68 of the Act. The Hon'ble Rajasthan High Court has repeatedly reiterated the above legal position. These cases are:
(i) CIT vs. Shree Barkha Synthetics Ltd. 182 CTR 175 (Raj.)
(ii) Barkha Synthetics Ltd. vs. ACIT (2005), 197 CTR 432 (Raj).13 In coming to the above conclusion, the Hon'ble Jurisdictional High Court has considered at length the relevant decisions on the issue like CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 = 251 ITR 263 (SC) which has confirmed the decision of Hon'ble Delhi High Court reported in (1992) 192 ITR 287. The Hon'ble Court has gone to the extent of stating that even if it be assumed that the subscriber to the share capital are not genuine, nevertheless, under no circumstances can the amount of share capital be regarded as undisclosed income of the assessee. In this case, the share subscriber is identified. There can be no dispute regarding the above stated legal position. The following decisions also lay down the same ratio:-
(i) CIT vs. Lovely Exports (P) Ltd. (2008) 6 DTR 308 (SC)
(ii) CIT vs. Dolphin Conpack Ltd. (2006) 283 ITR 190 (Del.)
(iii) CIT vs. Gujarat Heavy Chemicals Ltd. (202) 256 ITR 795(SC)
(iv) CIT vs. Kwick Travels (1992) 199 ITR (St.) 85 (SC) This issue has been dealt at length by the Third Member in the case of Uma Polymers (P) Ltd. vs. DCIT, (2006) 101 TTJ (Jd.) T.M. 126 = (2006) 284 ITR (AT) 1 Jodhpur.'' 2.6 Adverting, the facts of the given case, we are of the considered opinion that all the share applicants stand identified. The assessee has provided PANs of the share applicants. The mode of payment has also been made explained. There is no direct or indirect relation between the assessee company and the share applicants. The statements recorded during survey has got no evidentiary value and the law is very much settled on this issue. In any case, even under the provisions of Section 68 of the Act, the assessee cannot be forced to prove the source of the source. The law on this subject is also settled by numerous decisions. The alleged report of the Inspector of the Department who is stated to have visited at the given addresses of the share applicants was never put or confronted to the assessee. The 93 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur cumulative effects of these reasons is that the impugned addition cannot be added in the hands of the assessee company. Accordingly, we order to delete the entire additions and allow the appeal of the assessee.
3.0 In the result, the appeal of the assessee stands allowed.
The department filed appeal before Hon'ble Rajasthan High Court. Hon'ble Rajasthan High Court confirmed the findings of Hon'ble ITAT by deciding the appeal of revenue in DB ITA No 24/2014 vide order dated 28/09/2016
(c) Other High Courts
(i) 2014 (8) TMI 605 - MADRAS HIGH COURT The Commissioner of Income Tax Versus Pranav Foundations Ltd. T. C. (A). No. 262 of 2014 Dated - 12 August 2014 (PB pg 343 to 346/Case Laws) Addition u/s 68 - Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved - Held that:-
Following the decision in CIT v. Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment - the assessee has categorically established the nature and source of the sum and discharged the onus that lies on it in terms of Section 68 of the Act - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted - Decided against Revenue.
(ii) CIT vs. Illac Investment (P) Ltd. (2007) 207 CTR (Del) 687; (PB pg 341 to 342/Case Laws) assessee-
company has satisfactorily established the identity of the share subscribers and deleted the addition under s.
94 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 68, no substantial question of law arises for consideration.
