Income Tax Appellate Tribunal - Pune
Assistant Commissioner Of Income-Tax, ... vs Prasanna Purple Mobility Solutions ... on 19 February, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCHES "B", PUNE
BEFORE DR.MANISH BORAD, ACCOUNTANT MEMBER
AND SHRI VINAY BHAMORE, JUDICIAL MEMBER
आयकर अपील सं. / ITA No.871/PUN/2023
Assessment Year : 2011-12
ACIT, Vs. Prasanna Purple Mobility
Central Circle-1(3), Solutions Private Limited,
Pune 396, Near Ahilyadevi High School,
Shaniwar Peth,Pune 411030
Maharashtra
PAN : AAACO9763H
Appellant Respondent
C.O.No.03/PUN/2024
(Arising out ITA No.871/PUN/2023)
Assessment Year : 2011-12
Prasanna Purple Mobility Vs. ACIT,
Solutions Private Limited, Central Circle-1(3),
396, Near Ahilyadevi High School, Pune
Shaniwar Peth,Pune 411030
Maharashtra
PAN : AAACO9763H
Cross Objector Appellant in the
appeal
Assessee by : Shri Nikhil S Pathak
Revenue by : Shri Amit Bobde
Date of hearing : 08.01.2026
Date of pronouncement : 19.02.2026
आदे श / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of Revenue and Cross Objection by the assessee are directed against the order dated 29.05.2023 framed by ld.CIT(A), Pune-11 arising out of Assessment Order dated 30.12.2018 passed u/s.143(3) r.w.s.147 of the Income Tax Act, 1961.
2 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
2. The present appeal and the Cross Objection has been decided by this Tribunal vide order dated 05.08.2024. Thereafter M.A.No.22/PUN/2025 filed against the Cross Objection No.03/PUN/2024 and M.A.No.23/PUN/2025 filed against the Revenue's appeal ITA No.871/PUN/2023 and vide order dated 20.11.2025 the Miscellaneous Applications filed by the assessee have been allowed for the limited purpose of adjudicating the following :
(1) Legal issue raised in the Cross Objection challenging the validity of the assessment proceedings completed u/s.143(3) r.w.s.147 of the Act on the ground that reopening has been carried out beyond four years from the end of relevant assessment year and there is no failure on the part of the assessee to disclose truly and fully all material facts in the return of income which was selected for scrutiny assessment completed u/s.143(3) of the Act.
(2) Ground raised by the Revenue in ITA No.871/PUN/2023 against the deletion of addition of Rs.30,00,00,364/- made by the Assessing Officer invoking section 68 of the Act.
3. Brief facts of the case are that the assessee is a Private Limited company engaged in the business of Passenger mass Transit operations and offers an array of mobility solutions like city and inter city buses, car and bus rentals, employees mobility and school bus services. Regular return of income u/s.139(1) of the Act for A.Y. 2011-12 furnished on 3 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 30.09.2011 declaring loss of Rs.10,84,40,312/-. This return revised on 22.03.2012 revising the loss at Rs.10,99,52,953/-. Revised return selected for scrutiny and after considering the submissions filed by the assessee from time to time during the course of assessment proceedings ld. Assessing Officer concluded the assessment u/s.143(3) of the Act on 28.03.2014 assessing loss at Rs.10,79,29,069/-. Thereafter, notice u/s.148 of the Act dated 09.11.2017 issued and validly served and in response the assessee submitted that the return of income earlier filed by it on 22.03.2012 should be treated as return in response to notice u/s.148 of the Act. After recording reasons ld. Assessing Officer issued notices u/s.143(2) and 142(1) of the Act and carried out the reassessment proceedings. Ld. Assessing Officer observed that during the year under consideration the assessee had issued Equity shares to Rainbow Ventures Limited (Mauritius) amounting to Rs.24,14,59,120/- and Equity shares value of Rs.5,85,41,244/- to Ambit Pragma Fund Scheme and that the Equity shares are of face value of Rs.10/- and premium of Rs.1,584/- has been charged thereon. Ld. Assessing Officer observed that Rainbow Ventures Limited is incurring loss since its inception from 2009 and further there is no correlation between the valuation report and the premium at which the shares have been issued by the assessee. Ld. Assessing Officer after making following observation invoked section 68 of the Act making addition of Rs.30,00,00,364/- :
4 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited "5.2 Investments from Rainbow Ventures Ltd:
During the year, total 151480 shares were allotted to Rainbow Ventures Ltd. (Mauritius) for at face value of Rs. 10 and premium of Rs. 1584 Thus the total amount claimed to be received from Rainbow Ventures Ltd is Rs. 24,14,59,120/-. It is seen that this company was incorporated as private company in Mauritius on 06- 08 2009. The company mentions its principal activity as holding investment earning revenue in unlisted companies. From the financial statement of this company for the year ended 31-12-2010 it is seen that, there is introduction of capital to the tune of USD 70,35,957 this has resulted into total Capital and Reserves to USD 85,92,610. At the year end of 31.12.2009 the company's capital was only USD 15,59,778. The company has only one investment ie investment in the assessee company. There is no other major asset with the company. Thus it is seen that Rainbow Ventures has neither any business activity nor any asset which will enable it to invest in assessee company. It has investments of USD 85,65,084 at the end of December 2010 in the assessee company and the Capital and Reserves of USD 85,92,610 which is just slightly more than the invested amount in assesee company. Thus it is seen that the sole purpose of Rainbow Ventures is to invest in assessee company.
Further in note 12 to financial statements for 2010 of Rainbow Ventures it is mentioned that the company invests in shares denominated in Indian Rupees. This also supports the finding that the company is specifically formed so as to divert the unaccounted income of the assessee by way of share premium. Further the source of investment in Rainbow Ventures is not clear. As mentioned above, there is introduction of share capital in Rainbow ventures. However neither the annual report of the company nor the assessee has given any information about the parties who have introduced this share capital in the company. It is mentioned that directors consider the APF1(Mauritius) Limited as company's holding company. However the percentage holding of this company in Rainbow ventures is nowhere mentioned. The assessee also failed to furnish the source of funds of APF-1(Mauritius) Limited and its financial statements. Thus it failed to discharge its onus as mandated by Section 68 of the Income Tax Act.
5.2.1 It is seen from the financial statements of Rainbow for December 2011 that during this year also it has held investments only in the assessee company and number of shares issued to Rainbow are same however the Rainbow ventures has shown fair value of this investment to USD 9505746. There is increase of USD 9,40,662 in the fair value of shares of the assessee company in just one year. Further there is introduction of capital in rainbow Ventures of USD 92,68,722. Thus the capital is introduced every year in Rainbow ventures so that it can further invest in assessee company and the source of this capital is not given by the assessee. The onus on the assessee was more in this case as the Rainbow Ventures is its related party having 52.51% stake as on 31-03-2011.
5 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited 5.2.3 It is seen that right from its inception i.e from 2009 Rainbow Ventures is in loss. There is no other business income of the company. Thus the company has no capacity at all to invest in the assessee company and it fails the test of creditworthiness.
5.2.4 The assessee has submitted share valuation report for sale of shares to Rainbow Ventures Ltd. Prasanna Bus Links Private Limited (earlier name of the assessee as mentioned by it in its return of income) issued 20467 shares on 16-4-2010 and 28,935 shares on 26-05-2010. The valuation report submitted by the assessee is dated 24-6-2010 that is well after issuance of shares to Rainbow ventures. Moreover the value of the share determined by this valuation report is Rs 953 Per share. Thus there is no correlation between this valuation report and the premium at which the shares are issued by the assessee. Further, Prasanna Purple Mobility Solutions Private Limited issued 19134 shares on 15-7-2010 and 82,944 shares on 23-11-2010. The assessee has submitted valuation report for issuance of shares to Prasanna purple mobility solutions dated 21-11-2010. This means that this report is also formulated after issuing shares to Rainbow Ventures. There is no reason to get the valuation done when the amount of premium was already decided by the assessee. Moreover this report has determined the value per share of the assessee company at Rs.448 which is far less than the premium at which the shares are issued. There are many discrepancies in these reports. Both of them have annexures 1 mentioning profitability statement and projected cash flow statement for financial year 2010-11 to 2014 15. However the figures mentioned in both the valuation reports are different. It is not clear as to why there is such wide variation in projections of profitability and cash flow of the same company between the share valuation reports having difference of time period of just 5 months. Thus there are no indicators as to the basis of which the pricing was arrived. This creates a question mark on the entire exercise of issuance of share at premium by the assessee. It may be mentioned that no valuation report is submitted for issuance of shares to Ambit Pragma Fund. Thus there is no basis for issuing shares at such high premium to Rainbow Ventures and Ambit Pragma Fund Ltd.
5.2.5 It was also clarified by the AR of the assessee company that Rainbow Ventures had not derived any benefit from the investment in assessee company.
5.2.6 In view of these facts it is seen that the assessee has failed to prove the creditworthiness of Rainbow Ventures and genuineness of the transaction of issuance of shares at such a high premium. Hence the claim of having received such high premium on shares is fictitious and an attempt by the assessee to launder its own unaccounted funds in the guise of such receipts. Hence the amount shown in the books of account of the assessee as share capital / premium has to be brought to tax in accordance with the provision of Section 68. A premium of Rs. 1584 per share on a face value of Rs.10 was alleged to have been paid in the case of an unlisted company with a level of assets and earnings per share as displayed 6 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited by the assesssee. No dividends have ever been declared by the company. Even the most reputed companies in this line of business do not command such a high premium on their share value. The allotment of shares, has taken place in pursuance of private placement. The principles which have been applied in relation particularly to the public subscription of shares of a public limited company can obviously have no application to the facts of a case such as the present.
5.3 Investment from Ambit Pragma Fund:
During the year 36,726 shares were issued to Ambit Pragma Fund Scheme -1 at the same premium of Rs. 1584 per share for total amount of Rs. 5,85,41,244/-. The fund is contributory trust organized under Indian Trust Act. IL&FS Trust Company is the trustee of the fund. This fund was also running into losses in AY 2011-12. Moreover the fund has not received any benefit from this investment. It is seen that there are serious financial crisis in the IL&FS group. The Government has ordered investigation by Serious Fraud Investigation Office (SFIO) into the affairs of the IL&FS in October 2018. The ministry of corporate affairs (MCA), in its submission before the National Company Law Tribunal (NCLT), has revealed details of its finding on several instances of misreporting of income, dubious transactions, conflict of interest, ever greening of loans and rampant personal enrichment of key employees in IL&FS group. Considering the fact that the fund has invested in loss making company at such a high premium without even proper valuation done and has received no benefit from it. indicates that the transactions are not genuine.
5.4 Assessee has contended that the funds are received through banking channel and therefore the same should be considered genuine. However the same is not acceptable. It is held by various judicial decisions that merely receiving funds through banking channel is not sufficient to prove the genuineness of the transactions. Due to various discrepancies pointed out above the transactions of receiving share capital from Rainbow Ventures and Ambit Pragma Fund are held to be not genuine.
5.5 As already mentioned above if we consider the assessee' reserves, profits and earnings for the said AY, even they do not justify the huge Premium. Thus the Premium received is unreasonable. In the similar case of Major Metals Ltd Hon'ble Settlement Commission come to the conclusion that the purported transactions were not genuine. The Settlement commission held that the claim of having received such high premium on shares is fictitious and an attempt by the petitioner to launder its own unaccounted funds in the guise of such receipts. The Commission has, therefore, come to the conclusion that the amount shown in the books of account of the petitioner as share capital / premium has to be brought to tax in accordance with the provision of Section 68. The Hon'ble Bombay High Court has upheld the addition of the entire 7 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited amount of share capital on the ground that if the shares are issued at unjustifiable amount of premium the entire transaction is sham (Major Metals Ltd Vs Union of India (207 Taxmann.com 185)) In view of the above discussion the transactions of issuing shares to Rainbow Ventures and Ambit Pragma Fund are held to be non genuine and the share capital/premium received from them amounting to Rs.30,00,00,364/- is added back to total income of the assessee u/s 68 of the Income Tax Act. Since the assessee has furnished inaccurate particulars of its income, penalty proceedings u/s 271(1)(c) of the Act are, therefore, separately initiated for furnishing inaccurate particulars of income.
06. Subject to the above remarks, the total taxable income of the assessee is computed as under:
Loss as per order u/s 143(3) dated 28.03.2014 : (-) Rs. 10,79,29,069/-
Add: as per Para 05 : Rs. 30,00,00,364/-
Assessed Income : Rs. 19,20,71,295/-
Rounded off : Rs. 19,20,71,300/-."
4. Aggrieved assessee preferred appeal before ld.CIT(A) challenging the validity of the reopening on two grounds that firstly there is change of opinion and secondly the reopening has been carried out after end of four years and there being no material facts which has not been disclosed by the assessee in its regular return of income u/s.139(1) of the Act and during the course of first round of assessment proceedings u/s.143(3) of the Act. On merits also, assessee has claimed that assessee has all necessary details to explain the nature and source and also the Identity and creditworthiness of the investors and the genuineness of the transaction of making investment in the Equity of the assessee company. Ld. CIT(A) after elaborately discussing the facts of the case gave relief to the assessee only on merits of the case. Thereafter, the Revenue approached 8 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited before this Tribunal and Cross Objection filed by the assessee were decided by this Tribunal vide order dated 05.08.2024.
5. Thereafter, the assessee moved Miscellaneous Applications and succeeded as the Tribunal has recalled the order for the limited purpose of adjudicating the grounds of appeal raised by the Revenue and one of the legal issue challenging the validity of the reopening being invalid as the reassessment proceedings have been carried out beyond four years from the end of the assessment year and there being no failure on the part of the assessee to disclose fully and truly all material facts in the return of income filed by the assessee and in the details called for during the course of assessment proceedings u/s.143(3) of the Act.
6. Ld. Counsel for the assessee vehemently argued referring to the following written submissions :
//Intentionally left blank// 9 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 10 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 11 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 12 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 13 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 14 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 15 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited
7. So far as the alleged legal issue raised in the Cross Objection is concerned, ld. Counsel for the assessee submitted that the reopening has been carried out after four years.
Assessee has furnished the audited financial statements with the income-tax return along with all the Annexures. In the 16 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited regular assessment proceedings also, assesssee has made the submissions to all the queries raised by the Assessing Officer. The details of share capital issued during the year are forming part of the audited balance sheet and the notes to account. He also submitted that during the year under consideration share capital has been received from Rainbow Ventures Limited and Ambit Pragma Fund Scheme and also the promotor of the assessee company Prasanna Patwardhan but only for the share premium which has been charged to the investor companies namely Rainbow Ventures Limited and Ambit Pragma Fund Scheme, ld. Assessing Officer has raised the issue in the reasons recorded for reopening. He further submitted that all the details of the alleged transactions stands filed with the Income Tax return and audited financial statements. Further, ld. Assessing Officer has not referred to any new material or any other information which could indicate that material fact has not been disclosed by the assessee in the return of income and therefore under these given facts the reopening carried out beyond four years deserves to be quashed. He referred and relied on the following decisions :
1. Gaurav Triyugi Singh Vs. ITO (2020) 121 taxmann.com 86 (Bombay)
2. Shankar Traders & Distributors (P) Ltd. Vs. ITO (2024) 167 taxmann.com 746 (Kolkata)
3. CIT Vs. Gagandeep Infrastructure (P) Ltd. (2017) 80 taxmann.com 272 (Bombay)
4. Khubchandani Healthparks (P) Ltd. Vs. ITO (2016) 68 taxmann.com 91 (Bombay)
5. Titanor Components Ltd. Vs. ACIT (2012) 20 taxmann.com 805 (Bombay)
6. Crompton Greaves Ltd. Vs. ACIT (2015) 55 taxmann.com 59 (Bombay) 17 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited
8. So far as the merits of the case are concerned, he further added that the share applicant namely Rainbow Ventures Limited is a Non-resident company based at Mauritius and the second share applicant Ambit Pragma Fund is a SEBI registered Venture Capital Fund. For the year under consideration, section 68 of the Act cannot be invoked in the case of fund received from Non-resident as well as SEBI registered Venture Capital Fund. Payments have been received through banking channel. So far as the share premium charged by the assessee, he submitted that the relevant provisions have been enacted in the Act in section 56(2)(viib) of the Act applicable from 01.04.2013 onwards whereas the year under appeal the A.Y. 2011-12, therefore, the share premium charged by the assessee on the basis of the business exigencies and the future project of the assessee company could not have been doubted by the Assessing Officer. Identity and creditworthiness of both the share applicants is not in dispute. Genuineness of the transaction also cannot be disputed because the alleged share applicants are indulged in making long term investments and assessee is part of the other companies/projects in which the investments have been made by the alleged share applicants. He also submitted that the Assessing Officer in the subsequent assessment year 2012-13 has not invoked the provisions of section 68 of the Act for the share capital received from Rainbow Ventures Limited.