(iii) CIT vs. Divine Leasing & Finance Ltd. (2007) 207 CTR (Del) 38; (PB pg 321 to 340/Case Laws) Income--Cash credit--Share application money-- Burden of proof can seldom be discharged to the hilt by the assessee--If the AO harbours doubts of the legitimacy of any subscription he is empowered, nay dutybound, to carryout thorough investigations--But if the AO fails to unearth any wrong or illegal dealings, he cannot obdurately adhere to his suspicions and treat the subscribed capital as the undisclosed income of the company--If relevant details of address and identity of the subscribers are furnished to the Department along with copies of the shareholders register, share application forms, share transfer register, etc. it would constitute acceptable proof or explanation by the assessee--Department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices--Tribunal has noted that the assessee-company is a public limited company which had received subscriptions to the public issue through banking channels and the shares were allotted in consonance with the provisions of Securities Contract (Regulation) Act, 1956, as also the rules and regulations of Delhi Stock Exchange--Complete details were furnished-- Tribunal has further found that the AO has not brought any positive material or evidence which would indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company's own income from undisclosed sources--As regards receipt of share capital on issue of rights shares to five companies, these companies were duly incorporated under the Sikkimese Companies Act and were assessed under the Sikkimese Taxation Manual-- Their share subscriptions were also received through banking channels and found to be valid by the jurisdictional AO--Therefore, no addition could be made under s. 68 95 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
(iv) CIT v/s Value Capital services P Ltd. 307 ITR 334 (Delhi) (PB pg 319-3202/Case Laws) held that there is additional burden on the department to show that even if share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers of the assessee so as to enable it to be treated as undisclosed income of the assessee.
(v) CIT v/s STL Extrusion (P) Ltd. 333 ITR 269 (MP) (PB pg 347 to 350/Case Laws) Income--Cash credit-- Share application money--Assessee has duly established the identity and source of credits-- Additions not sustainable.
(vi) CIT v/s Arunanda Textiles (P) Ltd. , 333 ITR 116 (Karnataka) (PB pg 351 to 353/Case Laws) Share application money--Assessee able to identify the shareholders--It is not for the assessee-company to establish but it is for the Department to enquire with the investors about the capacity to invest the amount in the shares.
(vii) Bhav Shakti Steel Mines (P) Ltd. vs. CIT (2009) 18 DTR (Del) 194 Income--Cash credit--Genuineness-- CIT(A) not only found that the identity of each of the shareholders stood established, but also examined the fact that each of them were income-tax assessees and had disclosed the share application money in their accounts which were duly reflected in their IT returns as well as in their balance sheets--Tribunal was not therefore justified in coming to the conclusion that the CIT(A) had not considered the matter in the right perspective--Order passed by Tribunal remanding the matter for examining the share applicants set aside and that of CIT(A) restored
(d) Other Benches of ITAT
(i) ITO V M/s. Reliance Marketing Pvt. Ltd. 2015- TIOL-319-TAT-Del (PB pg 367 to 375/Case Laws) identity of the creditors/share applicants by furnishing their PAN number and copy of acknowledgment of 96 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Income-tax Return. The amount on account of share application was received through banking channel, copies of the confirmation alongwith affidavit of the parties were furnished. The assessee also furnished the copy of share application forms, copy of Form no.2 filed with Register of Companies (ROC), showing allotment of shares to the applicants. Therefore, the assessee discharged the onus cast upon it,
(ii) INCOME TAX OFFICER vs. MS. SUPERLINE CONSTRUCTION P. LTD. ITAT, BOMBAY TRIBUNAL (A) ITA No. 3644 TO 3648, 3650, 3651Mum/2014 30th November, 2015 (2015) 45 CCH 0281 Mum Trib. (PB pg 376 to 392/Case Laws) Addition--Addition on account of bogus share application money--Assessee was in business of builder and developer--Assessment was completed u/s 143(3) r.w.s. 147--Re-assessment proceedings were initiated on basis of information received from Directorate of Income-tax (Investigation) without recording AO'S own satisfaction and information was accepted in mechanical manner--After reopening of assessment u/s 147, AO made addition of Rs.40 lakhs received by assessee from various corporate entities-- Addition was made by AO on account of bogus share application money under provisions of s 68--CIT(A) deleted addition made by AO--Held, in case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC), it was held that If share application money was received by assessee company from alleged bogus shareholders whose name were given to AO then department was free to proceed to reopen their individual assessments in accordance with law but it could not be regarded as undisclosed income of assessee company--It was submitted by assessee that AO had failed to appreciate statements of any person recorded u/s 143(3) r.w.s. 147--That assessee-company had fully discharged burden of proof, onus of proof and explained source of share capital and advances received by established identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences--Assessee company substantiated details with documentary evidences as extracted from website 97 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur of Ministry of Corporate Affairs, Government of India before AO--These facts had not been rebutted on behalf of Revenue--ITAT was not inclined to interfere with findings of CIT(A) who thus rightly deleted entire impugned additions of Rs.40 lakhs made by AO u/s 68 on account of share capital subscription received by assessee-company Held:
It was pointed out in the case of CIT vs. M/s. Lovely Exports (Pvt) Ltd, reported in [2008] 216 CTR 195 (SC) that if the share application money is received by the assessee company from alleged bogus shareholders whose name are given to the AO then the department is free to proceed to reopen their individual assessments in accordance with law but it cannot be regarded as undisclosed income of assessee company.