9. As regards the Ambit Pragma Fund Scheme is concerned, the trustee of the fund is Infrastructure Leasing and Financial Services (IL & FS) company and the fund is duly registered with the SEBI as Venture Capital fund and therefore since 18 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited nature and source of the share applicant money received are explained, section 68 cannot be invoked. He lastly submitted that the amendments in section 68 of the Act effective from 01.04.2013 requires the assessee to explain the source f source but the year under consideration is A.Y. 2011-12 during which the assessee has explained the source of the funds received during the year with all material evidences/documents. Reliance placed on the judgment of Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd.Vs. CIT reported in 217 CTR 195 wherein the Hon'ble Apex Court held that "if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company".
10. On the other hand, ld. CIT(DR) on the alleged issue of validity of the reassessment proceedings, submitted that the Audit Party raised an objection on the issue of shares of huge premium and a clarification/information has been sought from the assessee vide letter dated 12.07.2017. He submitted that during the course of regular assessment proceedings u./s.143(3) of the Act there was no submission on the issue of Equity shares to Rainbow Ventures Limited and Ambit Pragma Fund Scheme and therefore the material facts were disclosed to the Assessing Officer while completing the original assessment. Further, the information supplied by the assessee in letter dated 12.07.2017 was never available with the Assessing Officer at the time of original assessment 19 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited proceedings and therefore it cannot be said that no new information was available with the Assessing Officer at the time of recording of reasons to believe. As regards the merits of the case are concerned, ld. CIT(DR) vehemently argued referring to the following written submissions :
"1. Brief facts of the case 1.1 The assessee company is engaged in the business under various verticals in transport industry. It has filed return of income for A.Y. 2011-12 declaring 'Nil' income. Assessment was completed u/s 143(3) on 28/03/2014 by making addition of Rs.20,23,884/- and assessed loss was Rs.10,79,29,069/-.
1.2 The case was reopened as AO had reasons to believe that the income chargeable to tax for A.Y. 2011-12 has escaped assessment as the assessee issued shares at a high premium amount. Assessee issued 1,90,589 shares having face value of Rs. 10 each at a premium of Rs.1584/- per share. Accordingly it accounted share premium of Rs.30,18,92,976/- as its Capital and Reserves and Surplus. The details of shares issue are as follows:
Name of No. of Price Per share (Rs.) Total Amount
Investor Shares (Rs.)
issued
Face Premium Total
Value (per
share)
Ambit 36,726 10 1584 1594 5,85,41,244/
Pragma -
Fund
Scheme
Rainbow 1,51,480 10 1584 1594 24,14,59,120
Ventures /-
Ltd.
Prasanna 2,383 10 1584 1594 37,98,502/-
Patwardha
n
1.3 Assessee company has been incurring losses since its inception. The Earnings Per Share (EPS) for A.Y. 2010-11 i.e previous year was (-) Rs. -392.48/- per share and there was hardly any networth in the company. The assessee was asked to prove the identity and creditworthiness of the investors and genuineness of the transactions as there was not reasonable ground to make investment in such a loss making company with negative EPS.
1.4 The AO has relied on the decision in the case of Major Metals Ltd. vs Union of India where entire amount of share capital was 20 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited added to the income on the ground that if shares are issued at unjustifiable amount of premium the entire transaction is sham. Hence, AO had 'reasons to believe' that income for A.Y. 2011-12 has escaped assessment.
A questionnaire through notice u/s 142(1) of the Act dated 22/11/2018 was sent by AO to the assessee. In the said questionnaire specific question (Q.5) (Page 281) regarding explanation/justification of share premium was asked as follows;
"Please furnish explanation/justification of the share premium received along with confirmation, bank account and copy of return of investors during the year under consideration. Please submit a copy of the bank book for the period relating to investment with details of sources of funds of application. Also please furnish copy of share certificates issued by you for the respective investors and resolution passed by the Board with respect to the fixation of share premium along with calculation accepted by the Board."
In response to the said notice assessee submitted the following details:
• Income Tax Return, Computation of Income • Financial Statements and Tax Audit Report • Assessment History • Details of Share premium received • Details of Investors Rainbow Ventures Ltd. Certificate of Incorporation (Mauritius) Tax Residence Certificate ITR filed in India Financial Statements Share Certificates Confirmation Board Resolutions Ambit Pragma Fund-Scheme I Certification of Registration (Venture Capital Fund) Financial Statements ITR Share Certificates Confirmation Board Resolutions Prasanna Parwardhan ITR Share Certificates Confirmation • Copy of Share valuation reports.
• Copy of returns filed with ROC • Bank Statement of the assessee 21 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited 1.5 The Ld. AO on the basis of documents and the submissions of the assessee passed the assessment order dated 30/12/2018 and made the addition of Rs. 30,00,00,364/ on account of share premium by the investors Rainbow Ventures Ltd and Ambit Pragma Fund.
1.6 However, the Ld. CIT(A) has deleted the addition made by the AO of Rs. 30,00,00,364/- on the basis of following points:
Rainbow Ventures Ltd • (Mauritius) Reassessment proceeding for A.Y. 2012-13 was completed after the assessment u/s 143(3) r.w.s 147 for A.Y. 2011-12 and hence AO was aware of the all the additions.
• In A.Y. 2012-13 proceedings AO was satisfied with genuineness and creditworthiness of Rainbow Ventures Ltd. transactions.
• Even if amended provisions of Sec 68 of the Act are applicable w.e.f 2013-14, additional onus of explaining source of source is not on assessée, if share capital is received from non- resident. AO is not legally correct in putting additional onus on the assessee.
• Investment decision by Private Equity investor or Venture Capital Fund is commercial decision and AO shall not step into shoes of investor to judge commercial expediency.
• There are instances where companies are incurring losses but still valuation is higher because investors invest by considering future potential.
Ambit Pragma Fund - Scheme I (Venture Capital Fund) • Considering business activity of the fund, no adverse inference can be drawn from AO's observation especially when nothing adverse is on record that suggests benefit was derived by other shareholders.
• The Share Subscription and Shareholders Agreement (SSHSA) dated 02/09/2009 is comprehensive agreement which mentions all the terms and conditions. The premium amount is also specified in the agreement.
• NO doubt regarding identity and creditworthiness by AO also.
• VCF has raised Rs. 30.95 crores during A.Y. 2011-12 and hence there is no doubt on capacity for investment.22 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited • As per first proviso to Sec 68 of the Act, no additional onus can be put on Venture Capital Fund.
2. After due verification of the facts the comments of the undersigned are as follows:
2.1 The assessee in its submissions has submitted two share valuations reports. The first valuation report from a Chartered Accountant is dated 24/06/2010. The value per share as per the said report was determined at Rs. 953 calculated by Discounted Cash Flow (DCF) method.
2.2 The second valuation report is dated 21/11/2010. The value per share as per the said report was determined at Rs. 448 calculated by Discounted Cash Flow (DCF) method.
2.3 However, the shares were issued at Rs. 1,594/- per share which is much higher than the fair valuations certified by the Chartered Accountant. Also, the assessee has not substantiated the purpose for 2 valuations done in duration of 5 months.
2.4 Further, the financial analysis of the assessee states that;
• The assessee company has been incurring losses since its inception.
• The Earnings per Share (EPS) for A.Y. 2010-11 i.e previous year was (-) Rs. 392.48/- per share.
• There was hardly any net worth in the company.
2.5 From the above financial position, the issuance of shares at such huge premium is not justifiable.
2.6 Further, the overall analysis of the investors reveals the following:
Rainbow Ventures Ltd (Mauritius) • There was neither any business activity nor any asset to enable itself to invest in assessee.
• APF Mauritius is holding co. of Rainbow Ventures, but stake is nowhere mentioned.
• The company has only 1 investment and it is in the assessee co.
• The company is in loss since inception i.e 2009 and no other business. Hence, there is no capacity to make such a huge investment.23 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited Ambit Pragma Fund • The fund is a contributory trust and IL&FS Trust Company is the trustee.
• The fund was running into losses in A.Y. 2011-12.
• No benefit received by the fund from investment in the assessee company.
• Also, serious financial crisis was there in IL&FS group and investigation by SFIO (Serious Fraud Investigation Office) was carried out as per order of the Govt.
2.7 From the above analysis, it can be concluded that the investment done in the assessee company is not genuine and also as the investors were also into losses, the creditworthiness also remains doubtful. Genuineness and creditworthiness which are the most basic ingredients of Sec 68 of the Act are doubtful in the present case. Reliance in this regards is placed on the decision of Hon'ble Bombay High Court in the case of Major Metals Ltd. v. Union of India (2012) where it was held that, "26. In the present case it needs to be emphasized that the Settlement Commission has considered all the material on record including the material which had a bearing on the credit worthiness and financial standing of the alleged subscribing companies to the share capital of the petitioner.
None of the companies was held to have a financial standing or credit worthiness which would justify making of such a large investment of Rs. 6 crores at a premium of Rs. 990/- per share. The allotment of shares, it must be noted, has taken place in pursuance of a private placement. The principles which have been applied in relation particularly to the public subscription of shares of a public limited company can obviously have no application to the facts of a case such as the present. The view which has been taken by the Settlement Commission is consequently borne out on the basis of the material on record. This is not a case where the Commission has proceeded... contrary to law or on the basis of no evidence. There is no perversity in the findings of the Settlement Commission."
2.8 The CIT(A) has taken a view that in A.Y. 2012-13 i.e subsequent year, even when there was issuance of shares at premium no addition was made. However, it is to be considered that each assessment year is unique and hence it will not be correct to take cognizance of findings of A.Y. 2012-13 on A.Y. 2011-12.
2.9 In view of the above the contention of CIT(A) is not acceptable on the basis of following points:
24 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited Rainbow Ventures Ltd (Mauritius)
(i) No major asset and no business activity in the company.
(ii) The Assessee failed to provide cogent and reliable evidence to prove the creditworthiness.
( iii) The company is created for investment in unlisted companies.
(iv) The company has invested in shares denominated in INR.
(v) APF Mauritius is holding co. of Rainbow Ventures, but stake is nowhere mentioned.
(vi) The company has only 1 investment and it is in the assessee company.
(vii) There is no basis for issue of shares at such a high premium.
In the view of the above points, it can be concluded that the creditworthiness and genuineness of investment in the assessee company is not established.
Ambit Pragma Fund
(i) The fund was running into losses in A.Y. 2011-12. Also the assessee company was also having negative EPS of Rs. 392.48/-.
(ii) No basis for investing in shares at such a high premium.
(iii) The investment is made without proper valuation.
(iv) Only transaction through banking channel cannot make it genuine.
(v) The scheme has made investment for profit but no benefit is received from investment.
In view of the above points, it can be concluded that the creditworthiness and genuineness of investment in the assessee company is not established.
2.10 Further, the following points should also be considered:
• The assessee has no such business which suggests any subscribers to invest such huge amount at such a high premium.
• There is nothing in the financial statements of the assessee that could attract such huge investment with huge premium.25 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited • Business profile of the assessee company i.e. operating city buses, intercity buses, car rentals, school bus service is not forming basis for such a huge investment.
• There is hardly any net worth in the assessee company.
• The assessee company has not declared any dividend.
• Commercial decision is always for the benefit. Both the investors are not exception for investment in such company whose financials are poor and not very recommendable for investment at a high premium and the assessee has no future potential.
• It is clear from the Remand Report of the AO that no reference was made to FT & TR for A.Y. 2011-12.
• The assessee company has done two valuations on 24/06/2010 and 21/11/2010 with valuations of Rs. 953/- and Rs. 448/- respectively following the DCF method as per RBI and FEMA Guidelines. However, the shares are issued at a premium of Rs. 1584/. Hence, the reason for having two valuations and basis of issuing shares at premium of Rs. 1584/- is not established.
2.11 In view of the above discussion, it is observed that the assessee has failed to establish the creditworthiness of the transaction of issue of shares at such a high premium. The Ld. CIT(A) has given relief only on the basis of FT & TR sought in A.Y 2012-13. However, it should be considered that each assessment year is unique and the Ld. CIT(A) has not examined the basis of charging high premium than the fair valuation of the shares. Also, considering the decision of Hon'ble Supreme Court in the case of Sumati Dayal vs CIT, in the present case principle of human probability shall be applied. Also, the AO has discussed-in length the facts involved in the present case and how the creditworthiness of transaction of issue of share at a high premium is not established 2.12 Hence, the above submission may kindly be considered and the addition may kindly be confirmed.
The above may kindly be considered while deciding the appeal in this case."
10.1 Ld.CIT(DR) placed reliance on the following case laws :
1. Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd (SC) (2019) 103 taxmann.com 48 (SC) 26 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited
2. Major Metals Ltd. vs. Union of India (2012) 19 taxmann.com 176 (Bom.)
3. Bal Gopal Merchants (P.) Ltd vs. PCIT (2024) 162 taxmann.com 465 (Calcutta)
4. PCIT vs. BST Infratech Ltd. (2024) 161 taxmann.com 668 (Calcutta)
5. CIT vs.Nipun Builders & Developers Pvt. Ltd. (2013) 30 taxmann.com 292 (Delhi)
6. B.R.Petroleum (P.) Ltd vs ITO (2017) 81 taxmann.com 424 (Madras)
7. DCIT vs. Leena Power Tech Engineers (P.) Ltd (2021) 130 taxmann.com 341(Mumbai - Trib.)
8. Advance Power Infra Tech Ltd Vs DCIT - ITA No.605/Kol/2015 order dated 23.08.2017
9. Rick Lunsford Trade & Investment Ltd. vs. CIT (2017) 77 taxmann.com 110 (SC)
10. Kushagra Real Estate (P) Ltd vs DIT - ITA No.4247/Del/2009
11. CIT V. Durga Prasad More (1971) 82 ITR 540 (SC)
12. Sumati Dayal V. CIT (1995) 80 Taxman 89 (SC)
11. We have heard the rival contentions and perused the record placed before us. We have also carefully gone through the decisions referred and relied on by both the sides. In the present appeal which pertains to A.Y. 2011-12 Revenue preferred the appeal against the relief given by ld.CIT(A) on merits of the case whereas the assessee raised Cross Objection challenging the validity of the reassessment proceedings. Both the Revenue appeal and Cross Objection came up before this Tribunal and the same decided vide order dated 05.08.2024. Thereafter, assessee filed Miscellaneous Applications No.22 and 23/PUN/2025 and the same has been decided on 20.11.2025 recalling the order of the Tribunal for the limited 27 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited purpose of adjudicating the grounds of appeal raised by the Revenue in ITA No.871/PUN/2023 and to adjudicate one of the legal issue raised in Cross Objection No.03/PUN/2024 challenging the validity of reopening after four years when there is no failure on the part of the assessee to disclose truly and fully the material facts in the return of income for the issues raised in the reasons recorded.
12. We will first take up the legal issue raised by the assessee in the Cross Objection and recalled by this Tribunal vide order dated 20.11.2025. Relevant extract of the order of Miscellaneous Application dealing with the issue raised by the assessee in the M.A. reads as under :
"2. First we will take up MA No. 22/PUN/2025 filed against the cross objection i.e. CO No. 03/PUN/2024, dated 05/08/2024.
3. Learned counsel for the assessee referring to the contents of this Misc. Application submitted that in the impugned order deciding the assessee's cross objection, the assessee has challenged the validity of reopening of assessment on following two counts:-
(a) Change of opinion; and,
(b) No failure on the part of the assessee to disclose fully and truly material facts in the return of income which was selected for scrutiny assessment completed u/s. 143(3) of the Act and reopening has been carried out beyond four years from the end of the relevant assessment year.
4. Learned counsel for the assessee referring to para Nos. 9 & 10 of the impugned order submitted that this Tribunal has only dealt with first limb of legal issue i.e. change of opinion and held that there is no change of opinion and therefore reopening of assessment is valid. However, the Hon'ble Tribunal has not dealt with second limb of legal ground raised in the cross objection.