(para 2.3) In this background, it was submitted on behalf of the assessee that the Assessing Officer failed to appreciate that there was no documentary evidence against the assessee-company to support such impugned additions. It was further submitted by the assessee that the Assessing Officer failed to appreciate that the statements of any person recorded u/s 143(3) r.w.s. 147. The assessee-company had fully discharged the burden of proof, onus of proof and explained the source of share capital and advances received by established the identity, creditworthiness and genuineness of transaction by banking instruments with documentary evidences. The further stand of the assessee had been that the assessee-company substantiated the details with the documentary evidences as extracted from the website of Ministry of Corporate Affairs, Government of India before the Assessing Officer. These facts had not been rebutted on behalf of the Revenue.
(para 2.4) In view of the facts and circumstances of the present case as well as considering the decisions as discussed above on the similar issue, ITAT was not inclined to interfere with the findings of the CIT(A) who had rightly deleted the entire impugned additions of Rs.40 lakhs made by the Assessing Officer u/s 68 of 98 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur the Act on account of share capital subscription received by the assessee-company.
(para 2.5) Conclusion:
When Assessee-company had substantiated details with documentary evidences as extracted from website of Ministry of Corporate Affairs, Government of India before AO, then additions made by AO u/s 68 on account of share capital subscription received by assessee-company was rightly deleted.
(iii) Meera Engineering & Commercial Co. (P) Ltd. vs. Asstt. CIT (1997) 58 TTJ (Jab) 527 (PB pg 393 to 399/Case Laws) Income--Cash credits--Genuineness of share capital of company--All the 51 shareholders filed their affidavits and confirmatory letters and 24 of them filed their replies also to notice under s. 133(6)--
Names of parties purchasing the shares with amount subscribed were furnished before AO--All documents clearly show that shareholders do exist-- Assessee- company had discharged its onus of explaining the cash credits as required under law--If the company is able to establish that shareholders existed and they have invested money for purchase of shares burden of company to prove the credit is discharged--Identity of shareholders not in dispute--Assessee is not required to prove credit-worthiness of shareholders--Addition deleted
(iv) Allen Bradley India Ltd. vs. Dy. CIT (2002) 74 TTJ (Del) 604 : (2002) 80 ITD 43 (Del); Income--Cash credit--Subscription to share capital and loan--In case of limited companies jurisdiction of AO would be limited only to see whether identity of shareholders is established and whether they exist or not--Once identity is established, then, possibly no further enquiries need to be made--Since the shareholders of assessee-company were in existence, they were assessed to tax, complete details were available, share capital money as well as loan were received through account payee cheques and they were cleared through proper banking channels, AO was not justified in disbelieving the capital invested by the shareholder companies--
99 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Similarly, AO was not justified in disbelieving the loan taken from DTL as the cheques were cleared through bank channels and confirmation and supporting evidence was filed--CIT(A) was justified in deleting the additions.
(v) 2017 (3) TMI 1047-ITAT AHMEDABAD Income Tax Officer, Ward 8 (1), Ahmedabad Versus Seven Star Aviation Services Pvt. Ltd (PB pg 400 to 404/Case Laws)Addition u/s 68 - share application money and unsecured loan received. Held that: - When the depositors are regular tax payers and the advances made by such depositors as also share application monies paid by such shareholders are duly accepted in their personal assessments, there cannot be any occasion to hold that these amounts are unexplained in the hands of the company. The credit worthiness or identity cannot be an issue in such a situation.
(vi) 2016 (10) TMI 920 - ITAT HYDERABAD M/s.
Hariom Concast and Steel Pvt. Ltd. Versus Income Tax Officer, Ward-2 (2) , Hyderabd (PB pg 405 to 411/Case Laws) Addition for shares issued on premium. Held that: - Share premium cannot be brought to tax invoking the provisions of Section 68, unless there is a link with either quid pro quo transaction or investing by assessee-company in their accounts so as to receive it back as share capital. No such evidence was brought on record.
(e) Supreme Court
i) CIT vs. Lovely Exports (P) Ltd. (2008) 216 CTR
(SC) 195 Income--Cash credit--Share application money--If the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law, but it cannot be regarded as undisclosed income of assessee company.
ii) CIT vs. Steller Investment Ltd. (200) 251 ITR 263 (SC) Even if the subscribers to the increased share capital of assessee-company were not genuine, the 100 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur amount could not be regarded as undisclosed income of the assessee-company.
(iii) CIT Vs Orissa Corporation (P) Ltd (1986) 159 ITR 79 (SC) D) Ratio Laid down in following cases not applicable to the facts of the case of assessee:-
a) Nova Promoters & Finlease Pvt. Ltd (2012) 342 ITR 169 (Delhi High Court): - Summons sent to the companies received back unserved and other summons remained uncomplied with Whereas, in the case of this assessee company, notice u/s 133(6) was sent to investor companies, all of which were served and some of them were complied with.
b) CIT V/s N. R. Portfolio Pvt. Ltd 206 (2014) DLT (DB) (Del)/ 264 CTR 0258 (del) Assessed u/s 144 of Itax Act. In this case the AO issued several notices and show cause notice which was not served/complied and assessment was framed u/s 144 of Income Tax Act. In our case all the compliances were made and evidences submitted.
c) N Tariks Properties Pvt. Ltd 227 Taxmann.com 373 (with reference to decision of Delhi high court in 264 CTR 472) AO noticed that extracts of bank account had been fabricated and AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company.
d) CIT v/s Navodaya Castle Pvt. Ltd 367 ITR 306 (Delhi High Court)AO found that immediately before issuance of cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company.
e) CIT V/s MAF Academy Pvt. Ltd 206 (2014) DLT 277 (DB)(Del)/ 361 ITR 0285 (Del) AO found that immediately before issuance of 101 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur cheques for the purpose of making pay order or demand draft there was deposit of cash. In our case no cash deposit in the bank account of shareholder company. Further, the summons u/s section 131 of I.tax Act were sent to the shareholders which were received back un-
served.
In view of the above submission, the humble assessee prays your honor kindly to delete the addition of Rs. 82,00,000/- confirmed by ld CIT(A).'' 8.3 On the other hand, the ld. DR relied on the order of the AO.
8.4 We have heard the rival contentions and perused the materials available on record. In this ground, it is noted that the AO made the addition of Rs.3,68,27,500/- out of which the ld CIT(A) deleted the addition of Rs. 2,86,27,500/- and sustained the addition of Rs.82.00 lacs as mentioned at para 3.2.2. and 2.1.4.6 & 2.1.4.7 of the ld. CIT(A)'s order (supra). The question arises as to whether the ld CIT(A) can make the addition u/s 68 of the Act or not. For this purpose, the definition of Section 68 of the Act is as under:-
''Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and 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.' From the above definition, it is noted that Section 68 of the Act does not empower the ld. CIT(A) to make addition under this Act. Thus the 102 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur addition u/s 68 can only be made by the Assessing Officer. The definition of the Assessing Officer has been provided in Section 2(7A) of the Act which reads as under:-
[(7A) "Assessing Officer" means the Assistant Commissioner [or Deputy Commissioner] [or Assistant Director] [or Deputy Director] or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section (2) of section 120 or any other provision of this Act, and the [Additional Commissioner or] [Additional Director or] [Joint Commissioner or Joint Director] who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act ;] Thus the ld. CIT(A) is not the Assessing Officer as per Income-Tax Act.