5. On the other hand, learned Departmental Representative (DR) supported the order of this Tribunal.
6. We have heard rival contentions and perused the records placed before us. We, on going through the grounds raised by the assessee in cross objection and also the affidavit of the counsel Mr. 28 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Ankit Gattani, who appeared before this Tribunal at the time of hearing and made submissions challenging the validity of the notice issued u/s. 148 of the Act as well as validity of reopening proceedings on two legal grounds:- (a) As the notice issued u/s. 148 of the Act is based on change of opinion therefore, the same is invalid (b) Notice issued is beyond 04 years from the end of the relevant assessment year and the original assessment order has been completed u/s. 143(3) of the Act and there is no failure on the part of the assessee to disclose fully and truly the material facts. We further note that this Tribunal while dealing with the legal issue raised in the cross objection has held as follows:-
"9. We heard the rival submissions and perused the material on record. In the present case, the original assessment proceedings was completed u/s.143(3) vide order dated 28.03.2014. From the perusal of the assessment order, it would suggest that the issue of receipt of share capital/share premium was never examined by the AO. Therefore, it cannot be said that the AO formed an opinion as to the genuineness or otherwise of the transaction of receipt of share capital/share premium. Therefore, it cannot be said that it is a mere change of opinion. In this regard, reference can be made to the decision of Hon'ble Supreme Court in the case of ITO Vs. Tech Span India Pvt. Ltd.(2018) 92 taxmann.com 361 (SC) wherein the Hon'ble Supreme Court held as under :
"12. Before interfering with the proposed re-opening of the assessment on the ground that the same is based only on a change in opinion, the court ought to verify whether the assessment earlier made has either expressly or by necessary implication expressed an opinion on a matter which is the basis of the alleged escapement of income that was taxable. If the assessment order is non-speaking, cryptic or perfunctory in nature, it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed re-assessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the re-
assessment proceedings."
10. Since in the present case during the course of original assessment proceedings, the AO had not formed any opinion in respect of receipt of share capital/share premium, it cannot be said that the reassessment proceedings are prompted by mere change of opinion. Therefore, we uphold the validity of the reassessment proceedings in view of law laid down by 29 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Hon'ble Apex Court in the case of Tech Span India Pvt. Ltd. (supra)."
7. From going through above findings of the Tribunal, we notice that this Tribunal has only dealt with first limb of the legal arguments and held that the notice issued u/s. 148 of the Act is not based on change of opinion and, therefore, the same is valid. However, there is no discussion about second limb of legal argument regarding validity of reopening in spite of the reopening after four years the original assessment completed u/s. 143(3) of the Act and whether there was any failure on the part of the assessee to disclose fully and truly the material facts. Ld. DR failed to controvert the contentions made by the learned counsel for the assessee. We therefore, find merit in the Misc. Application filed by the assessee and accordingly, allow the same and direct the Registry to re-fix the cross objection No. 03/PUN/2024 in due course for the limited purpose of adjudicating the second limb of legal issue raised by the assessee as to whether under the given facts and circumstances of the case where reopening has been carried out after completion of 04 years from the end of the relevant assessment year and that the original assessment has been completed u/s. 143(3) of the Act and there being no failure on the part of the assessee to disclose fully and truly the material facts relating to the reasons recorded for issuing notice u/s. 148 of the Act, whether such issuance of notice u/s. 148 of the Act and re-assessment proceedings are invalid and bad in law.
8. In the result, Misc. Application filed by the assessee in MA No. 22/PUN/2025 is allowed as per the terms indicated above."
13. We note that the reasons recorded by the ld. Assessing Officer reads as under :
"REASONS FOR RE-OPENING OF PROCEEDINGS OF ASSESSMENT IN THE CASE OF M/S PRASANNA PURPLE MOBILITY SOLUTIONS PVT. LTD. FOR A.Y. 2011-12 (PAN-AAACO9763H) In this case, the assessee has filed its original return of income for the A.Y. 2011-12 on 30.09.2011 declaring the total loss of Rs.10,99,52,953/- and revised return on 22.03.2012 declaring total loss of Rs. 10,99,52,953/-. The scrutiny assessment u/s 143(3) of the income-tax Act, 1961 (the Act) was completed on 28.03.2014.
It was noticed that during the year assessee company has issued 195589 shares having face value of Rs. 10 each at a premium of Rs.1584/- per share and assessee company accordingly accounted 30 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited share premium of Rs. 30,18,92,976/- as its Capital and Reserve Surplus.
The assessee vide its submission dated 12.07.2017 has stated that Shares at a premium have been issued to (a) Ambit Pragma Fund Scheme-1 for Rs.5,85,41,244/- (b) Rainbow Ventures Ltd. (Mauritius) for Rs. 24,18,57,910/- and (c) Prasanna Patwardhan (Pune) for Rs.37,74,672/-. The Balance Sheet as on 31st March 2010 in respect of Prasanna Purple Mobility Solutions shows an increase in the shareholders funds from Rs.19,37,96,180/- to Rs.49,42,86,046/- as on 31st March 2011.
It is to be noted here that the assessee company has been incurring losses since its inception. The earnings per share (EPS) on the assessee company's shares for AY 2010-11 (Previous year) shows a loss of Rs.392.48/- per share. There was hardly any networth in the company to justify such high Premium. Further, there has been no submission on the part of the assessee to explain the reason behind high Premium. If we consider the assessee's reserves, profits and earnings for the said AY, even they do not justify the huge Premium. Thus the Premium received is unreasonable. The Hon'ble Bombay High court in the case of Major Metals Ltd Vs Union of India (207 Taxmann.com 185) has upheld the addition of the entire amount of share capital on the ground that if the shares are issued at unjustifiable amount of premium the entire transaction is sham.
In view of the above, I therefore have reasons to believe that the income chargeable to tax for AY 2011-12 has escaped assessment and is likely to amount to one lakh rupee or more for AY 2011-12 as per the provisions of section 147 of the Act.
Requirements:
1. As per request the copy of the reasons is enclosed herewith for your information.
2. Party wise details in respect of share premium issued of Rs.30,18,92,976/- during FY 2010-11 alongwith supporting evidences.
3. To explain the reasons behind the shares issued 195589 having face value of Rs. 10/- each at Premium of Rs.1584/- per share.
4. To justify the reasons for such high premium alongwith supporting evidences."
14. Now in order to examine the contentions made by ld. Counsel for the assessee, we would like to first go through the 31 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited relevant provisions of section 147 of the Act which reads as under :
"Income escaping assessment.
147. If the 73[Assessing] Officer 74[has reason to believe 75] that any income chargeable to tax has escaped assessment 75 for any assessment year, he may, subject to the provisions of sections 148 to 153 , assess or reassess 75 such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:
[Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.] Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :--
(a ) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b ) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or 32 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited has claimed excessive loss, deduction, allowance or relief in the return ;
(c ) where an assessment has been made, but--
(i) income chargeable to tax has been under assessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act ; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.] [Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.]."
15. Further, we also find that Hon'ble Courts have consistently held in plethora of decisions that in case where regular return of income has been filed u/s.139 of the Act and assessment has been completed u/s.143(3) of the Act for the very same assessment year and there is no failure on the part of the assessee to furnish material facts relating to the issues raised in the reasons recorded, then the reopening carried out after the completion of four years is bad in law and deserves to be quashed. Though the ld. Counsel for the assessee has referred to various decisions, we will take note of the two judgments of Hon'ble Jurisdictional High Court which are referred below.
15.1 Hon'ble Jurisdictional High Court in the case of Titanor Components Ltd. Vs. ACIT (2012) 20 taxmann.com 805 (Bombay) dealing with similar issue has observed as under :
"4. According to the learned counsel, the Revenue is entitled to issue such a notice if the AO has reason to believe that income chargeable to tax has escaped assessment by reason of the failure on the part 33 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited of the assessee (a) to make a return under s. 139 or (b) in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or (c) to disclose fully and truly all material facts necessary for that assessment year. Since the first two conditions are not pleaded by the respondents, it is the submission of the petitioner that the notice is wholly unwarranted and invalid since there is no allegation whatsoever that the petitioner has failed to disclose all material facts necessary for assessment. This submission can be considered only with reference to the reasons put forth by the respondents for issuing the notice. The letter dt. 27th Jan., 2005, inter alia, states that the AO has reasons to believe that income has escaped assessment because the petitioner has wrongly claimed deduction under s. 80-IA in respect of income which was not derived from the income of the petitioner's unit of Kundaim. Further, that long-term capital gains have been wrongly claimed by the assessee which have been wrongly considered for the set off of the unit of Kundaim which has resulted in escapement of income. Nowhere has the AO stated that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Having regard to the purpose of the section, we are of the view that the power conferred by s. 147 does not provide a fresh opportunity to the AO to correct an incorrect assessment made earlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and truly disclose all material facts necessary for assessment. Indeed, where the assessee has fully disclosed all the material facts, it is not open for the AO to reopen the assessment on the ground that there is a mistake in assessment. Moreover, it is necessary for the AO to first observe whether there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under s.
147. It must follow that where the AO does not record such a failure he would not be entitled to proceed under s. 147. As observed earlier, the AO has not recorded the failure on the part of the petitioner to fully and truly disclose all material facts necessary for the asst. yr. 1997-98. What is recorded is that the petitioner has wrongly claimed certain deductions which he was not entitled to. There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the AO would be entitled to proceed under s. 147. We are supported in this view by a decision of a Division Bench of this Court in Hindustan Lever Lid. v. R.B. Wadkar, Asstt. CIT [2004] 190 CTR (Bom) 166: [2004] 268 ITR 332 (Bom) where in a similar case the Division Bench held that reason that there was a failure to disclose fully and truly that all material facts must be read as recorded by the AO and it would not be permissible to delete or add to those reasons and that the AO must be able to justify the same based on material record. The Division Bench observed as follows:
"He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary 34 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited for assessment of that assessment year, so as to establish the vital link between the reasons and evidence."
5. We find in the circumstances that the impugned notice is not sustainable and is liable to be quashed and set aside. Accordingly, the writ petition is allowed in terms of prayer cls. (a) and (c)."
15.2 Hon'ble Jurisdictional High Court in the case of Crompton Greaves Ltd. Vs. ACIT (2015) 55 taxmann.com 59 (Bombay) dealing with similar issue has observed as under :
"6. In order to evaluate the rival contentions, it is necessary to advert to the relevant statutory provisions contained in Section 147(1) of the Act and the first proviso there to:
"147. If the [Assessing] Officer [has reason to believe) that any income may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
7. From the aforesaid, it is clear that where the assessment under sub section (3) of Section 143 of the Act has been made for the relevant assessment year, no action can be taken under Section 147 of the Act after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the Assessee to make a return under Section 139 or in response to a notice issued under sub section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for assessment for that assessment year.
35 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
8. In the present case, there is no dispute that the impugned notice dated 29 March 2012 seeking to reopen assessment has been issued after the expiry of four years from the end of the relevant assessment year i.e. 1999-00. Accordingly, there is no dispute whatsoever that the proviso to Section 147 of the Act is clearly attracted. The jurisdictional issue with which we are concerned is whether there was any failure on the part of the petitioner to disclose fully and truly all the material facts necessary for his assessment in the assessment year 1999-00.
9. The aforesaid issue shall have to be considered, in the context of the reasons supplied by the respondents for the issuance of impugned notice dated 29 March 2006. The reasons, which came to be supplied only on 16 November 2006, read thus:
"On perusal of the case record, it is seen that the assessee while computing the book profit deducted the loss suffered by an industrial unit amalgamated with the assessee company, in the previous year relevant to the assessment year 1997-98. According to assessee's own statement the accounts of the loss making company was being published separately even after its amalgamation. According to the MAT provisions the amount of profit of a sick industrial company for the assessment year commencing from the assessment year relevant to the previous year in which the company has become a sick industrial company and ending with the assessment year during which the entire net worth of such company has become equal to or exceeds the accumulated losses can only be claimed as deduction for computing the book loss. The net profit for this purpose is to be adopted from the certified profit and loss account and then deduct the business loss or deprecation which ever is less and as such the assessee has reduced the book profit by Rs.5,30,52,654/- instead of Rs.1,60,00,000/-, Further it is observed that there was no book loss to be adjusted from the net profit as per the certified accounts of the assessee company. Hence the deduction of loss of the sick industrial unit from the profit of the assessee company was not in order as the assessee company was not a sick company. By doing so, the assessee has under stated its income amounting to Rs.1,11,15,796/- under the book profit u/s.115JA of the IT Act.
Further it is seen that the assessee were debiting capital expenditure of various types such as loss on sale of assets, etc. which were inadmissible as per the normal provisions of the act and were added back for computing the income under the normal provisions of the Act. By debiting such excessive and inadmissible capital expenditure to the profit and loss accounts, the assessees succeeded in declaring less net profit and there by less book profits. By doing so, the assessee has under stated its income under the book profit u/s 115JA of the IT Act.36 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited By doing so, the assessee understated the income under the book profit u/s 115JA of the IT Act to the above extent. I am, therefore, satisfied that this is a fit case to be re-opened u/s. 147 of the IT Act, 1961. Since, assessment u/s. 143(3) has been completed and a period of four years from the end of the relevant assessment year has lapsed, hence, the case needs to be approved by the Commissioner of Income tax, City-6, Mumbai under the provisions of section 151(1) of the I.T. Act, 1961. Therefore, the case is submitted for approval so that notice u/s. 148 of the IT Act may be issued."
10. It is significant to note that neither the impugned notice dated 29 March 2006 nor the reasons supplied in support thereof specifically state that there was any failure on the part of the petitioner to disclose fully and truly all the material facts necessary for its assessment for the relevant assessment year. No doubt, Mr. Suresh Kumar is right in his submission that the mere failure to incant the words or phrases employed in the statute with regard to failure to disclose fully and truly all material facts, is not necessarily fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act. However, this is subject to the rider that there must be cogent and clear indication in the reasons supplied, that in fact there was failure on the part of the Assessee to disclose fully and truly all the material facts necessary for its assessment. If the factum of failure to disclose can be culled down from the reasons in support of the notice seeking to reopen assessment, then the mere failure to repeat words or phrases of the statute is certainly not fatal to the assumption of jurisdiction. However, if from the reasons, no case of failure to disclose is made out, then certainly the assumption of jurisdiction under Sections 147 and 148 of the Act would be ultra vires, being in excess of the jurisdictional restraints imposed by the first proviso to Section 147 of the Act.
11. Further, as has been held by this Court in the case of Hindustan Lever Ltd. v. R. B. Wadkar, [2004] 268 ITR 332/137 Taxman 479 it is necessary whilst supplying the reasons for the issuance of notices under Sections 147 and 148 of the Act to communicate as to which fact or material was not disclosed by the Assessee fully and truly, that has resulted in the income escaping assessment. It is for the Assessing Officer to disclose and open his mind through the reasons recorded by him. The reasons so recorded must be clear and unambiguous and not suffer from any vagueness. Reasons recorded should be self explanatory and should not keep the Assessee guessing as to the facts or materials, which he may not have fully or truly disclosed for the purposes of assessment of his income. In fact the record of reasons and their disclosure is a vital safeguard against arbitrary reopening of concluded assessment. The reasons so recorded and disclosed, cannot even be supplemented by filing affidavits or making oral submissions.
37 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
12. In the context of the reasons recorded, it is to be noted that in the present case apart from there being no allegation therein that there was any failure on the part of the petitioner to fully and truly disclose all material facts necessary for assessment, even otherwise, the reasons as recorded give no clue whatsoever as to the alleged failure on the part of the petitioner in disclosing fully and truly, the material facts necessary for its assessment. The reasons as recorded, in any case, do not disclose any particular fact or material that was allegedly not disclosed by the petitioner during the regular assessment proceedings under Section 143(3) of the Act. Clearly, therefore, the jurisdictional parameter, for invoking the provisions of Section 147 of the Act is absent, in the present case on both the grounds mentioned in the reasons in support of the impugned notice. In fact, in the revised return of income filed by the petitioner on 31 March 2000 along with the profit and loss account are perused, it is evident that full and true disclosures were indeed made by the petitioner, in the matter of determination of MAT liability under Section 115JA of the Act with regard to the loss of PPGM and also debiting of capital loss to its profit and loss account. Further, the Assessing Officer, in the assessment order dated 21 March 2002 under Section 143(3) of the Act in regular proceedings has specifically considered disclosures in respect of loss of PPGML made by the petitioner. Such consideration is reflected in the assessment order itself, the relevant portion of which, reads thus:
"Note 1: The assessee Company has filed a revised return of income wherein it has been stated that, "as per Sec. 115JA MAT will be payable when total income as computed under the Act is less than 30% of its book profits. In our case the adjusted total (PPGML + CGL) Book profits calculated as per the provisions of the Act is a loss. But in the both returns of income we have ignored the loss of PPGML, inadvertently. We request your honour to consider this mistake while calculating the MAT liability". This submission of the assessee Company has been considered." [Emphasis supplied)
13. From the aforesaid, it is apparent that not only was there no failure on the part of the petitioner to disclose fully and truly all the material facts in relation to the determination of MAT liability under Section 115JA of the Act, but further such disclosed material facts were duly considered by the Assessing Officer in making the Assessment Order dated 21 March 2002 under Section 143(3) of the Act. The jurisdictional parameter imposed by the proviso to Section 147 in matter of reopening of assessment was, thus, clearly not fulfilled. The issuance of impugned notice and the consequent assessment order is therefore in excess of jurisdictional restraint imposed upon the Assessing Officer by the proviso to Section 147 of the Act. The impugned notice dated 29 March 2006 and the second reassessment order dated 26 December 2006 are therefore liable to be quashed on this ground alone."
38 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
16. Now in light of the above judicial precedents as well as the provisions of section 147 of the Act, we will now move on to examine the contents of reasons recorded and further to examine whether there has been any failure on the part of the assessee to disclose fully and truly all material facts relating to the issues raised in the reasons recorded. Admittedly, assessee has filed regular return of income on 30.09.2011 declaring loss of Rs.10.99 crore approx. which has been further revised on 22.03.2012 declaring the same amount of loss at Rs.10.99 crore approx. and the regular assessment proceedings u/s.143(3) of the Act concluded on 20.03.2014
17. In the reasons recorded (referred supra), ld. Assessing Officer has referred to the transaction of issue of 1,95,589 Equity shares of face value of Rs.10/- each at a premium of Rs.1,584/- per share to three parties namely Ambit Pragma Fund Scheme-I at Rs.5,85,41,244/-, Rainbow Ventures Limited, Mauritius at Rs.24,18,57,910/- and Prasanna Patwardhan at Rs.37,74,672/-. Ld. Assessing Officer thereafter has referred to the increase in the shareholder fund from Rs.19.38 crore to Rs.49.43 crore as on 31.03.2011. Reference has also been made to the earning per share of the company and there being no justification for the issue of shares at such a high premium. Apparently, in the reasons recorded, ld. Assessing Officer has not referred to any independent information or new documents which has come to the knowledge of the Assessing Officer post completion of assessment proceedings u/s.143(3) of the Act, based on which the reasons have been recorded for reopening the impugned assessment year beyond four years. All details which ld. Assessing Officer is referring in the reasons recorded are taken 39 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited from the audited balance sheet of the assessee company available in the assessment records. The only doubt which has been raised is regarding the huge share premium charged by the assessee which is running into losses thereby questioning the genuineness of the transaction.
18. We find that the assessee has furnished audited financial statements placed at pages 297 to 335 of the paper book as well as the Audit report at pages 336 to 374 forming part of the paper book filed on 08.12.2025. Audit has been conducted by the Audit firm Deloitte Haskins & Sells. The information about the increase in Reserves and Surplus is apparent from the Schedule-I of the balance sheet and subsequently under the Securities Premium account the premium on issue of Class A Equity shares at Rs.30,18,92,976/- is appearing. Further, in the notes to account which are attached to the audited balance sheet, complete information has been provided for the transactions entered into with Rainbow Ventures Limited which is the holding company along with the transaction of issue of share capital including share securities premium. It therefore shows that the transaction which ld. Assessing Officer is referring in the reasons recorded, has been duly disclosed by the assessee in the audited financial statements along all the relevant information required for showing such type of transaction. All these details were very much available with the Assessing Officer during the course of assessment proceedings u/s.143(3) of the Act and the assessment has been framed u/s.143(3) of the Act without making any addition u/s.68 of the Act for the alleged share application money. We also note that ld. Assessing Officer on one hand questioning the 40 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited justification in charging the huge share premium but on the other hand has made no objection for the very same share premium received from the promotor Prasanna Patwardhan, Pune and has accepted the share application money received from him. Even in the reasons recorded, ld. Assessing Officer has only drawn inference from the balance sheet of the assessee company which already stood furnished in the assessment records and apart from that there is no other new information regarding the share applicants namely Rainbow Ventures Limited and Ambit Pragma Fund Scheme-1 which could form a basis for reopening the completed assessment beyond four years. Certainly on the issue of change of opinion the tribunal has already decided against the assessee, however, for the second limb of legal argument it remains an admitted fact that ld. Assessing Officer has not referred to any other material information or document which has not been furnished by the assessee during the course of regular assessment proceedings or in the return of income filed by it. Therefore, in absence of any failure on the part of the assessee to disclose truly and fully all material facts relating to the reasons mentioned in the reasons recorded for reopening, we find that in the given case where a valid return of income with all supporting documents were filed and assessment proceeding u/s.143(3) of the Act for the veery same assessment year stands concluded, therefore the alleged reopening of assessment u/s.147 of the Act is bad in law and deserves to be quashed and for this we place reliance on the judgment of Hon'ble Bombay High Court in the case of Titanor Components Ltd. Vs. ACIT and in the case Crompton Greaves Ltd. Vs. ACIT referred (supra).
41 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
19. In the result, the impugned legal issue raised in the Cross Objection and recalled by this Tribunal in M.A.No.22/PUN/2025 dated 20.11.2025 challenging the validity of the re-assessment proceedings for A.Y. 2011-12 is hereby allowed.
20. Now we take up the Revenue's appeal ITA No.871/PUN/2023 which has been recalled by this Tribunal vide M.A.No.23/PUN/2025 dated 20.11.2025 observing as under :
"9. Now, we take up MA No. 23/PUN/2025. Learned counsel for the assessee through this Misc. Application stated that this Tribunal, while dealing with the merits of the case and confirming the additions made by the Ld.AO u/s. 68 of the Act has not dealt with various material facts placed before this Tribunal as well as the facts dealt by Ld.CIT(A) in detail. It is submitted that the issue is regarding unexplained cash credit u/s. 68 of the Act and the assessee was required to explain the nature and source of the alleged credit and also identity and creditworthiness of the cash creditors and genuineness of the transactions. The assessee supported the findings of Ld.CIT(A) and also submitted various documents before this Tribunal and this Tribunal has confirmed the action of the AO of making addition u/s. 68 of the Act observing as follows:- (relevant extract) "16. The principles that can be deduced from the above decisions are that mere production of incorporation details, PAN Numbers, etc. receipt of money through banking channel prove the Identity and creditworthiness of investors but not the genuineness of the transaction is not established by merely contending that transaction was done through banking channel or account payee instrument. The assessee company has to discharge the onus cast upon it by demonstrating as to how the two parties are known to each other, the manner and mode by which the parties approached each other, whether transaction was entered through written agreement to protect the investment, creditworthiness, objects and purpose for which the investment was made. In the present case, these facts and information are within the exclusive knowledge of the assessee company. The fact that the assessee company received huge share capital/share premium when the Rainbow Ventures Limited is a loss making company triggered the doubts in the mind of the AO as to the genuineness of the very transaction. Further, the AO gave a finding that it is 42 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited nothing but unaccounted money of the assessee company. This allegation had not been proved to be wrong by the assessee company. In the circumstances, the order of the CIT(A) is bereft of factual discussion on the above aspects. Nor the assessee company filed any evidence or material in an attempt to discharge the onus cast upon it in terms of provisions of section 68 of the Act. Therefore, the finding of the CIT(A) to the extent of deleting the addition on account of share capital/share premium from the above parties is reversed. In the absence of any material on record discharging the onus cast upon the asseseee company in terms of provisions of section 68 of the Act, we are not inclined to remand the matter to the lower authorities. Accordingly, the assessment order is restored and the appeal filed by the Revenue stands allowed.
10. In the course of hearing, learned counsel for the assessee referring to the above findings of this Tribunal stated that Hon'ble Tribunal has observed that it is not known whether there was a written agreements between the assessee and the cash creditors namely, Rainbow Ventures Ltd., Mauritius and Ambit Pragma Fund Scheme-1. Learned counsel for the assessee referring to para 24 of the Ld. CIT(A)'s order stated that it has been mentioned that Share Subscription and Shareholders Agreement (SSSHA) between the assessee and the alleged two cash creditors has been filed which is duly registered and stamp duty of Rs. 12,43,100/- has also been paid and even the AO was asked to submit remand report in respect of SSSHA. However, Hon'ble Tribunal while confirming the addition has wrongly observed that no shareholders agreement is filed and therefore this is stated to be an apparent mistake in the impugned order.
11. Learned counsel for the assessee also submitted that this Tribunal has held that finding of Ld. CIT(A) is bald and he has failed to discuss as to what the enquiries revealed and how the results of enquiry satisfied the identity, creditworthiness and genuineness of the transactions. Again reference has been made at para Nos. 27 to 49 of the Ld. CIT(A)'s order, where it has been stated that after examining the facts, the assessee has proved three limbs to show that identity, creditworthiness of the cash creditors is proved and that genuineness of the transaction has been entered.
12. Learned counsel for the assessee has also submitted that this Tribunal has further assumed incorrect facts and not referred and considered the similar issue dealt by Ld.AO in subsequent years. He stated that the investments made by M/s. Rainbow Ventures Ltd., Mauritius in the subsequent years has been accepted by the Ld.AO, but the investments made in the year under consideration as treated as doubtful. Similarly, it is stated that M/s. Ambit Pragma Fund Scheme-1 is a SEBI regulated Venture Capital Fund registered with SEBI and that the IL & FS is a trustee of the said fund and that the money raised from investors have been invested in assessee's-43 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited company as well as other logistic companies, and these facts were also noted by the Ld.CIT(A) but again they have not been considered by this Hon'ble Tribunal in adjudicating the issue of addition u/s. 68 of the Act. Concluding his arguments, learned counsel for the assessee submitted that all these important facts that goes to the root cause of examining the applicability of provision of section 68 of the Act on the investments received by the assessee company from two investors; namely, Rainbow Ventures Ltd., Mauritius and Ambit Pragma Fund Scheme-1 have not been considered by this Tribunal which clearly indicates that the impugned order suffers from serious apparent mistakes and the impugned finding has been arrived at without adjudication of various material facts referred above and placed before this Tribunal during the course of hearing.
13. On the other hand, ld.DR vehemently argued supporting the findings of this Tribunal.
14. We have heard rival contentions and gone through the averments made in the Misc. Application and also submission of the learned counsel for the assessee through which, an apparent mistake has been indicated in the impugned order. It is apparent that various documentary evidence which the assessee has placed before this Tribunal as well as Ld.CIT(A) to explain the nature and source of the alleged cash credit as well as to prove the identity and creditworthiness of the investor companies i.e. cash creditors and also genuineness of the transactions have not been examined by this Tribunal while dealing with the issue of addition u/s. 68 of the Act. It is a settled judicial precedent that this Tribunal is not allowed to review its own order, however, if there are apparent mistakes in such order, which we find in the instant case that various documents, remand report of the Ld.AO, Share Subscription and Shareholders Agreement, one of the alleged investor is SEBI registered fund, investments received by the assessee from one of the alleged cash creditors in other assessment years accepted by the Revenue authorities, have not been dealt with by this Tribunal before arriving at the finding of confirming the addition u/s. 68 of the Act. We, therefore, find that apparent mistake has crept in the impugned order and, therefore, recall the impugned order and direct the Registry to place ITA No. 871/PUN/2023 at its original number and re-fix it for hearing in due course along with Cross Objection No. 03/PUN/2024 and inform both the parties. Misc. Application filed by the assessee in MA No. 23/PUN/2025 is allowed."
21. In this appeal, Revenue is aggrieved by the deletion of addition of Rs.30,00,00,364/- made by ld. Assessing Officer invoking section 68 of the Act for the share capital & share premium received from Rainbow Ventures Limited at Rs.24,14,59,120/- (issue of 1,51,480 Equity shares) and 44 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Ambit Pragma Fund at Rs.5,85,41,244 (issue of 36,726 Equity shares). We note that the Assessing Officer in the reasons recorded has made two specific observations firstly that the assessee company is running into losses and earning per share for the immediately preceding financial year is (-) 392/- per share whereas the Equity shares face value have been issued at a premium of Rs.1,584/- per share. Based on such vast difference between the earning per share, i.e. in negative and charge of huge premium at Rs.1,584/-, ld. Assessing Officer has observed that there is no new justification in charging of such huge share premium and therefore genuineness of the transaction is not proved and resultantly section 68 of the Act has been invoked for making the impugned addition.
22. Before ld.CIT(A) assessee has contended that the share applicant namely Rainbow Ventures Limited (RVL) is a Non- resident Mauritius based company and Ambit Pragma Fund Scheme-1 a SEBI registered Venture Capital fund and that section 68 of the Act cannot be invoked on such type of investors. So far as the justification of share premium is concerned, it has been claimed that assessee is into business of passenger mass transit operations and offers an array of mobility solutions like city and intercity buses and based on the potential for exponential growth, in the transport industry, share premium has been charged. It has also been claimed by the assessee that section 56(2)(viib) of the Act which deals with the excess consideration received over the Fair Market Value of the Equity share has been inserted in the statute from 01.04.2013 and therefore the said provision is not applicable for the year under consideration. It has also 45 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited been claimed that all the documents relevant for explaining the Identity, creditworthiness of the share applicants and the genuineness of the transaction stands duly submitted and ld. Assessing Officer has not made any such addition for A.Y. 2012-13 for the share application money received from RVL. Ld.CIT(A) on due examination of all these aspects in the details filed by the assessee has deleted the impugned addition observing as follows :
"Findings 27.1 I have considered the facts of the case, submissions made by the appellant and remand reports of the Assessing Officer. In the rejoinder to the first remand report, the appellant submitted that the assessing officer has not carried out any analysis regarding the applicability of information received through FT&TR division to the facts of AY 2011-12. The appellant has further requested that a copy of report received from FT & TR may be examined by the undersigned in order to analyze as to whether information received during the re-assessment proceedings for A.Y. 2012-13 can be relied upon for the transactions undertaken with M/s Rainbow Ventures Limited, Mauritius, during A.Y. 2011-12. Considering this request of the appellant, vide letter dated 03/11/2022, the Assessing Officer was requested to forward the assessment folders for A.Y. 2011-12 and A.Y. 2012-13 containing the information received from FT & TR division. The said assessment folders were forwarded by the Assessing Officer on 23/11/2022.
27.2 A perusal of the assessment folder for A.Y. 2012-13 suggests that a request for information was made to Tax Authorities of Mauritius for providing certain information in order to ascertain the genuineness of money received for shares issued by the appellant company to M/s Rainbow Ventures Limited during A.Y. 2012-13. This request was made through FT & TR division, CBDT, as per the procedure laid down in the DTAA between India and Mauritius. From the request form sent by the Assessing Officer, it is seen that the information requested by the Assessing Officer was not limited to F.Y. 2011-12 (A.Y. 2012-13) only and he requested the information and related documents for the period F.Y. 2009-10 to F.Y. 2011-12. Thus, although the information/documents were requested from the Mauritian Tax authorities, in the context of transaction undertaken during F.Y. 2011-12, however the documents with regard to transaction undertaken in earlier years including F.Y. 2010-11 (Α.Υ. 2011-12) i.e. the year under appeal were also requested and received by the Assessing Officer. Therefore, the comments of the Assessing Officer in the first remand 46 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited report that the information/documents received during the re- assessment proceedings of A.Y. 2012-13 has no application for A.Y. 2011-12 is not correct because information available with the Assessing Officer for arriving at a decision regarding the genuineness of transaction undertaken with M/s Rainbow Ventures Limited during A.Y. 2012-13, is now available with the Assessing Officer for A.Y. 2011-12 as well.
27.3 The details of exact information received by the Assessing Officer are not being reproduced here due to the 'confidentiality clause' in the DTAA. However, it is seen from the reference made to FT & TR that the following information was requested from Mauritius through FT & TR:
With respect to M/s Rainbow Ventures Ltd. & its transactions with M/s. Prasanna Purple Mobility Solutions Pvt. Ltd.
1. Whether M/s Rainbow Ventures Ltd. is assessed to tax in Mauritius. If yes, then its Tax Identification Number, address, Nature of business carried out.
2. Copy of financial statements of M/s Rainbow Ventures Ltd.
including its audited balance sheet, profit and loss account for F.Y. 2009-10 to F.Y. 2011-12.
3. Copy of the registration or incorporation documents of M/s Rainbow Ventures Ltd. filed with competent authority.
4. Copy of return of income filed by M/s Rainbow Ventures Ltd. F.Y. 2009-10 to F.Y. 2011-12.
5. Details of shareholders of M/s Rainbow Ventures Ltd. since inception of the company i.e. from F.Y. 2009-10 to 2011-12 (01.04.2009 to 31.03.2012)
6. Copy of documents relating to introduction of capital by the shareholders of M/s Rainbow Ventures Ltd. in the company.