Therefore, the ld. CIT(A) does not have any legal sanction to make the addition u/s 68 of the Act. Ld. CIT(A) in his order at para 2.1.4.6 had clearly held that the identity, creditworthiness and genuineness of transactions of these companies cannot be held doubtful and addition by applying the provision of sec 68 of the Act cannot be upheld. The ld.
CIT(A) has sustained the addition of Rs. 82.00 lacs without specifying any provision of Income tax Act. No such addition can be sustained without invoking the relevant provisions of the Act. Moreover, the addition has been sustained in the hands of that assessee where cash /DD was deposited at 4th Channel. Hon'ble Rajasthan High Court and other 103 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Hon'ble Courts held that assessee cannot be asked to explain the source of the source. The relevant portions of the verdicts given by Hon'ble High Courts in the following cases are as under:-
(i) In the case of CIT vs Jai Kumar Bakliwal (2014) 366 ITR 217 (Raj):- Held, dismissing the appeal, that all the cash creditors were assessed to Income-tax and they provided a confirmation as well as their permanent account number. They had their own respective bank accounts which they had been operating and it was not the claim of the Assessing Officer that the assessee was operating their bank accounts. Most of the cash creditors appeared before the Assessing Officer and their statements under section 131 of the Income-tax Act, 1961, were also recorded on oath. There was no clinching evidence nor had the Assessing Officer been able to prove that the money actually belonged to none but the assessee. The addition of Rs. 17,27,250 under section 68 was not justified.
(ii) In the case of Nemi Chand Kothari vs CIT (2003) 264 ITR 254 (Gau): Held that it is not the business of the assessee to find out the source or sources from where the creditor had accumulated the amount which he had advanced in the form of loan to the assessee and section 68 cannot be read to show that in the case of failure of sub-creditors to prove their creditworthiness the amount advanced as loan to the assessee by the creditor shall have to be read as corollary as the income from undisclosed source of the assessee himself.
(iii) In the case of Shankar Industries vs CIT (1978) 114 ITR 689 (Cal.): Observed that that mere establishing identity of the creditor and nothing more is not sufficient and something more is to be proved by the assessee and in the aforesaid case, the assessee 104 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur was unable to prove beyond identity and, therefore, the Calcutta High Court upheld the findings of the Tribunal. However, in the present case, we notice that not only the identity of the creditor has been proved but from the facts which have been culled out, the assessee has been able to prove the genuineness also.
(iv) In the case of Kanhailal Jangid vs ACIT (2008) 217 CTR 354 (Raj): Held that the burden does not go beyond to put the assessee under an obligation to further prove that where from the creditor has got or procured the money to be deposited or advanced to the assessee. The fact that the explanation furnished by the creditor about the source from where he procured the money to be deposited or advanced to the assessee is not relevant for the purposes of rejecting the explanation furnished by the assessee and make additions of such deposits as income of the assessee from undisclosed sources by invoking section 68 unless it can be shown by the Department that source of such money comes from the assessee himself or such source could be traced to the assessee itself.
(v) In the case of Aravali Trading Co. vs ITO (2008) 220 CTR (Raj): Observed that the fact that the explanation furnished by the four creditors about the sources where from they acquired the money was not acceptable by the Revenue could not provide necessary nexus for drawing inference that the amount admitted to be deposited by these four persons belonged to the assessee. The assessee having discharged his burden by proving the existence of the depositors and the depositors owing their deposits, he was not further required to prove source of source.
Taking into consideration the facts and circumstances of the case and case laws relied on (supra), the ld. CIT(A) is not justified in confirming the 105 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur addition of Rs. 82.00 lacs which is directed to be deleted. It is also noted that during the course of hearing of appeal before the ld. CIT(A), the assessee had requested for cross examination of Shri Sanbtosh Choubey Shri Ajit Sharma, Shri RajeshKumar Singh and other persons which was denied by the ld. CIT(A). The ITAT Coordinate Bench in the case of Prateek Kothari (supra) has given verdict that without providing opportunity of cross examination of the materials gathered and statement recorded behind the assessee cannot be used. However, we hold that Revenue is free to initiate proceedings in the hands of these concerns who have received the amount after deposit in cash/DD in respective bank A/cs. Thus Ground No. 1 of the assessee is allowed.
9.1 In Ground No. 2, the assessee is aggrieved that the ld. CIT(A) has erred in confirming the addition of Rs. 19,08,447/- made by the AO by disallowing the entire expenses incurred during the year. Brief facts of the case are that the AO during the course of assessment proceeding noticed that the assessee has not started its business activities during the year under consideration. The AO further noted that the assessee had received interest income of Rs. 19,08,375/- for which the assessee claimed expenses of Rs. 19,08,447/-. The AO keeping in view of the fact that the 106 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur assessee has not started its business activities the interest income is to be taxed as income from other sources and the expenses claimed by the assessee should be capitalized for which the AO made the addition of Rs.
19,08,375/- relying on the decision of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Pvt Ltd 227 ITR 172.
9.2 In first appeal, the Ld. CIT(A) has confirmed the action of the AO by observing as under:-
''3.3.2 I have duly considered assessee's submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. It is noticed that the assessee had not started its business activities for the year under consideration and the assessee has claimed that that it has received interest income of Rs. 19,08,447/- against the same assessee claimed expenses of Rs. 19,08,447/-. The AO has also quoted Hon'ble Supreme Court decision in the case of Tuticorin Alkali Chemicals and Fertilizers Pvt Ltd 227 ITR 172 (SC)/(1997). Further the assessee did not file any suitable contention/ clarification during appellate proceedings. Looking to the fact that assessee has not started its business activities the interest income is to be taxed as income from other sources and the expenses claimed by the assessee should be capitalized during the year under consideration and the case laws relied upon by the AO, appeal on Ground No. 4 is dismissed.'' 9.3 During the course of hearing, the ld.AR of the assessee prayed for deletion of addition of Rs. 19,08,447/- for which the ld.AR of the assessee filed the following written submission.
''Submission of assessee:-
107 ITA No. 384/JP/2017M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur
a) The ld CIT(A) has taken contrary view to his findings for AY 2011-12 & 2013-14 In AY 2011-12 & AY 2013-14, he allowed the same expenses but for this year he confirmed the addition without seeing the material on record.
b) The ld. AO disallowed the entire expenses debited in profit & loss a/c by holding that assessee has not started its business activities. The ld CIT(A) held that the assessee has received interest income which is liable to tax as income from other source. In this regard this is to submit that from perusal of Memorandum of Association of the company (PB pg 23-
33/AY 2011-12) your honor would found that the assessee is in the business of real estate and leasing out of the property is its business activities. Kindly see main object and objects incidental or ancillary to main object at PB pg 26-27/AY 2011-
12. Therefore, the letting out the properties is business activity of the assessee.
c) From the P&L of the assessee PB pg 83, your honor would found that during the year the assessee received rental income from renting out of building along with other amenities and received composite rent of Rs. 18,00,000/- and interest income of Rs. 108375/- only.
d) The assessee has shown the rental income as Income from business or Profession in the income tax return . Kindly see computation at PB 67, which has been accepted by AO. Therefore, ld AO has made wrong finding that the business activity of the assessee has not started.
e) The financial expenses, salary expenses, Water & electricity expenses, Repair & maintenance expenses etc. were in relation of building which was given on rent inclusive of other amenities such as electricity & water, repair & maintenance, guard facility etc. Thus these expenses have direct bearing from income of the year credited in P&L a/c and therefore the same is duly allowable out of income of the year.
f) The Administrative expenses debited in P&L was in relation to income earned during the year or other day to day incidental expenses of the company. Since the expenses so claimed were incidental to the income earned during the year or day to day 108 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur incidental expenses of the company which are not attributable to a particular activity/project of the company, thus the same are duly allowable out of income of the year.