7. The source of funds of M/s Rainbow Ventures Ltd. for investment in the M/s. Prasanna Purple Mobility Solutions Pvt. Ltd. including a copy of bank a/c extract of M/s Rainbow Ventures Ltd for 01.04.2009 to 31.03.2012.
8. Copy of documents submitted by M/s Rainbow Ventures Ltd. with regulatory agency regarding transactions with company M/s. Prasanna Purple Mobility Solutions Pvt. Ltd.
9. Is it mandatory for a Mauritius entity investing in Indian entity should take permission/approval with regulatory agency in Mauritius. If yes, please submit such approval copy.
10. Name and address of directors of M/s. Rainbow Ventures Ltd.
47 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited 27.4 The above clearly indicates that the Assessing Officer while making request to the tax authorities of Mauritius (through FT & TR Division of CBDT) requested documents for the period 01/04/2009 to 31/03/2012. It is also seen from the assessment records for AY 2012-13 that the Assessing Officer has subsequently confirmed to the FT & TR division of CBDT that he has received full information. Therefore, the observations of Assessing Officer in the remand report that the information/documents received during the re-assessment proceedings of A.Y. 2012-13 has no application for A.Y. 2011-12 cannot be accepted. It is also seen from the assessment records for A.Y. 2012-13 that one of the issues on which case was reopened u/s 147 of the Act was receipt of funds amounting to Rs. 5,87,37,306/- from M/s Rainbow Ventures Ltd., Mauritius on account of issuance of 0.1% CCPS having a par value of Rs. 10/- each at a premium of Rs. 1,584/- per share 27.5 The appellant has further claimed that the reassessment proceedings u/s 147 of the Act for A.Y. 2012-13 were completed after the completion of reassessment proceedings for A.Y. 2011-12. It has also been claimed by the appellant that while completing the assessment u/s 143(3) r.w.s. 147 of the Act for A.Y. 2012-13, the Assessing Officer was fully aware of the additions made on account of receipts from M/s Rainbow Ventures Ltd. for A.Y. 2011-12 and after examining the information received from Mauritius Tax Authorities, the Assessing Officer was fully satisfied with the creditworthiness of M/s Rainbow Ventures as well as the genuineness of the transaction. A perusal of assessment folders for A.Y. 2011-12 and 2012-13 suggests that the reassessment proceedings for A.Y. 2012-13 were completed on 22/04/2021 which is after the assessment order u/s 143(3) r.w.s. 147 of the Act for A.Y. 2011-12 passed on 30/12/2018. Thus, this contention raised by the appellant is found correct from the assessment-records.
28. A perusal of the impugned assessment order suggests that as far as the investment made by M/s Rainbow Ventures Ltd., Mauritius the Assessing Officer made additions for following reasons:
i) The Rainbow Ventures Limited did not have any business other i) than holding investment in the appellant company. The company M/s Rainbow Ventures Limited is in loss since inception i.e. from 2009. Moreover, the financial statement of Rainbow Ventures suggests that the company invests in shares denominated in Indian Rupees.
ii) The source of investment with M/s Rainbow Ventures Limited is out of the share capital and the appellant did not submit the details of its shareholders and sources of funds with these shareholders who invested in shares of M/s Rainbow Ventures Limited. In other words, the appellant did not explain the source of source.48 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited
iii) A comparison of the financial statements of M/s Rainbow Ventures Limited for the period ending on December 2010 and December 2011 suggests that in just one-year, fair value of investment in the appellant company increased by USD 9,40,662. There was further introduction of capital in M/s Rainbow Venture Limited in subsequent year for further investment which shows that the funds are being introduced in M/s Rainbow Venture every year for making investment in the appellant company every year.
iv) There were differences in the valuation report regarding the valuation of shares submitted by the appellant and the said variation in two valuation reports dated 24/06/2010 and 21/11/2010 have not been properly explained by the appellant. The Assessing Officer has further mentioned that there is no basis on which the pricing of share issued to M/s Rainbow Ventures Limited was arrived at.
v) M/s Rainbow Ventures Limited did not derive any benefit from the investment in the assessee company.
vi) The assessee has failed to discharge its onus as mandated by sec. 68 of the Act.
vii) The Assessing officer has relied on the decision of Hon'ble Bombay High Court in the case of Major Metals Limited vs Uol 207 Taxmann.com 185.
29. Before dealing with the above observations of the Assessing Officer for which the amount of Rs. 24,14,59,120/- received from M/s Rainbow Ventures Limited, Mauritius was held as unexplained credit, it is important to discuss the legal position regarding the section 68 of the Act as held by various courts from time to time including the amended provisions of the Act.
29.1 As per settled law, for the purposes of section 68, the initial onus is on the assessee to establish by cogent evidence the identity of investor, the genuineness of the transaction, and creditworthiness of the investors. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, the initial onus of the assessee stands discharged. The said explanation of the assessee is then required to be examined by the Assessing Officer and in case of doubts, the Assessing Officer should conduct an inquiry in order to verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. If the inquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be considered as established.
29.2 The Appellant has submitted that by amending the section 68 of the Act (vide the Finance Act, 2012), an additional onus was casted on an assessee with respect to receipt of share application 49 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited money/share premium by a closely held company from a resident. The Explanatory Memorandum to Finance Bill 2012 states that it is an additional onus for the closely held companies to explain the source of funds in the hands of the resident shareholders. Further, it also stated that these provisions would not apply if the shareholder is a well-regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI). Relevant extract from the Explanatory Memorandum to Finance Bill, 2012 is reproduced here:-
".........
It is, therefore, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI). This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years..."
The Explanatory Memorandum refers the amendment as "an additional onus" which implies that there is no such additional onus of proving 'source of source on an assessee if the share capital/share premium is received from Non-Residents or Venture Capital Fund/Venture Capital Company registered with the Securities Exchange Board of India (SEBI).
29.3 In any case, the amended provisions of the Act are applicable for AY 2013-14 and subsequent assessment years.
30. Coming to the observations of the Assessing Officer for which addition u/s 68 was made for the amount received from M/s Rainbow Ventures Limited. The first observation of the Assessing Officer is that M/s Rainbow Ventures Limited does not have any business other than holding investment in the appellant company. Further, the company invests in shares denominated in Indian Rupees and the said company was in loss since inception. In this connection, it is seen from the information received through FT & TR Division that the Rainbow Ventures Limited is incorporated as a Category-1 Global Business License Company. The company is 100% owned by M/s APF-1 (Mauritius) Limited which is a closed end fund licensed by the Financial Service Commission, Mauritius. It has also been informed that the Rainbow Ventures Limited has been set-up as an investment holding company and will invest in sectors as per the Private Placement Memorandum of APF. M/s Rainbow 50 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Venture plans to hold investments for long term and strategy of the company is to generate revenue by way of capital appreciation. This information received through the tax authorities of Mauritius adequately clarify as to why M/s Rainbow Ventures Limited is in loss as per the balance sheet ended on 31/12/2010 and as to why the said company is not undertaking any activity other than holding investments. It is also noted from the balance sheet as on 31/12/2010 that the principal activity of the said company is to hold investment and earn revenue in the long term by investing primarily in unlisted companies. Considering the information provided by the tax authorities of Mauritius, I am of the opinion that no adverse view can be taken of the fact that M/s Rainbow Ventures Limited does not have any activity other than holding investment and is incurring losses because the ultimate objective of the company is to hold investment for long term and to earn revenue by way of capital appreciation.
31.1 The second observation of the Assessing Officer is that the appellant did not submit the details of shareholders of M/s Rainbow Ventures Limited and source of funds with these shareholders. In other words, the Assessing Officer has put an additional onus of explaining the source of source on the appellant. In this connection, it may be mentioned that even as per the amended provisions applicable w.e.f. 2013-14, the additional onus of explaining the source of source is not on the assessee, if the share capital/share premium is received from non-resident. Therefore, the Assessing Officer is legally not correct in putting this additional onus on the appellant.
31.2 In any case, while calling the information from tax authorities of Mauritius during the assessment proceedings for A.Y. 2012-13, the Assessing Officer requested the information about the source of funds with M/s Rainbow Ventures Limited for the period starting from 01/04/2009 to 31/03/2012. As per the information received, the source of funds of M/s Rainbow Ventures Limited are the funds received from its investors. The background of the promoter of M/s Rainbow Ventures Limited has also been received which suggests that M/s Rainbow Ventures Limited is 100% owned by M/s APF-1 (Mauritius) Limited which is a closed end fund duly licensed by Financial Service Commission of Mauritius and M/s Rainbow Venture Limited was set-up as investment holding company to invest the funds of APF. Since APF1 (Mauritius) Limited is an investment fund duly regulated by the Financial Service Commission of Mauritius, therefore, in the absence of any incriminating material on records, no adverse inference can be drawn regarding the source of investment. It will not be out of place to mention that after receiving this information, the Assessing Officer while completing the re- assessment proceedings for A.Y. 2012-13 did not take any adverse view regarding the funds received from M/s Rainbow Ventures Limited, Mauritius even though this reassessment for A.Y. 2012-13 was completed after the completion of reassessment for A.Υ. 2011-
12. 51 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited
32. The next observation of the Assessing Officer is that as per the balance sheet of M/s Rainbow Ventures Limited for the period ending on 31/12/2011, there was an increase of USD 940662 in the fair value of the investment in the appellant company. In this connection, it may be mentioned that this re-statement of investment made in the appellant company by M/s Rainbow Venture Limited in its financial statements should not be considered adversely as done by the Assessing Officer because this is not an important factor for the purpose of invocation of sec. 68 of the Act. The Assessing Officer has further mentioned that the said company i.e. M/s Rainbow Ventures Limited received investments in the subsequent year as well which was invested in the appellant company. In this connection, it may be stated that the investment made by M/s Rainbow Ventures Limited in subsequent assessment year i.e. A.Y. 2012-13 has been examined by the Assessing Officer and no adverse inference was drawn after making enquiries through FT & TR Division of CBDT. Therefore, in my opinion no adverse inference can be drawn out of these two observations of the Assessing Officer.
33.1 The Assessing Officer has further mentioned that there is no basis on which the pricing of shares issued to M/s Rainbow Ventures Limited was arrived at. Further, there was variation in two valuation reports submitted by the appellant on different dates. In this connection, it is seen that the shares to M/s Rainbow Ventures Limited were issued at the issue price of Rs. 1,594/-per share. The appellant has given the details of shares issued to various investors including the promoter namely Shri Prasanna Patwardhan. Shares were issued to promoter as well to both the investors during A.Y. 2010-11, 2011-12 and A.Y. 2012-13 and as per the table reproduced earlier in this order, the shares to all these three persons in all these three assessment years were issued at same price i.e. Rs. 1,594/- per share. Therefore, it is not a case where shares were issued to the promoter at a lower price and the shares were issued to the investors at a higher price. It is also noted that during A.Y. 2010-11, the amount of share capital including share premium received from Shri Prasanna Patwardhan (promoter of appellant company) was Rs. 22,16,29,200/-, therefore, it is not a case where only a token amount was received from the promoter. It is also noticed that while completing the assessment for A.Y. 2012-13, the Assessing Officer has not drawn any adverse inference regarding the valuation of shares and accepted the investment from Rainbow Ventures Mauritius which was made at the same price.
33.2 Regarding the observations of the Assessing Officer made on the valuation report, the appellant has clarified that the valuation report was obtained to comply with requirements of FEMA-FDI Regulations as per which a non-resident cannot invest in shares of an Indian Company at a value lower than the valuation determined by the valuer. The appellant has further submitted that in the valuation report dated 21/11/2010, reasons for change in earlier projected revenues are mentioned in para 4:3 of valuation report itself. Further, the appellant has submitted that the valuation is done by the valuer on the basis of Discounted Cash Flow (DCF) 52 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Method after considering the projected revenue and profits. The appellant has further contended that there are several instances in public domain itself where the companies are incurring substantial losses over the past few years but still the valuation of these companies is substantially higher. The appellant has further contended that it is a well settled legal position that the Assessing Officer cannot step into the shoes of investors to determine the commercial expediency of the investment and also that no addition u/s 68 of the Act can be made slowly for the reason that the shares were issued at a higher premium.
33.3 I have considered this issue. I find merit in the contentions of the appellant that making investment by a Private Equity (PE) investor or Venture Capital Fund (VCF) in the shares of an unlisted company, is a commercial decision and the Assessing Officer should not step into the shoes of the investor to judge the commercial expediency. I also find merit in the contention of the appellant that there are several instances in the public domain, where companies are incurring substantial losses but still the valuation of these companies is substantially higher because the PE/VCF investors invest in the shares of a company by considering the future potential. In the assessment order, the Assessing Officer has not brought out any significant defect in the valuation report and reasons for variation have been duly explained by the appellant. Also, it is seen that as per FDI Regulations, the non-resident cannot invest at a value lower than the FMV but there is no restriction of issuing share at a higher price. Further, as discussed above, the shares to both the investors as well as to the promoter were issued at the same price during A.Y. 2010-11, 2011-12 and 2012-13 and the valuation has been accepted by the Assessing Officer during A.Y. 2011-12 in the context of investment made by Shri Prasanna Patwardhan and during A.Y. 2012-13 in the context of investment made by Shri Prasanna Patwardhan as well as M/s Rainbow Ventures Limited. In my opinion, the Assessing Officer is not correct in making adverse inferences regarding the valuation of shares when issued to M/s Rainbow Ventures Limited and accepting the same value when the shares are issued to the promoter at the same price.
34. The Assessing Officer has further observed that M/s Rainbow Ventures Limited did not derive any benefit from the investment in the assessee company. I have considered this observation and I am of the opinion that as explained earlier, M/s Rainbow Ventures Limited has a business modelto hold the investments for a long-term period and to earn revenue by way of capital appreciation. Considering the business activity and business model of M/s Rainbow Ventures Limited, no adverse inference can be drawn from the observations of the Assessing Officer specially when nothing adverse is on record which could suggest that benefit was derived by other shareholders and such benefit was denied to M/s Rainbow Ventures Limited.
53 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited 35.1 The Assessing Officer has further observed that the appellant has failed to discharge its onus u/s 68 of the Act. In this connection, it may be mentioned that as per the appellant, it has submitted the following documents during the reassessment proceedings:
i) Copy of confirmation from Rainbow.
ii) Certificate of incorporation of Rainbow.
iii) Tax Residency Certificate of Rainbow issued by Mauritius Revenue Authority
iv) Copy of Indian Income Tax Return of Rainbow.
v) Copy of Audited Financial Statement and Independent Auditor Report of Rainbow for the year ended on 31/12/2011 and 31/12/2012.
vi) Copies of Foreign Inward Remittance Certificate (FIRC)
vii) Copy of bank statement of the appellant company reflecting the money received.
35.2 As discussed earlier in this order, the initial onus of proving the identity, genuineness of transaction and the creditworthiness is required to be discharged by the assessee and once the assessee files documents supporting these three ingredients, initial onus is considered to be discharged. A perusal of assessment order suggests that the Assessing Officer has put an additional onus on the appellant to prove the source of source which is not mandated in the case of a non-resident share holder. Thus, by filing the above documents, the appellant has discharged the initial onus.
35.3 Even otherwise, all the required documents are subsequently received from the tax authorities of Mauritius during the re- assessment proceedings for A.Y. 2012-13. As discussed earlier, the Assessing Officer while making reference to FT & TR Division requested the information for the period 01/04/2009 to 31/03/2012, therefore, the information with respect to investment made during A.Y. 2011-12 was also obtained and the said information is now on record of the Assessing Officer. The Assessing Officer himself has accepted the genuineness of funds received from Rainbow Ventures in A.Y. 2012-13 as well as creditworthiness of the said company during the re-assessment proceedings for A.Y. 2012-13. The similar information is now available for A.Y. 2011-12 as well which was not available with the Assessing Officer when completing the reassessment proceedings for Α.Υ. 2011-12.
35.4 Considering the totality of facts of the case, I am of the opinion that by filing the requisite documents during the assessment proceedings, the appellant has discharged its initial onus u/s 68 of the Act and in any case the information subsequently received during the re-assessment proceedings for A.Y. 2012-13 sufficiently 54 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited proves the genuineness of the funds received from M/s Rainbow Ventures Limited.