g) The fact of case law relied by ld. AO i.e. Tuticorin Alkali Chemcials and Fertilizers Pvt Ltd 227 ITR 172 (SC)/1997 is totally difference from case of the assessee. In the cited case for the accounting year ending on June 30, 1981 (assessment year 1982-83), the assessee received a total amount of interest of Rs. 2,92,440. In its return of income filed on June 22, 1982, the company disclosed the said sum of Rs. 2,92,440 as " income from other sources ". It also disclosed business loss of Rs. 3,21,802. After setting off the interest income against business loss, the company claimed the benefit of carry forward of net loss of Rs. 29,360. But in the case of the assessee, it has started business activity and rental income of the assessee is business income. The assessee has shown this rental income as business income in the return filed by it and the ld AO accepted it as business income.
In view of the above submission, the humble assessee prays your honour kindly to delete the addition of Rs. 19,08,447/- sustained by ld CIT(A).'' 9.4 On the other hand, the ld. DR supported the order of the ld.
CIT(A).
9.5 We have heard the rival contentions and perused the materials available on record. It is pertinent to mention that ld. CIT(A) on similar issue in the case of the assessee for the Assessment Year 2011-12 (in ITA No.554/JP/2017) has deleted the addition by observing as under:-
''3.3 I have duly considered assessee's submission and also carefully gone through the assessment order. I have also taken a note of factual matrix of the case as well as case laws. While passing the assessment orders, AO has disallowed entire expenses of Rs. 24,20,479/- & Rs. S41,26,273/- debited respectively in profit & loss a/c for A.Y. 2011-12 109 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur & 2013-14 by holding that assessee has not started its business activities and only received rental income and discount which are to be assessed as income from rent & other sources respectively. In this regard, it is submitted that the expenses debited in P&L for the years were in relation to income earned during the year or other day today incidental expenses of the company. Since the expenses so claimed were incidental to the income earned during the year or day to day incidental expenses of the company which are not attributable to a particular activity/ project of the company, thus the same are duly allowable out of income of the year. The financial expenses, salary expenses, water & electricity expenses, Repair & Maintenance expenses etc. were in relation of building which was given on rent inclusive of other amenities such as electricity & water, repair & maintenance, guard facility etc. Thus these expenses have direct bearing from income of the year credited in P&L a/c and therefore, same is duly allowable out of the income of the year. It is also a fact that during the search operation, no incriminating document suggesting suppression of income or inflation of incidental expenses, were found from the possession of the assessee. The rental income so disclosed by the assessee for the year are composit rent, accordingly assessee has claimed incidental expenses in relation to that building /property. For claiming of such composite rents for the aforementioned AYs, assessee has debited the same in its P&L A/c to which AO has not pointed out any mistake/ defect. It is also a fact that AO has not properly examined the P&L A/c & Balance Sheet for the AYs 2011-12 & 2013-14. Apart from this AO's observation is also not based on any positive finding arising out of investigation carried out by him during assessment proceeding.
In view of the facts and circumstances of the case, addition made by the AO of Rs. 24,20,479/- and Rs. 41,26,273/- for A.Y. 2011- 12 & 2013-14 respectively cannot be sustained, accordingly AO is directed to delete them. Assessee gets relief in Gr No.1 for the A.Y. 2011-12 and 2013-14 '' Since the issue raised by the assessee is similar to that of the Assessment Year 2011-12 (ITA No.554/JP/2017- Revenue's Appeal) wherein the ld.
CIT(A) had directed the AO to delete the addition as mentioned above.
Therefore, being the similar facts of the case, the decision taken therein 110 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur shall apply mutatis mutandis. Hence, the AO is directed to delete the addition sustained by the ld. CIT(A). Thus Ground No. 2 of the assessee is allowed.
10.1 In ITA No. 555/JP/2017 for the Assessment Year 2013-14, the Revenue has raised the solitary ground as under:-
'' Whether on the facts and in the circumstances of the case the ld. CIT(A) was rightly in deleting the disallowance of expenses of Rs. 41,26,273/- without appreciating the fact that assessee has not started the business activity, hence expenses have to be capitalized.'' 10.2 Brief facts of the case are that the AO during the year under consideration observed that no business activity was carried out by the assessee company. The AO further noted that the source of the income during the year was rental income and business income. The AO further noted that the assessee has received other income of Rs. 22,94,267/- for which the assessee claimed expenses of Rs. 41,26,273/-. The AO keeping in view of the fact that the assessee has not started its business activities the other income is to be taxed as income from other sources and the expenses claimed by the assessee should be capitalized for which the AO relied on the decision of Hon'ble Supreme Court in the case of Tuticorin 111 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur Alkali Chemicals and Fertilizers Pvt Ltd. 227 ITR 172 (SC). The AO thus assessed the income of assessee at Rs. 22,94,267/-.
10.3 In first appeal, the ld. CIT(A) has deleted the addition of Rs.
41,26,273/- by observing as under:-
''3.3 I have duly considered assessee's submission and also carefully gone through the assessment order. I have also taken a note of factual matrix of the case as well as case laws. While passing the assessment orders, AO has disallowed entire expenses of Rs. 24,20,479/- & Rs. S41,26,273/- debited respectively in profit & loss a/c for A.Y. 2011-12 & 2013-14 by holding that assessee has not started its business activities and only received rental income and discount which are to be assessed as income from rent & other sources respectively. In this regard, it is submitted that the expenses debited in P&L for the years were in relation to income earned during the year or other day today incidental expenses of the company. Since the expenses so claimed were incidental to the income earned during the year or day to day incidental expenses of the company which are not attributable to a particular activity/ project of the company, thus the same are duly allowable out of income of the year. The financial expenses, salary expenses, water & electricity expenses, Repair & Maintenance expenses etc. were in relation of building which was given on rent inclusive of other amenities such as electricity & water, repair & maintenance, guard facility etc. Thus these expenses have direct bearing from income of the year credited in P&L a/c and therefore, same is duly allowable out of the income of the year. It is also a fact that during the search operation, no incriminating document 112 ITA No. 384/JP/2017 M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur suggesting suppression of income or inflation of incidental expenses, were found from the possession of the assessee. The rental income so disclosed by the assessee for the year are composit rent, accordingly assessee has claimed incidental expenses in relation to that building /property. For claiming of such composite rents for the aforementioned AYs, assessee has debited the same in its P&L A/c to which AO has not pointed out any mistake/ defect. It is also a fact that AO has not properly examined the P&L A/c & Balance Sheet for the AYs 2011-12 & 2013-14. Apart from this AO's observation is also not based on any positive finding arising out of investigation carried out by him during assessment proceeding.
In view of the facts and circumstances of the case, addition made by the AO of Rs. 24,20,479/- and Rs. 41,26,273/- for A.Y. 2011- 12 & 2013-14 respectively cannot be sustained, accordingly AO is directed to delete them. Assessee gets relief in Gr No.1 for the A.Y. 2011-12 and 2013-14 '' 10.4 After hearing both the parties and perusing the materials available on record, it is noted that the similar issue has already been decided in favour of the assessee (supra). Thus the decision taken therein shall apply mutatis mutandis in this grounds of appeal of the Revenue. Hence the solitary ground of the Revenue is dismissed.113 ITA No. 384/JP/2017
M/s. Motisons Buildtech Pvt.Ltd. Jaipur vs ACIT, Central Circle-2, Jaipur 11.0 In the result, the appeals filed by the assessee in ITA No. 384/JP/2017 is dismissed and ITA No. 385/JP/2017 is allowed and appeals of the Revenue are dismissed.
Order pronounced in the open Court on 30 -10-2017.
Sd/- Sd/- ¼dqy Hkkjr½ ¼HkkxpUn½ (KUL BHARAT) (Bhagchand) U;kf;d lnL; /Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 30/10/ 2017 *Mishra
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Motisons Buildtech Pvt. Ltd., Jaipur
2. izR;FkhZ@ The Respondent- The ACIT, Central Circle-2 Jaipur
3. vk;dj vk;qDr¼vihy½@ CIT(A).
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 384/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 114