36. It is also noted from the submission made by the appellant vide letter dated 04/10/2022 that M/s Rainbow Ventures Limited is still holding shares in the appellant company. Therefore, it is not a case where shares to a shell company were issued at a higher premium and subsequently the shares were bought back by the promoters of the company at a lower price. Moreover, in the assessment order, the Assessing Officer has not pointed out any adverse report from any agency or investigation wing, etc. indicating that M/s Rainbow Ventures Limited is not a genuine company. Also, the Assessing Officer has accepted the investment from M/s Rainbow Ventures Limited as genuine during A.Y. 2012-13 as well as A.Y. 2014-15 in scrutiny assessments. The A.Y. 2011-12 i.e. the year under consideration is the only assessment year in which the Assessing Officer has not accepted the funds received from M/s Rainbow Ventures Limited as genuine.
37.1 It is seen that the Assessing Officer has relied on the decision of Hon. Bombay High Court in the case of Major Metals Ltd. vs UOI 207 Taxmann.com 185. During the appellate proceedings, the appellant has distinguished this case law from the facts of the present case and has stated that the decision of Hon Bombay High Court in the said case cannot be taken as a binding precedence since the scope of judicial review of the order passed by the Settlement Commission is different from normal appeal jurisdiction. In the said decision, the Hon. High Court relied on the factual finding of the Settlement Commission that the said transaction was not genuine. Moreover, in the said case, the shares were issued to two resident companies wherein in the present case the main investor is a non-resident. In this connection, it is mentioned that the said issue regarding the binding precedence of the decision of Hon. Bombay High Court in the case of Major Metals Limited (supra) has been discussed by Hon. ITAT, Mumbai bench in the case of DCIT vs Varsity Education Management (P.) Ltd. (2019) 105 taxmann.com 291 (Mumbai Tribunal) wherein following has been observed:
30. The Ld D.R contended that the decision rendered by the Hon'ble Bombay High Court in the case of Major Metals Ltd (supra) supports the view taken by the assessing officer and further the above said decision was not considered in the case of Green Infra Ltd (supra) and Gagandeep Infrastructure (P.) Ltd. (supra). On the contrary, the Ld A.R submitted that the decision has been rendered in the case of Major Metals Ltd.
(supra) against the orders passed by Settlement Commission. We notice that the Power of Hon'ble High Court against the orders passed by Settlement Commission is not appellate power, but restricted to:
i) grave procedural defects such as violation of mandatory procedural requirement of provisions in Chapter XIX-A and or violation of rules of natural justice;55 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited
ii) absence of nexus between reasons given and decision taken by Settlement Commission.
It was so held by Hon'ble Kamanata High Court in the case of N. Krishnan v. Settlement Commission [1989] 47 Taxman 294/180 ITR
585. The Hon'ble Karnataka High Court further held that an error of fact or of law alleged to have been committed by Settlement Commission cannot be looked into by High Court. The following observations made by Hon'ble Bombay High Court in the case of Major Metals Ltd. (supra) also support the above said view:-
"19. The next aspect of the order of the Settlement Commission which needs to be looked into relates to the computation of the additional income of Rs.6.18 crores in the hands of the assessee, Before we deal with the merits of the challenge, it must be noted at the outset that the extent of judicial review in a determination made by the Settlement Commission must fall with the parameters settled by decided cases. In Jyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611/68 Taxman 59 (SC) the Supreme Court emphasised that the only ground upon which an order passed by the Settlement Commission can be interfered with is that the order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant. This would be apart from grounds of bias, fraud or malice which would constitute a separate category. The Supreme Court held as follows:
"16. ... The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant. Apart from ground of bias, fraud and malice which, of course, constitute a separate and independent category. Reference in this behalf may be had to the decision of this Court in Sri Ram Durga Prasad v. Settlement Commission, 176 ITR 169: (AIR 1989 SC 1038), which too was an appeal against the orders of the Settlement Commission. Sabyasachi Mukharji, J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is "concerned with the legality of procedure followed and not with the validity of the order. The learned Judge added "judicial review is concerned not with the decision but with the decision-making process." Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans [1982] 1 WLR 1155. Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which this Court can interfere in these appeals is that order of 56 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant..."
20. The same principle has since been reiterated in a more recent judgment rendered in relation to the powers of the Settlement Commission constituted under the Central Excise Act in Union of India v. Ind-Swift Laboratories Ltd. (2011) 4 SCC 635 by the Supreme Court:
"22. An order passed by the Settlement Commission could be interfered with only if the said order is found to be contrary to any provisions the Act. So far as the findings of fact recorded by the Commission or question of facts are concerned, the same is not open for examination either by the High Court or by the Supreme Court..."
21. In an earlier judgment of a Division Bench of the Karnataka High Court in N. Krishnan v. Settlement Commission [1989] 47 Taxman 294/(Kar.) it was held that a decision of the Settlement Commission may be interfered with only, (i) if there is a grave procedural defect such as a violation of the mandatory procedural requirements of the provisions of Chapter XIX-A and/or violation of the principle of natural justice; and (ii) there is no nexus between the reasons given and the decision taken by the Settlement Commission. In other words, the Court under-Article 226 would not interfere with an error of fact alleged to have been committed by the Settlement Commission.' Against the background of above said legal position, the Hon'ble Bombay High Court examined the decision rendered by the Settlement Commission in the case of Major Metals Ltd (supra). The Hon'ble Bombay High Court noticed that the Settlement Commission has given atleast 14 reasons for taking the view that the genuineness of the transactions was not proved by the assessee. In this regard, the Hon'ble Bombay High Court observed as under:-
"23. Now, it is in this background that the Settlement Commission has arrived at a considered finding of fact that the transactions of the two companies were not genuine transactions; that the two companies lacked a credit standing which would have enabled them to pay large amounts towards share premium of Rs.990/- on a face value of Rs. 10/- per share and that neither the past performance or the financials of the petitioner itself would justify the payment of such a large premium. The Settlement Commission has relied upon the law laid down by the Supreme Court in Sumati Dayal v. CIT in applying the test of human probabilities."
Since the Settlement Commission has given its decision on finding of facts, the Hon'ble Bombay High Court did not interfere with the decision rendered by the Settlement Commission. The Hon'ble Bombay High Court itself has explained this legal position in the case of Apeak Infotech (supra) as under:-
57 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited "(d) We may also point out that decision of this Court in Major Metals Ltd v. Union of India (2013)(359 ITR 450) (Bom) proceeded on its own facts to uphold invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the assessee-company were not creditworthy inasmuch as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000 at premium of Rs.990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by this Court in its writ-jurisdiction.
In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the authorities that shareholder/share applicants were unidentifiable or bogus."
In the above said case also, the AO assessed the amount received by the assessee as share capital/share premium as income of the assessee under sec.28(iv) of the Act, which was inserted with effect from 1,4.2013. The revenue relied upon the decision rendered by Hon'ble Bombay High Court in the case of Major Metals Ltd (supra), which was rejected by the Hon'ble High Court
31. From the foregoing discussions, we can notice that the decision rendered by Hon'ble Bombay High Court in the case of Major Metals Ltd (supra) cannot be taken as a binding precedence, since the scope of judicial review of the order passed by the Settlement Commission is different from normal appeal jurisdiction. Further the Hon'ble Bombay High Court has noticed that the Settlement Commission has arrived its decision on the basis of facts prevailing therein, viz., the genuineness of transactions and the capacity of the investors were not proved. Even though the Settlement Commission has also observed that the past performance of the company did not justify payment of large premium, the said observations were made only to support the main observations. In any case, it has now been held that the share application/share capital/share premium collections have to be examined under the parameters of sec. 68 of the Act.
37.2 It is also seen that while delivering the above decision, the Hon'ble ITAT referred to various judgements such as Green Infra Ltd. vs ITO (2013) 38.taxmann.com 253 (ITAT Mumbai), CIT vs Green Infra Ltd (2017) 78 taxmann.com 340 (Bombay), CIT vs Gagandeep Infrastructure (P) Ltd (2017) 80 taxmann.com 272 (Bombay HC), PCIT vs Apeak Infotech (2017) 88 taxmann.com 695 (Bombay), etc., and held that the decision in the case of Major Metal (supra) cannot be taken as binding precedence. It was further held that merely the shares are issued at a higher premium cannot be the sole reason for invoking the provisions of sec. 68 of the Act and the applicability of sec. 68 has to be examined under the parameters of that section.
58 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited 37.3 Moreover, the Assessing Officer for the year under consideration has accepted the valuation of share issued to Shri Prasanna Patwardhan i.e. @ Rs. 1,594/- per share. Also, during A.Y. 2012-13 the Assessing Officer has accepted the genuineness of funds received from M/s Rainbow Ventures Limited wherein the shares were issued at the same price as of A.Y. 2011-12. In view of the facts of the case wherein the other ingredients such as identity of investor, creditworthiness of investor and the genuineness of transaction are established, no addition u/s 68 can be made merely for the reason that shares were issued at high premium.
38. A perusal of the assessment order suggest that the Assessing Officer has mentioned that M/s Rainbow Ventures Limited was specifically formed so as to divert the unaccounted income of the assessee by way of share premium. However, no material evidence or reasons for reaching to this conclusion have been mentioned in the assessment order. A bare reading of the assessment order suggests that the addition was made by the Assessing Officer on suspicion without bringing any material evidence on record. It is a well settled legal position that no addition can be made merely on the basis of suspicion of the Assessing Officer, however, strong it may be. Moreover, the information received subsequently from Mauritius Tax Authorities during the reassessment proceedings of A.Y. 2012-13 suggests that the suspicion of the Assessing Officer was unfounded and after receiving the information, no addition was made during A.Y. 2012-13 by the Assessing Officer himself for the similar transaction.
39. Considering the above discussion and totality of facts, I am of the opinion that the identity as well as creditworthiness of M/s Rainbow Venture Limited as well as the genuineness of the transaction stands established. The addition of Rs. 24,14,59,120/- made by the Assessing Officer on account of funds received from M/s Rainbow Venture Limited is, therefore, directed to be deleted.
Investment from Ambit Pragma Fund
40. During the year under consideration the assessee company has received an amount of Rs. 5,85,41,244/- from M/s Ambit Pragma Fund Scheme-1. The Assessing Officer has held the said investment as unexplained and made an addition of Rs. 5,85,41,244/- by observing as under:-
5.3 Investment from Ambit Pragma Fund:
During the year 36,726 shares were issued to Ambit Pragma Fund Scheme at the same premium of Rs. 1584 per share for total amount of Rs. 5,85,41,244/-. The fund is contributory trust organized under Indian Trust Act. IL&FS Trust Company is the trustee of the fund. This fund was also running into losses in AY 2011-12. Moreover, the fund has not received any benefit from this investment. It is seen that there are serious financial crisis in the IL&FS group. The Government 59 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited has ordered investigation by Serious Fraud Investigation Officer (SFIO) into the affairs of the IL&FS in October 2018. The Ministry of Corporate Affairs (MCA), in its submission before the National Company Law Tribunal (NCLT), has revealed details of its finding on several instances of misreporting of income, dubious transactions, conflict of interest, ever-greening of loans and rampant personal enrichment of key employees in IL&FS group. Considering that the fact that the fund has invested in loss making company at such a high premium without even proper valuation done and has received no benefit from it, indicates that the transactions are not genuine.
5.4 Assessee has contended that the funds are received through banking channel and therefore the same should be considered genuine. However, the same is not acceptable. It is held by various judicial decisions that merely receiving funds through banking channel is not sufficient to prove the genuineness of the transactions. Due to various discrepancies pointed out above the transactions of receiving share capital from Rainbow Ventures and Ambit Pragma Fund are held to be not genuine.
41. During the appellate proceedings, the appellant has submitted that it is a well settled law that when a question arises as to whether cash credits appearing in the books of accounts of an assessee have to be accepted or rejected for the purpose of sec. 68 of the Act, the assessee is required to establish the identity of the creditor, creditworthiness of the creditor and genuineness of the transaction. It has been submitted that during the assessment proceedings, following documents were filed in order to discharge its onus as required u/s 68 of the Act:
i) Copy of Confirmation from Ambit Pragma.
ii) Copy of Registration Certificate issued by SEBI as a venture capital fund.
iii) Copy of audited financial statements and independent auditors report of Ambit Pragma for the year ended on 31/03/2011.
iv) Copy of bank statement of the company.
v) Copy of Income Tax Return of Ambit Pragma for A.Y. 2011-
12.
42. The appellant has further submitted that the identity of the investor namely Ambit Pragma Fund Scheme-1 is established as it is a SEBI Regulated Venture Capital Fund registered on 10/07/2008 with SEBI. The appellant has further submitted that the funds were received through Banking Channels which has not been disputed by the Assessing Officer. Further, the audited financial statement of 60 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Ambit Pragma Fund clearly establishes the creditworthiness of the said investor. The appellant claims that no addition u/s 68 of the Act can be made merely for the reason that shares are issued at a high premium as held in the case of PCIT vs M/s Chain House International (P) Ltd. 103Taxmann.com 435 (SC), CIT vs Anshika Consultants Pvt. Ltd. 62 Taxmann.com 192 (Delhi HC) and Green Infra Ltd. vs ITO 38 Taxmann.com 253 (Mumbai Tribunal). The appellant has further argued that the investor namely Ambit Pragma Fund Scheme-1 is a venture capital fund and therefore, there is no additional onus on the appellant to prove the source of source even after the amendment brought in sec. 68 of the Act vide Finance Bill, 2012.
Findings
43. I have considered the facts of the case and the submissions made by the appellant. A perusal of the assessment order suggests that the Assessing Officer has not doubted the identity of Ambit Pragma Fund Scheme-1. The Assessing Officer has observed that the said investor is a contributory fund organized under Indian Trust Act. The Assessing Officer has also not raised any doubt regarding the capacity of said investor to invest Rs. 5,85,41,244/- in the appellant company. Similarly, the assessing officer has not doubted that the funds are received through banking channels. The Assessing Officer has however made following observations:
i) M/s IL & FS trust company is the trustee of the investor fund. There is serious financial crisis in the IL & FS group and investigations by SFIO was ordered by the government. Thus, there are financial irregularities in IL & FS group.
ii) The fund has not received any benefit from the investments made in the assessee company ⅲ) That the investment was made in a loss-making company at a huge premium and non-receipt of any benefit from this investment indicates that the transaction is not genuine.
44. In this regard it is seen that Ambit Pragma Fund Scheme-1 is a SEBI Registered Venture Capital Fund. The appellant has filed a copy of the registration certificate dated 10/07/2008 issued by SEBI before the Assessing Officer. Further, the investment made by Ambit Pragma Fund Scheme-1 in the appellant company is duly reflected in its balance sheet. As per the balance sheet, the source of investment, is from contributions made by the investors in the fund. The complete background of the VCF has been given in the audited financial statement of Ambit Pragma Fund Scheme-1 which reads as under:
Ambit Pragma Fund ("the Fund") is a contributory trust (contribution being in the nature of revocable transfer) organized under the Indian Trust Act, 1882 by way of a trust 61 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited deed dated December 27, 2007. The Fund has been registered with the Securities and Exchange Board of India ("SEBI") as a venture capital fund under the SEBI (Venture capital fund) regulations, 1996 vide approval dated July 7, 2008. IL&FS Trust Company Limited ("Trustee") is the Trustee of the Fund.
Ambit Pragma Fund Scheme I (the Scheme') has been floated by the Fund, the initial closing of which was announced on June 16, 2008 and final closing announced on September 15, 2009. The Scheme has issued Class A units of face value of Rs.1000 each to the contributors of the Scheme. The aggregate commitment from Class A unit holders is Rs. 570 million. Besides above, Contribution agreement with Class B holders has been signed on 30 March 2011 with an aggregate commitment of Rs. 2 million.
Ambit Pragma Ventures Private Limited is appointed as the Investment manager of the Scheme by the investment management agreement signed between trustee and the Investment Manager.
The Scheme's investment objective is to invest in companies that: (a) are domiciled in India. (b) have a substantial portion of their assets in India, or (c) receive a substantial portion of their revenues from operations located in India, or (d) otherwise have a substantial portion of their activities and operations based in India. The investment strategy of the Scheme is focussed primarily on expansion stage financing and mid-size buyouts. The Scheme may also invest in listed equity securities (including by way of Private Investment in Public Equity transactions) subject to a maximum of 15% of aggregate capital commitments. All investments made by the Scheme shall be subject to restrictions and limits specified under VCF Regulations (to the extent applicable) The Scheme has a term of eight years from the date of the final closing. However, the term of the Scheme may be extended in accordance with the terms of the contribution agreement.
45.1 The above clearly suggests that the investor namely Ambit Pragma Fund Scheme-1 is a contributory fund duly registered and regulated by SEBI. In this regard, a reference can be made to the Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996 ('SEBI VCF Regulations') under which Ambit Pragma Fund is registered as a Venture Capital Fund ('VCF'). The term 'venture capital fund' has been defined in Regulation 2(m) of the SEBI VCF Regulations to mean "a fund established in form of a trust or a company which-
(i) has a dedicated pool of capital;
(ii) raised in a manner specified in the regulations; and 62 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited
(iii) invests in accordance with the regulations."
Thus, a VCF can raise funds only in a specified manner and must invest these funds as per regulations prescribed. In other words, a VCF is a well-regulated entity.
45.2 It is an undisputed fact that Ambit Pragma Fund has been established in the form of a trust and M/s. IL&FS Trust Company Limited has been appointed as the Trustee of the fund. The status of M/s IL&FS Trust Company Limited has been clearly defined in the Share Subscription and Shareholders Agreement dated 02/09/2009 vide which the investment was made in the appellant company. The Clause 38.1 of the said agreement reads as under:-
38.1 The Promoter and the Company each agree and acknowledge that Investor 2 is executing this agreement for and on behalf of Ambit Pragma Fund Scheme-1 ("Fund") and is the sole trustee of the fund. Parties acknowledge that the amounts paid by the Investor 2 to subscribe to the shares or other instruments by Investor 2 or any further amounts payable by the Investor 2 will be paid from the Fund, and any amount payable under or pursuant to or in relation to the shares held by the Investor 2 for and on behalf of the fund shall be paid in the name of fund only. Any shares or other security or instrument that shall be issued by the company under or pursuant to this agreement shall be issued in the name of "IL&FS" Trust Company Limited, Account. Ambit Pragma Fund Scheme-1, as the sole trustee and representative of the fund. Further, any amounts payable to the Investor 2 under or pursuant to this agreement shall be in the name of the fund only.
The above clause clearly suggests that M/s IL & FS Trust Company Limited is acting only as trustee of the investor fund and the investment shall be made by Ambit Pragma Fund Scheme -1 only. Thus, M/s IL&FS Trust Company Limited is merely acting as a service provider, who is providing trusteeship services to Ambit Pragma Fund Scheme -1.
45.3 A further reference can be made to Regulation 11 of the SEBI VCF Regulations, which allows a VCF to raise funds from an investor, whether resident or non-resident by way of issue of units. Thus, the concept of 'Trustee' is very different from that of an investor' in context of a VCF. A Trustee is a person who is responsible for managing the affairs of trust, mainly ensuring that the affairs of the Trust are not carried out in a way that is detrimental to the interests of the investors. On the other hand, an 'investor' is a person who makes investment of monies into the VCF in consideration for allotment of units. In other words, the structure of a VCF can be described as under :
63 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited INVESTORS Trustee Investment Management Venture Capital Fund Investment Investee Entities 45.4 In the assessment order, the Assessing Officer has made a general observation that there were irregularities in IL&FS group but the Assessing Officer has not brought anything on records the exact irregularities in the affairs of IL & FS Trust Company Limited as such. Further, the Assessing Officer has not discussed anything as to how the irregularities in IL&FS group lead to a conclusion that the funds invested by M/s Ambit Pragma Fund Scheme-1 are not genuine. It appears that the AO has failed to understand the VCF structure and incorrectly proceeded to conclude that IL&FS Trust Company Limited has made an investment in the appellant which is highly misplaced. It can be observed that the investment has been actually made by Ambit Pragma Limited, a SEBI registered VCF, which has in turn raised investments from various investors. Thus, in the facts of the present case, while examining the applicability of sec. 68 of the Act, no adverse inference can be drawn from the observations of the Assessing Officer regarding the irregularities committed by the management of IL&FS group.
46. The Assessing Officer has further raised an issue that Ambit Pragma Fund has not received any benefit from the said investment.
I have considered this observation and I am of the opinion that any venture capital fund normally holds the investments for a long-term period and to earn revenue by way of capital appreciation. A perusal of the balance sheet of Ambit Pragma Fund Scheme-1 suggests that the investment made by the said VCF in the appellant company is a long-term investment. Considering the business activity and business model of M/s Ambit Pragma Fund Scheme-1, no adverse inference can be drawn from the observations of the Assessing Officer especially when nothing adverse is on record which could suggest that benefit was derived by other shareholders and such benefit was denied to M/s Rainbow Ventures Limited.
64 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
47. Another observation of the Assessing Officer is that the fund has invested in a loss-making company at a high premium without proper valuation. I have considered this observation of the Assessing Officer. It is seen that in the present case, the investment in the appellant company has been made by the fund in pursuance to the Share Subscription and Shareholders Agreement dated 02/09/2009. It is seen that stamp duty amounting to Rs. 12,43,100/- has also been paid on this SSHSA dated 02/09/2009. The said agreement is between promoters and Rainbow Ventures Limited and the Ambit Pragma Fund Scheme-1 through its trustee. This agreement is a comprehensive agreement wherein all terms and conditions of the investment have been stipulated. The premium on which shares are required to be issued to both the investors as well as to the promoter is also specified in this agreement and the shares are issued to promoter as well as to the investors on the same premium. As discussed earlier in this order, no addition u/s 68 can be made solely for the reasons that the shares are issued at a high premium if the assessee discharges its burden by proving the three essential ingredients i.e. identity of the subscriber, capacity of the subscriber and the genuineness of the transaction.
48. In the present case, there is no doubt regarding the identity of the investor M/s Ambit Pragma Fund Scheme-1. Furthermore, the Assessing Officer has not raised any doubt regarding the creditworthiness of the investor. The financial statement of the investor for F.Y. 2011-12 clearly suggests that M/s Ambit Pragma Fund Scheme-1has commitment of investments from various investors with an aggregate amount of Rs. 57,00,00,000/-. By the end of the FY 2010-11, the VCF had raised an amount of Rs. 30.95 Crores which was invested in appellant company along with two other companies namely M/s Spear Logistics Pvt. Limited and M/s Beams Hospitals Pvt. Limited. Thus, the investor fund has the capacity to make investment in the appellant company. It is also not under dispute that the investment in the appellant company was made through banking channels. Therefore, the appellant has discharged its primary onus of establishing three essential ingredients as required u/s 68 of the Act. It is a well settled law that while rejecting the explanation of the assessee, the Assessing Officer should not act unreasonably and in case of any doubts, he should bring material evidence on records to disprove the explanation of the assessee. In the present case, no such material evidence has been brought on record. It is well settled legal position that no addition u/s 68 can be made on mere suspicion, however strong it may be. It may also be mentioned that the additional onus of explaining the source of source (as per first proviso 1 to sec. 68) shall not be applicable in the present case in view of second proviso to sec. 68 as the investor is a venture capital fund duly regulated by SEBI. Considering the totality of facts of the case, I am of the opinion that in the present case the assessee has proved the identity and creditworthiness of M/s Ambit Pragma Fund Scheme-1 as well as genuineness of transactions in terms of sec. 68 of the Act. Accordingly, the addition of Rs.5,85,41,244/- made by the Assessing Officer is directed to be deleted.
65 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
49. In view of above discussion, the addition of Rs.30,00,00,364/- made by the Assessing Officer is directed to be deleted. The ground no. 3 raised by the appellant is ALLOWED. UME TAX DEPARTME
50. The ground no. 4 and 5 are regarding the charging of interest u/s 234B and 234D of the Act and issuing of demand notice u/s 156 of the Act. These grounds are consequential to ground no. 2 and the Assessing Officer is directed to re-compute the tax payable by the appellant. The ground no. 4 and 5 are PARTLY ALLOWED."
23. Now on going through the above detailed finding of ld.CIT(A) and before moving on to examine the facts narrated by both the sides before this Tribunal, we would first like to go through the provisions of section 68 of the Act, section 56(2)(viib) of the Act and the judicial precedents relating to section 68 of the Act pertaining to the assessment years prior to the amendment brought in section 68 of the Act effective from A.Y. 2013-14 and the same are reproduced below:-
"Section 68 - Cash credits.
68. "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:
[Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,-
(a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that] 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 66 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited explanation offered by such assessee-company shall be deemed to be not satisfactory, unless-
(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided also] that nothing contained in the first proviso "[or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] Note :
40. See also Circular No. 5, dated 20-2-1969 (Moneys brought into India by non-
residents), Letter [F.No. 222/7/70-IT(A-I)], dated 5-8-1971 (Remittances by bona fide migrants from Ceylon) and Letter [F. No. 286/98/2013-IT(Inv. II)], dated 18-12-2014 [Admission of undisclosed income under coercion/pressure during search/survey). For details, see Taxmann's Master Guide to Income-tax Act.
41. For relevant case laws, see Taxmann's Master Guide to Income-tax Act.
42. For the meaning of the terms/expressions "any sum is found credited in the books", "books", "assessee offers no explanation" and "may", see Taxmann's Direct Taxes Manual, Vol. 3.
43. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1- 4-1988.
44. Inserted by the Finance Act, 2012, w.e.f. 1-4-2013.
45. Substituted for "Provided that" by the Finance Act, 2022, w.e.f. 1-4-2023.
(viib) where a company, not being a company in which the public are substantially interested, receives", in any previous year, from any person [***], any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:
Provided that this clause shall not apply where the consideration for issue of shares is received-
(1) by a venture capital undertaking from a venture capital company or a venture capital fund "for a specified fund]; or
(ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf:
[Provided further that where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (ii) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the fair market value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place and, it shall also be deemed that the company has under reported the said 67 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited income in consequence of the misreporting referred to in sub-section (8) and sub-section (9) of section 270A for the said previous year.] 39 [Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.] Explanation. For the purposes of this clause,-
(a) the fair market value of the shares shall be the value-
(1) as may be determined in accordance with such method as may be prescribed; or
(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;
[(aa) "specified fund" means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) [or regulated under the "[Inter- national Financial Services Centre Authority (Fund Management) Regulations, 2022 made under the] International Financial Services Centres Authority Act, 2019 (50 of 2019)];
(ab) "trust" means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force;]
(b) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of "[Explanation] to clause (23FB) of section 10;] Note :
33. Inserted by the Finance Act, 2012, w.e.f. 1-4-2013.
34. For the meaning of the term "receives", see Taxmann's Direct Taxes Manual, Vol. 3.
35. Words "being a resident omitted by the Finance Act, 2023, w.e.f. 1-4-2024,
36. Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-4-2020,
37. For notified classes of persons, see Taxmann's Master Guide to Income-tax Act. See also Letter [F.No. 173/14/2018-ITA.I], dated 6-2-2018 [Determination of fair market value of unquoted equity shares of 'start up' companies under section 56(2) (viib) read with rule 11UA(2)) and Circular No. 16/2019, dated 7-8-2019/Letter F. No. 173/354/2019-ITA-I, dated 9-8-2019/Circular No. 22/2019, dated 30-8-2019 and Letter F.No. 173/149/2019/ITA-I, dated 10-10-2023 (Assessment of start-ups). For details, see Taxmann's Master Guide to Income-tax Act.
38. Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-4-2020,
39. Inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025, 68 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited
24. Going through the above provision, we note that if any sum is found credited in the books of account, the assessee is required to explain the nature and source of such sum to the satisfaction of the ld. AO. We note that the Hon'ble Supreme Court in the landmark judgment of Kale Khan Mohammad Hanif Vs. Commissioner Of Income-Tax dated 8th February, 1963 reported in [1963] 50 ITR 1(SC) and Roshan-Di-Hatti vs CIT (1977) 107 ITR 938 (SC) laying down the proposition that the onus of proving the source of a sum of money found to have been received by an assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the AO must conduct an inquiry, and call for more details before invoking Section 68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. Thereafter the Hon'ble Supreme court summed up the principles, which emerged after deliberating upon various case laws, as under:
"11. The principles which emerge where sums of money are credited as Share Capital/Premium are:
i. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.
ii. The Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders.69 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 of the Act."
25(a). We note that in the case of CIT vs. Divine Leasing & Finance Ltd. (2008) 299 ITR 268 (Del) it is held as under:
"A distillation of the precedents yields the following propositions of law in the context of section 68. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber; (4) if relevant details of the address or PAN identity of the creditor/subscriber 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 acceptable explanation by the assessee. Further, (1) the department would not be justified in drawing an adverse inference only because the creditor/subscriber fails or neglects to respond to its notices; (2) the onus would not stand discharged if the creditor/subscriber denies or repudiates the transaction set up by the assessee nor should the Assessing Officer take such repudiation at face value and construe it, without more evidence against the assessee; (3) the Assessing Officer is duty- bound to investigate the creditworthiness of the creditor/subscriber, the genuineness of the transaction and the veracity of the repudiation."
Further this decision of the Hon'ble Delhi High Court was approved by the Hon'ble Supreme Court in CIT vs. Lovely Exports Ltd. (2008) 216 CTR 195 (SC) observing that if share application money is received by an assessee from subscribers, whose names are given to the AO, are allegedly bogus, then the Revenue is free to proceed to reopen their individual assessments in accordance with law. It was held that: -
"2. Can the amount of share money be regarded as undisclosed income under section 68 of IT Act, 1961? We find no merit in this Special Leave Petition 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 70 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Department is free to proceed to reopen their individual assessments in accordance with law."
25(b). In the case of DCIT vs. Global Mercantiles (P.) Ltd. [2016] 67 taxmann.com 166/157 ITD 924, it was held as follows: -
"3.4. We have heard the rival submissions and perused the materials available on record including the detailed paper book filed by the assessee. The facts stated hereinabove remain undisputed are not reiterated herein for the sake of brevity. We find that the assessee had given the complete details about the share applicants clearly establishing their identity, creditworthiness and genuineness of transaction proved beyond doubt and had duly discharged its onus in full. Nothing prevented the Learned AO to make enquiries from the assessing officers of the concerned share applicants for which every details were very much made available to him by the assessee. We find that the reliance placed by the Learned Ld. CIT(1) on the decision of the Hon'ble Apex Court in the case of CIT v. Lovely Exports (P) Ud reported in (2008) 216 CTR 195 (SC) is very well founded, wherein, it has been very clearly held that the only obligation of the company receiving the share application money is to prove the existence of the shareholders and for which the assessee had discharged the onus of proving their existence and also the source of share application money received.
3.4.1. We also find that the impugned issue is also covered by the decision of Hon'ble Calcutta High Court in the case of CIT v. Roseberry Mercantile (P) Ltd in GA No. 3296 of 2010 ITAT No. 241 of 2010 dated 10.1.2011, wherein the questions raised before their lordships and decision rendered thereon is as under:-
"On the facts and in the circumstances of the case, Ld. CIT(A) ought to have upheld the assessment order as the transaction entered into by the assessee was a scheme for laundering black money into white money or accounted money and the Ld. CIT(A) ought to have held that the assessee had not established the genuineness of the transaction. "
After hearing the learned counsel for the assessee and after going through the decision of the Supreme Court in the cases of CIT v. M/s Lovely Exports Pvt Ltd, we are at one with the tribunal below that the point involved in this appeal is covered by the said Supreme Court decision in favour of the assessee and thus, no substantial question of law is involved in this appeal. The appeal is devoid of any substance and is dismissed.
71 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited In view of the aforesaid findings and respectfully following the decision of the apex court (supra) and Jurisdictional High Court (supra) , we find no infirmity in the order of the Learned CIT(A) and accordingly, the ground no.2 raised by the Revenue is dismissed."
25(c). In the case of ITO vs. Cygnus Developers (I) (P.) Ltd. [IT Appeal No. 282 (Kol) of 2012, dated 2-3-2016], it was held as follows:-
"6. On appeal by the assessee the CIT(A) deleted the addition made by the AO observing as follows : -
(6) I have considered the submission of the appellant and perused the assessment order. I have also gone through the details and documents filed by the appellant company in the course of assessment: proceedings vide letter dt. 3-10-2007. On careful consideration of the facts and in law I am of the opinion that the AO was not justified in making, the addition aggregating to Rs.54,00,000/- u/s.68 of the Act being the amount of share application money by holding that the appellant company has failed to prove the identity, and creditworthiness of The creditors as well as the genuineness of transactions. It is observed that all the three share applicant companies i.e. M/s. Shree Shyam Trexim Pvt. Ltd., M/s Navalco Commodities Pvt. Ltd. and M/s. Jewellock Trexim Pvt.
Ltd. had filed their confirmations wherein each of them confirmed that they had applied for shares of the appellant - company. All the three companies provided- the cheque number, copy of bank statements and their PAN. It is observed that these companies also filed, copies of their return of income and financial statements for as well as copy of their assessment order u/s. 143(3) of the I. T Act for AY 2005-06. In the case of M/s. Jewellock Trexim Pvt. Ltd. the assessment for AY 2005-06 was completed by the ITO Ward 9(3), Kolkata and the assessments in the case of M/s. Navalco Commodities Pvt. Ltd. and M/s. Shree Shyam Trexim Pvt. Ltd. for A. Y.2005-06 and AY.2004-05 respectively were completed by the I TO, Ward 9(4), Kolkata. Under the circumstances, I am of the opinion that the AO was not justified in holding that the share applicant companies were not in existence. The assessment orders were completed on the address as provided by the appellant company in the course of assessment proceedings. It is not known as to how the AO's inspector had reported that the aforesaid companies were not in existence at the given address. Since the appellant company had provided sufficient documentary evidences in support of its claim of receipt of share application money, I am of the opinion that the no addition u/s.68 could be made in the hands of appellant company. On going through the various judicial pronouncements relied upon by the appellant, it is observed that the view taken as above is also supported by them. In view of above the AO is directed to delete the addition of Rs.54,00,000/-. The ground Nos. 2 and 3 are allowed.
72 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
7. Aggrieved by the order of CIT{A) the Revenue is in appeal before the Tribunal.
8. We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A) and further drew our attention to the decision of Hon'ble Allahabad High Court in the case of CIT v. RajKumar Agarwal vide ITA No. 179/2008, dated 17. 11.2009 wherein the Hon'ble Allahabad High Court took a view that non production of the director of a Public Limited company which is regularly assessed to Income tax having PAN, on the ground that the identity of the investor is not proved cannot be sustained. Attention was also to the similar ruling of the ITAT Kolkata bench in the case of ITO v. Devinder Singh Shant in ITA No.20BIKo112009 vide order dated 17.04.2009.
9. We have considered the rival submissions. We are of the view that order of CIT(A) does not call for any interference. It may be seen from the grounds of appeal raised by the Revenue that the Revenue disputed only the proof of identity of the shareholder. In this regard it is seen that for A Y.2004-05 Shree Shyam Trexim Pvt. Ltd., was assessed by ITO, Ward- 9(4), Kolkata and the order of assessment u/s/143(3) dated 25.01.2006 is placed in the paper book. Similarly Navalco Commodities Pvt. Ltd., was assessed to tax u/s 143(3) for A Y.2005-06 by I TO, Ward- 9(4), Kolkata by order dated 20.03.2007. Similarly Jewellock Trexim Pvt. Ltd was assessed to tax for A Y.2005-06 by the very same ITO- Ward- 9(3), Kolkata assessing the Assessee. In the light of the above factual position which is not disputed by the Revenue, it cannot be said that the identity of the share applicants remained not proved by the assessee. The decision of the Hon'ble Allahabad High Court as well as ITA T Kolkata Bench on which reliance was placed by the learned counsel for the assessee also supports the view that for non production of directors of the investor company for examination by the AO it cannot be held that the identity of a limited company has not been established. For the reasons given above we uphold the order of CIT(A) and dismiss the appeal of the Revenue."
25(d). In the case of ITO vs. Megasun Merchants (P.) Ltd. [IT Appeal No. 1038 (Kol) of 2015, dated 29-3-2019], it was held as follows:-
"44. To conclude, in this case on hand, the assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants, thereafter the onus shifted to AO to disprove the documents furnished by assessee, cannot be brushed aside by the AO to draw adverse view, cannot be countenanced. In the absence of any investigation, much less gathering of evidence by the Assessing Officer, we hold that an addition cannot be sustained 73 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited merely based on inferences drawn by circumstance. Applying the propositions laid down in these case laws to the facts of this case, we are inclined to uphold the order of the Ld. Commissioner of Income Tax (Appeals).Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. In the facts of the present case, both the nature & source of the share application received was fully explained by the assessee. The assessee had discharged its onus to prove the identity, creditworthiness and genuineness of the share applicants. The PAN details, bank account statements, audited financial statements and Income Tax acknowledgments were placed on AO's record. Accordingly all the three conditions as required u/s. 68 of the Act i.e. the identity, creditworthiness and genuineness of the transaction was placed before the AO and the onus shifted to AO to disprove the materials placed before him. Without doing so, the addition made by the AO is based on conjectures and surmises cannot be justified. In the facts and circumstances of the case as discussed above, no addition was warranted under Section 68 of the Act. Therefore, we confirm the order of ld CIT(A) in deleting the addition of Rs.1,60,00,000/-. 45. In the result, the appeal of the Revenue is dismissed."
25(e). Hon'ble Calcutta High Court in the case of Principal CIT vs. Sreeleathers reported in [2022] 448 ITR 332 (Cal) has held as follows:
"Section 68 of the Income-tax Act, of 1961, deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to Income- tax as the income of the assessee of that previous year. The crucial words in the provision are "the assessee offers no explanation". This would mean that the assessee offers no proper, reasonable and acceptable explanation as regards the amount credited in the books maintained by the assessee. No doubt the Act places the burden of proof on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their confirmations, the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit to be justified in referring to section 68 of the Act. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation concerning the cash credit, the Assessing Officer should consider it objectively before he decides to accept or reject it. Where the assessee furnishes full details regarding the creditors, it is up to the 74 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited Department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there have been some illegalities in the assessee's transaction.
Held, dismissing the appeal, that the allegations against the assessee were in respect of thirteen transactions. The Assessing Officer issued a show-cause notice only in respect of one of the lenders. The assessee responded to the show-cause notice and submitted the reply. The documents annexed to the reply were classified under three categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer had brushed aside these documents and in a very casual manner had stated that merely filing the permanent account number details, and balance sheet did not absolve the assessee from his responsibility of proving the nature of the transaction. There was no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee had discharged his initial burden and the burden shifted onto the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression "money laundering". Such usage was uncalled for as the allegation of money laundering is a very serious allegation and the effect of a case of money laundering under the relevant Act is markedly different. The order passed by the Assessing Officer was utterly perverse and had been rightly set aside by the Commissioner (Appeals). The Tribunal had rightly deleted the additions under section 68."
25(f). In the case of Gaurav Triyugi Singh Vs. ITO (2020) 121 taxmann.com 86 (Bombay), the Hon'ble Bombay High Court held as under :
"11. Regarding Smt. Savitri Thakur, it is seen that she had issued cheque payment of Rs. 14 lakhs dated 21-7-2009 to the Appellant. Prior to the issuance of the cheques, this amount was credited into the bank account of Smt. Savitri Thakur maintained in the State Bank of India, Rae Baraeli Branch. There were three transfers of Rs. 5 lakhs, Rs. 5 lakhs and Rs. 4 lakhs into the above account of Smt. Savitri Thakur before issue of cheques by her to the assessee. Smt. Savitri Thakur claimed that these amounts were received by her as gifts from one Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur. Shri Rajendra Bahadur Singh is the brother of Smt. Savitri Thakur and Smt. Sarojini Thakur is the sister of Smt Savitri Thakur. Shri Rajendra Bahadur Singh had gifted Rs. 5 lakhs to Smt. Savitri Thakur and Smt. Sarojini Thakur had gifted to Rs. 5 lakhs and Rs. 4 lakhs to Smt. Savitri Thakur. Result of verification and remarks by 75 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited the Department in respect of Shri Rajendra Bahadur Singh is as under:
"The donor had retired in 2003 and claims to earn tuition income of Rs. 1.5 Lacs pa. and this money has been claimed to have been hoarded and kept in cash by him over several years and he claims that out of this accumulation he deposited a sum of Rs. 5,00,000/- in cash in his bank account with SBI Rae Baraeli on 20-7-2009 and it was transferred to Savitri Thakur on 20-7-2009. The donor has not filed any income tax return."
11.1 Similarly in respect of Smt. Sarojini Thakur, result of verification and remarks by the Department is as under:
"This donor has ostensibly retired from service in 2007 and she has deposited cash of Rs. 9,00,000/-in her bank with SBI, Rae Baraeli on 18-7-2009 before issuing two cheques to Savitri Thakur. She has not filed any return of income admittedly from A.Y. 2008-09. She also claims to receive agricultural income of Rs. 1.5 lacs p.a. which is claimed to be kept in cash with her since several years."
12. At this stage, it would be apposite to advert to section 68 of the Act, relevant portion of which reads as under:
"68. Where any sum is found credited in the books of an assessee maintained from 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.
12.1 From a reading of section 68, as extracted above, it is seen that if an amount is credited in the books of an assessee maintained from 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 the relevant previous year.
13. Section 68 of the Act has received considerable attention of the courts. It has been held that it is necessary for an assessee to prove prima facie the transaction which results in a cash credit in his books of account. Such proof would include proof of identity of the creditor, capacity of such creditor to advance the money and lastly, genuineness of the transaction. Thus, in order to establish receipt of credit in cash, as per requirement of section 68, the assessee has to explain or satisfy three conditions, namely: (1) identity of the creditor, (ii) genuineness of the transaction; and (iii) credit- worthiness of the creditor.76 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024
Prasanna Purple Mobility Solutions Private Limited
14. In Pr. CIT v. Veedhata Towers (P.) Ltd. [2018] 403 ITR 415 (Bom), this court has held that assessee is only required to explain the source of the credit. There is no requirement under the law to explain the source of the source. In the instant case, there is no dispute as to the identity of the creditor. There is also no dispute about the genuineness of the transaction. That apart, the creditor has explained as to how the credit was given to the assessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspect i.e.. he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur.
15. In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required to explain the sources of the money provided by the creditor Smt. Savitri Thakur ie. Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur.
16. Considering the above, we are of the view that the Tribunal was not justified in sustaining the addition of Rs. 14 lakhs to the total income of the assessee as undisclosed cash credit under section 68 of the Act.
17. Consequently, finding of the Tribunal to the above extent is set aside. The question framed is answered in favour of the assessee and against the Revenue.
18. Appeal is accordingly allowed but with no order as to cost."
26. So far as the reliance of the Ld. DR on the decision of the Hon'ble Supreme Court in the case of "PCIT vs NRA Iron & Steel (P) Ltd." (supra) is concerned, we note that the Hon'ble Supreme Court in the said case has taken note of the observations made by the Supreme Court in the "the land mark case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) and Roshan Di Hatti v. CIT [1977] 107 ITR 938 (SC) laying down the proposition that the onus of proving the source of a sum of money found to have been received by an 77 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited assessee, is on the assessee. Once the assessee has submitted the documents relating to identity, genuineness of the transaction, and creditworthiness, then the AO must conduct an inquiry, and call for more details before invoking Section
68. If the Assessee is not able to provide a satisfactory explanation of the nature and source, of the investments made, it is open to the Revenue to hold that it is the income of the assessee, and there would be no further burden on the revenue to show that the income is from any particular source. We note that ld. Assessing Officer has not filed any concrete evidence on record which could prove the substance in discharging Revenue's onus, failing which the issue in hand can be decided only on the basis of documentary evidence available on record. Assessee is claiming that it has explained the nature and source of the alleged sum thereby proving the identity and creditworthiness of the share subscribers and genuineness of the transactions.
27. In light of the above judicial precedents and on examining the facts of the instant case and relevant finding of ld.CIT(A), we find that Rainbow Ventures Limited is a non- resident, Mauritius based company and it has furnished its Certificate of Incorporation, Tax Residency Certificate, Income Tax Return, Audited financial statements, Share Certificates, Board Resolution, Confirmation of making the investment, bank statement of the assessee reflecting receipts of the fund. It is also not in dispute that Rainbow Ventures Ltd. is not known to the assessee company because it is the holding company effective from 23.11.2010 and therefore the investors made investment in the assessee company for making profit in the long term stands proved. The funds received are 78 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited supported by the Foreign Inward Remittances Certificate. Similarly, Ambit Pragma Fund is duly registered with the SEBI a Venture Capital Fund and its Audited financial statements along with Income Tax Return, Share Certificate, Confirmation, Board Resolution, Bank statements showing the receipt of funds by the assessee stands placed on record. Trustee of Ambit Pragma Fund is Infrastructure Leasing and Financial Services (IL &FS) which is an Indian Infrastructure Development and Finance Company established in 1987 and is a major player in Projects for Highways and Metros. Reference about the serious Fraud Investigation Office mentioned by the Assessing Officer will not be of any importance in the instant case because the crises in IL &FS came in 2018 which is much later to the transaction in dispute before this Tribunal. Further, the Government of India took control of IL & FS and as per the information available on the internet, 202 out of 302 entities have been resolved and the company continues to work on settling debts and managing on going infrastructure projects. This again strengthens the contention made by the ld. Counsel for the assessee that genuine investment has been made by Ambit Pragma Fund. The details furnished by the assessee has not been controverted by the ld. Assessing Officer by placing any contrary material and is merely based on a theory that (1) how a loss making company can fetch such huge share premium; (2) how a loss making company can make such huge investment; (3) IL & FS is under serious Fraud Investigation but here we are concerned about the nature and source of the credit received by the assessee company which are duly recorded in the books and the assessee has furnished all 79 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited details to explain the nature and source of such sum and has primarily discharged its onus. Prior to 01.04.2013 section 68 of the Act assessee was required only to explain the source of such funds.
28. At the cost of repetition, we would like to again take note of ratio laid down by Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd.Vs. CIT reported in 217 CTR 195 where 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 Assessing Officer, then the department is free to proceed to reopen their individual assessments in accordance with law but this amount of share money cannot be regarded as undisclosed income under section 68 of the assessee company.
29. The requirement of proving the source of source has been brought into statute from 01.04.2013 and therefore not relevant for the year under consideration. A step further, a bare perusal of section 68 which stood prior to 01.04.2013 assessee was required only to explain the source of funds received by it and if for the sake of discussion, even the amendment brought in 01.04.2013 is considered, then also such amendment excludes the funds received from a non resident as well as funds received from a Venture Capital fund or Venture Capital Fund as referred to in clause 23FB of section 10. In other words, even the amended provisions also could not have been invoked for the funds received from a non resident company, i.e. Rainbow Ventures Limited a Mauritius based company and Ambit Pragma Fund which is SEBI 80 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited registered Venture Capital Fund Therefore, neither the provisions of section prior to 01.04.2013 could have been invoked nor the provisions subsequent to amendment from 01.04.2013 could have been invoked by the Assessing Officer in the present case. As far as the share premium charged by the assessee is concerned which primarily from the facts of the case is discernible that the assessee has supported the same by furnishing valuation report showing the future projects and the profitability of the assessee company which it will earn from making the investments and the charging of such share premium is duly supported by the valuation report but even then prior to 01.04.2013 section 56(2)(viib) of the Act was not brought in the Income Tax Act. Therefore, there are no provisions for making the addition for the alleged excess consideration received from the issue of shares over and above the Fair Market Value. Therefore, this ground of the Assessing Officer doubting the transaction of receiving the alleged share applicants money is unfounded. Lastly we also note that during the year under consideration very same share premium charged from the promotor Prasanna Patwardhan has been accepted by the Assessing Officer. Even the share application money received by Rainbow Ventures Limited in the subsequent assessment year 2012-13 has also been accepted by the Assessing Officer and no addition has been made u/s.68 of the Act which again strengthens the fact that ld. Assessing Officer was satisfied with the Identity and creditworthiness of Rainbow Ventures Limited and the genuineness of the transaction.
81 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024Prasanna Purple Mobility Solutions Private Limited
30. To conclude, we find that since the assessee has successfully demonstrated with all necessary evidence to explain the nature and source of the alleged share application money received from a non-resident company and a SEBI registered Venture Capital Fund and also proved the Identity and creditworthiness of the share applicants and the genuineness of the transaction, in our considered opinion, ld. Assessing Officer grossly erred in invoking section 68 of the Act. We accordingly fail to find any infirmity in the impugned finding of ld.CIT(A) deleting the addition u/s.68 of the Act. All the grounds of appeal raised by the Revenue are dismissed.
31. In the result, the appeal of the Revenue is dismissed and the Cross Objection of the assessee is partly allowed as per the terms indicated above.
Order pronounced on this 19th day of February, 2026.
Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पण
ु े / Pune; दिन ांक / Dated : 19th February, 2026.
Satish 82 ITA Nos.871/PUN/2023 & Co. No.03/PUN/2024 Prasanna Purple Mobility Solutions Private Limited आदे श की प्रतिलिपि अग्रेपिि / Copy of the Order forwarded to :
1. अपील र्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The Pr. CIT concerned.
4. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, "B" बेंच, पुणे / DR, ITAT, "B" Bench, Pune.
5. ग र्ड फ़ इल / Guard File.
आिे श नुस र / BY ORDER, // True Copy // Assistant Registrar, आयकर अपीलीय अधिकरण, पुणे / ITAT, Pune.